Who Is Eligible
Section 6166(a) provides –
§6166. Extension of time for payment of estate tax where estate consists largely of interest in closely held business
(a) 5-year deferral; 10-year installment payment
(1) In general
If the value of an interest in a closely held business which is included in determining the gross estate of a decedent who was (at the date of his death) a citizen or resident of the United States exceeds 35 percent of the adjusted gross estate, the executor may elect to pay part or all of the tax imposed by section 2001 in 2 or more (but not exceeding 10) equal installments.
(2) Limitation
The maximum amount of tax which may be paid in installments under this subsection shall be an amount which bears the same ratio to the tax imposed by section 2001 (reduced by the credits against such tax) as-
(A) the closely held business amount, bears to
(B) the amount of the adjusted gross estate.
(3) Date for payment of installments
If an election is made under paragraph (1), the first installment shall be paid on or before the date selected by the executor which is not more than 5 years after the date prescribed by section 6151(a) for payment of the tax, and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment.
For an estate to be eligible to make a section 6166 election, the following facts must exist:
| 1. | The decedent must have been a citizen or resident of the United States on the date of death. |
| 2. | The decedent's gross estate must include the value of a closely held business interest as defined in section 6166. |
| 3. | The value of that closely held business interest must exceed 35% of the adjusted gross estate defined in section 6166(b)(6). |
| 4. | The estate tax return must be timely filed. |
| 5. | The estate must file a notice of election with that timely filed return, or must timely perfect a protective election that was filed with the return, or must timely file a notice of election if a deficiency is assessed and the return was filed without a section 6166 election or a protective section 6166 election. |
Overview
Determining if a decedent was a citizen or a resident of the United States for estate tax purposes is not straightforward if the decedent was a resident of a possession of the United States at time of death. Section 2209 provides:
§2209. Certain residents of possessions considered nonresidents not citizens of the United States
A decedent who was a citizen of the United States and a resident of a possession thereof at the time of his death shall, for purposes of the tax imposed by this chapter, be considered a "nonresident not a citizen of the United States" within the meaning of that term wherever used in this title, but only if such person acquired his United States citizenship solely by reason of (1) his being a citizen of such possession of the United States, or (2) his birth or residence within such possession of the United States.
Effective Date
Section applicable with respect to estates of decedents dying after Sept. 14, 1960, see section 4(e)(2) of Pub. L. 86–779, set out as an Effective Date of 1960 Amendment note under section 2106 of this title.
Section 2208 provides:
§2208. Certain residents of possessions considered citizens of the United States
A decedent who was a citizen of the United States and a resident of a possession thereof at the time of his death shall, for purposes of the tax imposed by this chapter, be considered a "citizen" of the United States within the meaning of that term wherever used in this title unless he acquired his United States citizenship solely by reason of (1) his being a citizen of such possession of the United States, or (2) his birth or residence within such possession of the United States.
Effective Date
Section applicable to estates of decedents dying after Sept. 2, 1958, see section 102(d) of Pub. L. 85–866, set out as an Effective Date of 1958 Amendment note under section 2014 of this title.
See PLR 200848014, where a decedent resident of Puerto Rico was considered a nonresident not a citizen of the United States. In that case the decedent had been born in Puerto Rico and was a resident of Puerto Rico at his death, acquiring his United States citizenship solely by virtue of his birth in Puerto Rico.
As a companion Ruling, see PLR 201924009, where a taxpayer acquired his citizenship solely by reason of his residence within a United States possession and not on account of his birth. Accordingly, he was a non-citizen for estate and gift transfer taxes, including Generation-Skipping Transfer taxes.
Also see Commissioner v. Estate of Travis L. Sanders, an income tax case that explores the bona fide residency question with regard to a putative resident of the U.S. Virgin Islands, and PLR 7612220070A.
However, these rules do not apply to a United States citizen who acquired citizenship by birth within the United States (defined as the 50 states and the District of Columbia), who then moved to a U.S. possession and died a resident of that possession; in such case, the decedent is considered a citizen of the United States and a regular estate tax return, Form 706 would be filed under the normal rules of Federal estate taxation.
Citizenship or lack thereof cannot be deduced simply from the fact that a decedent was a resident of a U.S. possession at the time of death.
Closely Held Business
Neither the IRS nor the courts have provided a baseline definition of a closely held business. For purposes of section 6166, publicly-traded stock in a corporation will qualify as a closely held business if 20% in value (after valuation discounts) of the voting stock in the corporation is included in the decedent’s gross estate.