Section 6166(k)(4) provides:
(4) Interest
For provisions relating to interest on tax payable in installments under this section, see subsection (j) of section 6601.
Section 6601(j) provides:
(j) 2-percent rate on certain portion of estate tax extended under section 6166
(1) In general
If the time for payment of an amount of tax imposed by chapter 11 is extended as provided in section 6166, then in lieu of the annual rate provided by subsection (a)—
(A) interest on the 2-percent portion of such amount shall be paid at the rate of 2 percent, and
(B) interest on so much of such amount as exceeds the 2-percent portion shall be paid at a rate equal to 45 percent of the annual rate provided by subsection (a). For purposes of this subsection, the amount of any deficiency which is prorated to installments payable under section 6166 shall be treated as an amount of tax payable in installments under such section.
(2) 2-percent portion
For purposes of this subsection, the term ‘‘2- percent portion’’ means the lesser of—
(A) (i) the amount of the tentative tax which would be determined under the rate schedule set forth in section 2001(c) if the amount with respect to which such tentative tax is to be computed were the sum of $1,000,000 and the applicable exclusion amount in effect under section 2010(c), reduced by
(ii) the applicable credit amount in effect under section 2010(c), or
(B) the amount of the tax imposed by chapter 11 which is extended as provided in section 6166.
(3) Inflation adjustment
In the case of estates of decedents dying in a calendar year after 1998, the $1,000,000 amount contained in paragraph (2)(A) shall be increased by an amount equal to—
(A) $1,000,000, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting ‘‘calendar year 1997’’ for ‘‘calendar year 2016’’ in subparagraph (A)(ii) thereof. [Amended by section 11002 (d)(JJ) of the Tax Cuts and Jobs Act, PL 115-97. Before its amendment, sub-paragraph (B) read:
(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting ‘‘calendar year 1997’’ for ‘‘calendar year 1992’’ in subparagraph (B) thereof. ]
If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the next lowest multiple of $10,000.
(4) Treatment of payments
If the amount of tax imposed by chapter 11 which is extended as provided in section 6166 exceeds the 2-percent portion, any payment of a portion of such amount shall, for purposes of computing interest for periods after such payment, be treated as reducing the 2-percent portion by an amount which bears the same ratio to the amount of such payment as the amount of the 2-percent portion (determined without regard to this paragraph) bears to the amount of the tax which is extended as provided in section 6166.
Reg. Section 20.6166-1(f) provides:
(f) Rule for computing interest. Section 6601(j) provides a special 4 percent interest rate for the amount of tax (including deficiencies) which is to be paid in installments under section 6166. This special interest rate applies only to that amount of tax which is to be paid in installments and which does not exceed the limitation of section 6601(j)(2). Where payment of a greater amount of tax than is subject to section 6601(j)(2) is extended under section 6166, each installment is deemed to be comprised of both tax subject to the 4 percent interest rate and tax subject to the rate otherwise prescribed by section 6621. The percentage of any installment subject to the special 4 percent rate is equal to the percentage of the total tax payable in installments which is subject to the 4 percent rate. Where an election is made under the provisions of paragraphs (b) or (c) (1) of this section, the 4 percent rate applies from the date on which the estate tax was originally due to be paid. If only a protective election is made, section 6601(j) applies to the amount which is to be paid in installments, limited to the amount of any deficiency, from the due date for payment of estate tax. After the date upon which the section 6166 election is made final, section 6601(j) applies to the entire amount to be paid in installments.
| Section 6166(k)(4), Comment 1: See section 6601 for the legislative history affecting section 6601(j). For dates of death ending on December 31, 1997, the section 6601(j)(2) special interest rate was 4% and the method of calculating the dollar amount of the 4% portion differed from the method for calculating the 2% amount. Furthermore, §503(d)(2) of the Taxpayer Relief Act of 1997 permitted estates of decedents dying before 1998 to elect to come under the new 2% interest and 45% of R% interest provisions from the effective date of their election forward. Many such estates made that election. For those estates, interest on the tax deferred under §6166 before the effective election date was calculated at the 4% compounded rate, which was deductible in full on Schedule J of the estate tax return. Interest began accruing at the new 2% rate on the existing old-law 4% amount, and at 45% of R% on the balance of deferred tax, from the effective election date forward and none of such interest was deductible on Schdedule J pursuant to new §2053(c)(1)(D). See Revenue Procedure 98-15. |
| Section 6166(k)(4), Comment 2: There are 4 types of section 6166 deferral elections. Two of them - §6166(b)(7) and §6166(b)(8) - reduce the §6601(j)(2) 2% amount to zero, as described below. |
Section 6166(b)(7) provides:
(7) Partnership interests and stock which is not readily tradable
(A) In general
If the executor elects the benefits of this paragraph (at such time and in such manner as the Secretary shall by regulations prescribe), then-
(i) for purposes of paragraph (1)(B)(i) or (1)(C)(i) (whichever is appropriate) and for purposes of subsection (c), any capital interest in a partnership and any non-readily-tradable stock which (after the application of paragraph (2)) is treated as owned by the decedent shall be treated as included in determining the value of the decedent's gross estate,
(ii) the executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a), and
(iii) for purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero.
(B) Non-readily-tradable stock defined
For purposes of this paragraph, the term "non-readily-tradable stock" means stock for which, at the time of the decedent's death, there was no market on a stock exchange or in an over-the-counter market.
Section 6166(b)(8)(A)(iii) similarly provides:
(8) Stock in holding company treated as business company stock in certain cases
(A) In general
If the executor elects the benefits of this paragraph, then-
(i) Holding company stock treated as business company stock
For purposes of this section, the portion of the stock of any holding company which represents direct ownership (or indirect ownership through 1 or more other holding companies) by such company in a business company shall be deemed to be stock in such business company.
(ii) 5-year deferral for principal not to apply
The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a).
(iii) 2-percent interest rate not to apply
For purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero.
. . . . . . . . . . . . .
| Section 6166(k)(4), Comment 3: The §6601(j)(2) dollar amount differs from year to year, and our table shows how the dollar amount of the §6601(j)(2) portion drawing 2% compound interest is calculated each year from 1998 to date pursuant to section 6601(j)(3). |
| Section 6166(k)(4), Comment 4: If the total tax deferred under §6166 at the time the return is filed is equal to or less than the §6601(j)(2) 2% portion, the entire amount of deferred tax draws interest at the 2% rate. Section 6601(j)(4) provides that any payments of tax will be applied prorata to the 2% portion and the 45% of R% portion. An estate cannot tender payments to be applied against just the 45% of R% portion. |
| Section 6166(k)(4), Comment 5: The base amounts of deferred tax upon which interest is calculated at 2% and 45% of R% rates will automatically decrease as each installment due date passes, whether or not the tax installment is actually paid. If the installment is not paid when due (e.g. a one-year extension of time to pay the installment under §6161 has been obtained), the 2% and 45% of R% bases upon which future interest is calculated will still be reduced by the amount that should have been paid; there is no additional 2% or 45% of R% interest rate compounding on past-due installments (or past-due interest) beyond their installment payment due dates. An unpaid installment begins drawing §6621 regular underpayment interest from its installment payment due date forward until it is paid. See Revenue Ruling 89-32, 1989-1 C.B. 307. |