Section 6166(g)(1)(A), Comment 1:  The 50% threshold amount relates only to the closely held business interest included in the gross estate. It does not relate to the value of the entire business, which might include a portion in which the decedent had no interest at all (e.g., at the time immediately before death the decedent owned less than 100% of a closely held business). It also does not apply to the value of passive assets owned by a business that were not included in the closely held business value qualifying under section 6166(a)(1).

Historical Note:  Reg. section 20.6166A-3(d) provides -

(d) Withdrawal of funds from business. (1) In any case where money or other property is withdrawn from the trade or business and the aggregate withdrawals of money or other property equal or exceed 50 percent of the value of the trade or business, the privilege of paying the tax in installments terminates and the whole of the unpaid portion of the tax which is payable in installments becomes due and shall be paid upon notice and demand from the district director. The withdrawals of money or other property from the trade or business must be in connection with the interest therein included in the gross estate, and must equal or exceed 50 percent of the value of the entire trade or business (and not just 50 percent of the value of the interest therein included in the gross estate). The withdrawal must be a withdrawal of money or other property which constitutes “included property” within the meaning of that term as used in paragraph (d) of §20.2032-1. The provisions of this section do not apply to the withdrawal of money or other property which constitutes “excluded property” within the meaning of that term as used in such paragraph (d).

Reg. 20.6166A-3(d)(3), Example 2, provides -

Example (2). The decedent's 40-percent interest in the XYZ partnership constituted an interest in a closely held business. Since the decedent's interest in the closely held business amounted to less than 50 percent of the value of the business, money or other property equaling or exceeding 50 percent of the value of the business could not be withdrawn from the decedent's interest in the business. Therefore, withdrawals of money or other property from this trade or business never would accelerate the payment of the tax under the provisions of this paragraph.

Public Law 97-34, at Section 422(c)(1), effective for estates of decedents dying after December 31, 1981, amended section 6166(g)(1)(A) to read as stated at the top above, such that a disposition of 50% or more of the business interest included in the gross estate (and not 50% or more of the entire business value) will cause acceleration of the balance of tax that was extended under a section 6166 election. Today, withdrawals of money or other property totaling 50% or more of a 40% business interest included in a decedent's estate would accelerate payment of the balance of tax extended under a section 6166 election.

Reg. sections 20.6166A-1 through 20.6166A-4 were published in 1960. In general, any provisions in Reg. sections 20.6166A-1 through 20.6166A-4 that are inconsistent with the statutes existing today are not to be given effect. 

Section 6166(g)(1)(A), Comment 2:  Also see our discussion about why the passive asset rules of subsection 6166(b)(9) do not apply for purposes of the 35% test when qualifying section 6166 business interests are sold, withdrawn, or otherwise disposed of shortly after date of death and before the estate tax return and section 6166 Notice of Election have been filed.

Section 6166(g)(1)(A), Comment 3:  Further, if passive assets have properly been excluded from the value of the section 6166 business interest included in the Decedent's gross estate determined immediately before death pursuant to sections 6166(b)(2)(A) and 6166(b)(9), then the post-death sale of those passive assets are not to be included in determining whether the aggregate dispositions or withdrawals from the 6166 business equal or exceed the 50% acceleration threshold amount of subsection 6166(g)(1)(A) because they constitute "excluded property" within the meaning of Reg. section 20.6166A-3(d) as noted above.