Notice 2020-23 Computation Example 2, Comment 1:  Interest computed under section 6621 is not governed by section 2053(c)(1)(D), which applies only to interest computed under section 6601. Accordingly, the total section 6621 interest due Oct-13-2020 is allowable as a new estate tax administration expense deduction on Schedule J, and the estate can file a supplemental estate tax return to recompute the estate tax and all section 6166 interest and installment payments from the return due date forward.

Notice 2020-23 Computation Example 2, Comment 2:  The section 6166(g)(3) and 6651(a)(2) penalties, and the section 6621 interest, are considered part of the installment that was due Jul-15-2020. Failure to pay any part of this amount would constitute a failure to pay the installment due Jul-15-2020, which would cause acceleration under section 6166(g)(3) if not paid within 6 months of Jul-15-2020.

In order for such acceleration to occur, however, the IRS must adhere to the section 6166(g)(3) notice requirements in the Regulations. In the past there were instances where, for whatever reasons, IRS had not completed the notice requirements for several years. The section 6166 special interest rates on the unpaid deferred tax continued to accrue until the final procedural step had been taken by IRS, and only then was the installment election able to be terminated for failure to pay an installment.

Notice 2020-23 Computation Example 2, Comment 3:   As shown above, the section 6166(g)(3) penalty is 5% per month of the total amount due on the installment due date. The maximum penalty is 30%, or 6 months at 5% per month. If an estate pays the installment, penalties, and interest within 6 months of the installment due date, the section 6166 election is preserved.

However, if an estate fails to pay the penalties and interest (and the installment itself) within 6 months, the section 6166 election will be terminated under section 6166(g)(3) and the unpaid portion of the tax payable in installments shall be paid upon notice and demand. 

When the installment election is thereby terminated, the previously assessed section 6166(g)(3) penalties will automatically be abated by IRS. Such penalties are no longer due from the estate because the section 6166 election has been terminated. A section 6166(g)(3) penalty is payable only if the section 6166 installment election is preserved.