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Section 6601(j) Example 5 - Date of Death May-10-2016
§6166(a) Regular 14-Year Election
IRS Examination Deficiency
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| In this example the return is filed on the extended return due date 6 months after the statutory return due date. An IRS field examination is completed in June 2019 with a deficiency. The estate agrees with the IRS conclusion and submits a catch-up payment under the revised section 6166 election directly to the examining IRS Estate Tax Attorney. | |||
| • | Form 4768 is filed on the return due date with a payment of $1,750,000 tax that is estimated will not be deferred under a §6166 election. An automatic 6-month extension of time to file and a separate one-year extension of time to pay are requested. | ||
| • | The return is filed 6 months later with a regular §6166(a) 14-year election. A maximum deferral election is made. No payment is due with the return. The non-deferred tax is $1,644,858.43, which results in an overpayment of non-deferred tax. | ||
| • | Pursuant to the §6166 maximum deferral election, the overpayment of $105,141.57 is treated as a prepayment of the tax payable in installments. Cincinnati Campus sets up a tentatively allowed §6166 billing account with these figures, which is subject to the figures finally determined on an IRS examination. | ||
| • | An IRS field examination is completed agreed on June 20, 2019. There is a deficiency. Instead of an overpayment of non-deferred tax on the return due date there is now an underpayment of $912,628.62. A §6166 "catch-up" payment is remitted to the IRS examining Estate Tax Attorney together with the signed waiver, Form 890, on this date. | ||
| • | Anniversary date interest payments before and after the IRS examination are timely made in the amounts billed by Cincinnati Campus. The post-examination annual bills reflect the examination adjustments and the catch-up payment. | ||
| • | The computations in this example are run out through the 6th anniversary date. | ||
| • | State death tax is paid in full on two dates: First, on the return due date as then computed; and, second, the additional amount due the state based on the IRS deficiency computation is paid to the state on the date the IRS examination is completed. | ||
| • | Deductions are allowed in the deficiency computation for state interest accrued on the unpaid portion of state estate tax and Federal interest on the unpaid portion of Federal estate tax not deferred under §6166, as well as interest on the unpaid portions of the recalculated interest payments due in February 2018 and February 2019. | ||
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Section 6601(j) - Example 5
Report of Estate Tax Examination Changes
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| Form 1273 | ||||||
| Estate of: Decedent SSN: 999-99-9999V D/D: May-10-2016 | ||||||
| 1 | Tentative Taxable Estate Shown on Return or Previously Adjusted | 24,250,000.00 | ||||
| 2 | Increase/Decrease in Tentative Taxable Estate | 5,969,099.31 | ||||
| 3a | Tentative Taxable Estate as Corrected (Line 1 plus/minus Line 2) | 30,219,099.31 | ||||
| Shown on Return/ As Previously Assessed | As Corrected | |||||
| 3b | State Death Tax Deduction | 3,344,000.00 | 4,299,055.89 | |||
| 3c | Taxable Estate as Corrected (Line 3a - Line 3b) | 20,906,000.00 | 25,920,043.42 | |||
| 4 | Adjusted taxable gifts | 0.00 | 0.00 | |||
| 5 | Total | 20,906,000.00 | 25,920,043.42 | |||
| 6 | Tentative Tax | 8,308,200.00 | 10,313,817.37 | |||
| 7 | Aggregate Gift Tax Payable (After Dec. 31, 1976) | 0.00 | 0.00 | |||
| 8 | Tax Before Unified Credit (Line 6 - Line 7) | 8,308,200.00 | 10,313,817.37 | |||
| 9a | Basic Exclusion Amount | 5,450,000.00 | 5,450,000.00 | |||
| 9b | Deceased Spousal Unused Exclusion (DSUE) | 0.00 | 0.00 | |||
| 9c | Applicable Exclusion Amount (Line 9a + Line 9b) | 5,450,000.00 | 5,450,000.00 | |||
| 9d | Applicable Credit Amount (From Table A, using Line 9c) | 2,125,800.00 | 2,125,800.00 | |||
| 10 | Adjustment to Unified Credit | 0.00 | 0.00 | |||
| 11 | Allowable Applicable Credit Amount | 2,125,800.00 | 2,125,800.00 | |||
| 12 | Tax Before SDTC (Line 8 - Line 11)*Cannot be < 0 | 6,182,400.00 | 8,188,017.37 | |||
| 13 | State Death Tax Credit | 0.00 | 0.00 | |||
| Tentatively Allowed | ||||||
| Submit Evidence by | ||||||
| 14 | Net Tax Post State Death Tax Credit (Line 12 - Line 13) | 6,182,400.00 | 8,188,017.37 | |||
| 15 | Gift Tax Credit (Pre-1977 Gifts) | 0.00 | 0.00 | |||
| 16 | Foreign Death Tax Credit (Statutory) | 0.00 | 0.00 | |||
| 17 | Prior Transfer Credit | 0.00 | 0.00 | |||
| 18 | Foreign Death Tax Credit (Treaty)/Canadian Marital Credit | 0.00 | 0.00 | |||
| 19 | Total Credits (Sum of Lines 15 through 18) | 0.00 | 0.00 | |||
| 20 | Net Estate Tax Payable | 6,182,400.00 | 8,188,017.37 | |||
| 21 | Generation-Skipping Transfer Taxes (Schedule R, Part 2, Line 12) | 0.00 | 0.00 | |||
| 22 | Increased Estate Tax (Section 4980A, Schedule S) | 0.00 | 0.00 | |||
| 23 | Total Federal Estate Tax (Sum of Lines 20 through 22) | 6,182,400.00 | 8,188,017.37 | |||
| 24 | Total Transfer Tax Previously Assessed | 6,182,400.00 | ||||
| 25 | Total Transfer Tax Increase/Decrease (Line 23 - Line 24) | 2,005,617.37 | ||||
| 26 | Penalties Previously Assessed - Code(s) | 0.00 | ||||
| 27 | Penalties as Corrected - Code(s) | 0.00 | ||||
| 28 | Net Penalties Increase/Decrease (Line 27 - Line 28) | 0.00 | ||||
| 29 | Net Tax and Penalties Payable Increase/Decrease (Line 25 + Line 28) | 2,005,617.37 | ||||
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Section 6601(j) - Example 5
Line Adjustment - Estate Tax
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| Form 6180 | ||||
| Estate of: Decedent SSN: 999-99-9999V D/D: May-10-2016 | ||||
| Shown on Return/ As Previously Assessed | Change | As Corrected | ||
| 1 | Schedule A - Real Estate | 1,250,000.00 | 0.00 | 1,250,000.00 |
| 2 | Schedule B - Stocks and Bonds | 2,700,000.00 | 1,000,000.00 | 3,700,000.00 |
| 3 | Schedule C - Mortgages, Notes, and Cash | 1,000,000.00 | 575,000.00 | 1,575,000.00 |
| 4 | Schedule D - Life Insurance | 2,500,000.00 | 0.00 | 2,500,000.00 |
| 5 | Schedule E - Jointly Owned Property | 750,000.00 | 0.00 | 750,000.00 |
| 6 | Schedule F - Other Miscellaneous Property | 21,800,000.00 | 5,000,000.00 | 26,800,000.00 |
| 7 | Schedule G - Transfers During Decedent's Life | 0.00 | 0.00 | 0.00 |
| 8 | Schedule H - Powers of Appointment | 0.00 | 0.00 | 0.00 |
| 9 | Schedule I - Annuities | 0.00 | 0.00 | 0.00 |
| 10 | Gross estate | 30,000,000.00 | 6,575,000.00 | 36,575,000.00 |
| 11 | Schedule U - Qualified Conservation Easement Exclusion | 0.00 | 0.00 | 0.00 |
| 12 | Gross Estate less exclusion | 30,000,000.00 | 6,575,000.00 | 36,575,000.00 |
| 13 | Schedule J - Funeral and Administration Expenses | 2,489,750.00 | 605,900.69 | 3,095,650.69 |
| 14 | Schedule K - Debts of Decedent | 260,250.00 | 0.00 | 260,250.00 |
| 15 | Schedule K - Mortgages | 0.00 | 0.00 | 0.00 |
| 16 | Total of Schedules J and K | 2,750,000.00 | 605,900.69 | 3,355,900.69 |
| 17 | Allowable deductions from Schedules J and K | 2,750,000.00 | 605,900.69 | 3,355,900.69 |
| 18 | Schedule L - Net Losses During Administration | 0.00 | 0.00 | 0.00 |
| 19 | Schedule L - Expenses on Property Not Subject to Claims | 0.00 | 0.00 | 0.00 |
| 20 | Total - Lines 17, 18, and 19 | 2,750,000.00 | 605,900.69 | 3,355,900.69 |
| 21 | Schedule M - Marital Deduction | 0.00 | 0.00 | 0.00 |
| 22 | Schedule O - Charitable Deduction | 3,000,000.00 | 0.00 | 3,000,000.00 |
| 23 | ESOP Deduction | 0.00 | 0.00 | 0.00 |
| 24 | Schedule T - QFOBI Deduction | 0.00 | 0.00 | 0.00 |
| 25 | Total allowable deductions | 5,750,000.00 | 605,900.69 | 6,355,900.69 |
| 26 | Tentative taxable estate | 24,250,000.00 | 5,969,099.31 | 30,219,099.31 |
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Section 6601(j) - Example 5
Figures After the IRS Field Examination
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| 1 | Gross estate | 36,575,000.00 | |
| 2 | Schedules J, K, and L deductions (§2053 and §2054) | 3,355,900.69 | |
| 2a | Expenses included in line 2 amount but which are not includible in the §6166(b)(6) adjusted gross estate computation, and interest allowed as a deduction | (155,900.69) | |
| 2b | Expenses not included in line 2 amount but which are includible in the §6166(b)(6) adjusted gross estate computation | 0.00 | |
| 2c | Deductible Federal interest accrued on return filing date | 18,282.27 | |
| 2d | Deductible state interest accrued on return filing date | 14,211.23 | |
| 2e | Total adjustments to line 2 (sum of lines 2b, 2c, and 2d less line 2a) | (123,407.19) | |
| 3 | Adjusted Schedules J, K, and L §2053 and §2054 deductions (line 2 plus line 2e) | 3,232,493.50 | |
| 4 | §6166(b)(6) adjusted gross estate (line 1 less line 3) | 33,342,506.50 | |
| 5 | Closely held business value | 22,500,000.00 | |
| 6 | §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments (line 5 divided by line 4, rounded to 6 decimal places) | 0.674814 | |
| 7 | Net estate tax | 8,188,017.37 | |
| 8a | Tax paid on the return due date | 1,750,000.00 | |
| 8b | Tax paid on the return filing date | 0.00 | |
| 8c | Unpaid balance of tax (line 7 less lines 8a and 8b) | 6,438,017.37 | |
| 9 | Maximum amount of tax payayble in installments (line 6 times line 7) | 5,525,388.75 | |
| 10 | Tax payable in installments pursuant to the §6166 notice of election (maximum deferral election) | 5,525,388.75 | |
| 11 | 2% portion of tax payayble in installments (lesser of $592,000 or line 10) | 592,000.00 | |
| 12 | 45% of R% portion of tax payable in installments (line 10 less line 11) | 4,933,388.75 | |
| 11 | Tax not payable in installments and due on return due date (line 7 less line 10) | 2,662,628.62 | |
| 12 | Payment on return due date | 1,750,000.00 | |
| 13 | Underpayment or (Overpayment) of tax payable in installments (line 11 less line 12) | 912,628.62 | |
| 14 | Prepayment of the tax payable in installments | 0.00 | |
| Section 6601(j) Example 5, Comment 1: Line 2a removes the total deductions allowed for interest on Federal and state estate tax, to yield total "Schedules J,K, and L deductions before interest". This follows the convention used by IRS Estate Tax Attorneys for estate tax examination computation purposes. Interest accrued on the return filing date, which is includible in the §6166(b)(6) adjusted gross estate computation, is added back on lines 2c and 2d and would be shown as separate line item entries on the IRS examination report Form 886-A for Schedule J. |
| Section 6601(j) Example 5 - Payment History Through the 6th Anniversary Date | |||||||
| Date | Payment | Undesignated | Designated As Tax | Designated As Interest | Designated As Penalty | Miscellaneous | |
| Due | Feb-10-2017 | 1,750,000.00 | 0.00 | 1,750,000.00 | 0.00 | 0.00 | 0.00 |
| 1 | Aug-10-2017 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| 2 | Feb-10-2018 | 81,682.26 | 0.00 | 0.00 | 81,682.26 | 0.00 | 0.00 |
| 3 | May-25-2018 | 100,000.00 | 100,000.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| 4 | Feb-10-2019 | 57,245.63 | 0.00 | 0.00 | 57,245.63 | 0.00 | 0.00 |
| 5 | Jun-20-2019 | 964,844.04 | 0.00 | 909,615.82 | 55,228.22 | 0.00 | 0.00 |
| 6 | Sep-06-2019 | 150,000.00 | 0.00 | 150,000.00 | 0.00 | 0.00 | 0.00 |
| 7 | Feb-10-2020 | 100,351.25 | 0.00 | 0.00 | 100,351.25 | 0.00 | 0.00 |
| 8 | Feb-10-2021 | 98,835.13 | 0.00 | 0.00 | 98,835.13 | 0.00 | 0.00 |
| 9 | Feb-10-2022 | 501,343.39 | 0.00 | 402,538.87 | 98,804.52 | 0.00 | 0.00 |
| 10 | Feb-10-2023 | 643,944.37 | 0.00 | 552,538.88 | 91,405.49 | 0.00 | 0.00 |
| Totals | 4,448,246.07 | 100,000.00 | 3,764,693.57 | 583,552.50 | 0.00 | 0.00 | |
| Section 6601(j) Example 5, Comment 2: The annual Feb-10 anniversary date payments were paid in response to billing notices from Cincinnati Campus. The voluntary payments in May 2018 and September 2019 were made at the estate's discretion. The catch-up payment made to the examining Estate Tax Attorney on June 20, 2019 was calculated to pay the balance of non-deferred tax, increased interest that was due in February 2018 and 2019, and regular underpayment rate interest thereon from their respective due dates through June 20, 2019. The Notebook application used by IRS Estate Tax Attorneys automatically computes a Schedule J deduction for the allowable Federal interest deduction in section 6166 deficiency computations. |
| Section 6601(j) Example 5 - Application of Payments Through the 6th Anniversary Date | ||||||
| Period | Date | Tax Balance Due | Total Payment | Interest Accrued | Interest Paid | Tax Paid |
| Due Date | Feb-10-2017 | 8,188,017.37 | 1,750,000.00 | 0.00 | 0.00 | 1,750,000.00 |
| 1 | Aug-10-2017 | 6,438,017.37 | 0.00 | 68,414.25 | 0.00 | 0.00 |
| 2 | Feb-10-2018 | 6,438,017.37 | 81,682.26 | 138,804.65 | 81,682.26 | 0.00 |
| 3 | May-25-2018 | 6,438,017.37 | 100,000.00 | 96,987.20 | 96,987.20 | 3,012.80 |
| 4 | Feb-10-2019 | 6,435,004.57 | 57,245.63 | 98,826.33 | 57,245.63 | 0.00 |
| 5 | Jun-20-2019 | 6,435,004.57 | 964,844.04 | 91,188.72 | 55,228.22 | 909,615.82 |
| 6 | Sep-06-2019 | 5,525,388.75 | 150,000.00 | 21,688.66 | 0.00 | 150,000.00 |
| 7 | Feb-10-2020 | 5,375,388.75 | 100,351.25 | 100,351.25 | 100,351.25 | 0.00 |
| 8 | Feb-10-2021 | 5,375,388.75 | 98,835.13 | 98,835.13 | 98,835.13 | 0.00 |
| 9 | Feb-10-2022 | 5,375,388.75 | 501,343.39 | 98,804.52 | 98,804.52 | 402,538.87 |
| 10 | Feb-10-2023 | 4,972,849.88 | 643,944.37 | 91,405.49 | 91,405.49 | 552,538.88 |
| Section 6601(j) Example 5, Comment 3: Interest is accrued but not paid on the return filing date of Aug-10-2017. Interest on tax deferred under §6166 ($50,131.98) on the filing date is not payable until the first anniversary date, plus additional interest. Interest on the unpaid balance of non-deferred tax ($18,282.27) was due then but was not paid (with additional interest) until the completion of the IRS field examination, when a catch-up payment of $964,844.04 was tendered on Jun-20-2019. The balance of accrued but unpaid interest on Jun-20-2019 was computed on tax deferred under §6166, which was not payable until the next anniversary date. |
| Section 6601(j) Example 5, Comment 4: The original amount of unpaid non-deferred tax was $912,628.62. The estate made a voluntary undesignated payment of $100,000 on May-25-2018. The total accrued interest due on that date was $96,987.20. The $100,000 was applied first against the total accrued interest and the balance of $3,012.80 was applied against the outstanding balance of non-deferred tax, reducing the balance forward to $909,615.82, which was paid on Jun-20-2019. |
| Section 6601(j) Example 5, Comment 5: The interest of $18,282.27 accrued on the unpaid non-deferred Federal estate tax on the return filing date is included in the §6166(b)(6) adjusted gross estate computation, as is the interest of $14,211.23 accrued on the unpaid state estate tax on that date. |
| Section 6601(j) Example 5, Comment 6: The Period 9 tax payment of $402,538.87 reflects the credit flowing forward from the $150,000 voluntary designated tax payment on Sep-06-2019, which occurred after the IRS examination was completed and the catch-up payment then due had been paid. |
| Section 6601(j) Example 5 - Determine the §6601(j)(4) 2% and 45% of R% Factors | |||||
| 2% portion of deferred tax | 592,000.00 | = | 0.107141783 | The 2% factor | |
| Total amount of deferred tax | 5,525,388.75 | ||||
| 45% of R% portion of deferred tax | 4,933,388.75 | = | 0.892858217 | The 45% of R% factor | |
| Total amount of deferred tax | 5,525,388.75 | ||||
| Section 6601(j) Example 5 - Apply the §6601(j)(4) Factors to the §6166 Tax Payments Received | ||||||
| Period | Date | Tax Payment | Tax Not Deferred Under §6166 | Payment of Tax Deferred Under §6166 | 2% portion of payment | 45% of R% portion of payment |
| Due Date | Feb-10-2017 | 1,750,000.00 | 1,750,000.00 | 0.00 | 0.00 | 0.00 |
| 1 | Aug-10-2017 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| 2 | Feb-10-2018 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| 3 | May-25-2018 | 3,012.80 | 3,012.80 | 0.00 | 0.00 | 0.00 |
| 4 | Feb-10-2019 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| 5 | Jun-20-2019 | 909,615.82 | 909,615.82 | 0.00 | 0.00 | 0.00 |
| 6 | Sep-06-2019 | 150,000.00 | 0.00 | 150,000.00 | 16,071.27 | 133,928.73 |
| 7 | Feb-10-2020 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| 8 | Feb-10-2021 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| 9 | Feb-10-2022 | 402,538.87 | 0.00 | 402,538.87 | 43,128.73 | 359,410.14 |
| 10 | Feb-10-2023 | 552,538.88 | 0.00 | 552,538.88 | 59,200.00 | 493,338.88 |
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Section 6601(j) - Example 5
Determine the Annual Installment Interest Computation Base After Applying §6601(j)(4)
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| Date | Beginning 2% deferred tax base | Allocated payment per §6601(j)(4) | 2% tax base forward for computing interest | Beginning 45% of R% deferred tax base | Allocated payment per §6601(j)(4) | 45% of R% tax base forward for computing interest | |
| Due | Feb-10-2017 | 592,000.00 | 0.00 | 592,000.00 | 4,933,388.75 | 0.00 | 4,933,388.75 |
| 1 | Aug-10-2017 | 592,000.00 | 0.00 | 592,000.00 | 4,933,388.75 | 0.00 | 4,933,388.75 |
| 2 | Feb-10-2018 | 592,000.00 | 0.00 | 592,000.00 | 4,933,388.75 | 0.00 | 4,933,388.75 |
| 3 | May-25-2018 | 592,000.00 | 0.00 | 592,000.00 | 4,933,388.75 | 0.00 | 4,933,388.75 |
| 4 | Feb-10-2019 | 592,000.00 | 0.00 | 592,000.00 | 4,933,388.75 | 0.00 | 4,933,388.75 |
| 5 | Jun-20-2019 | 592,000.00 | 0.00 | 592,000.00 | 4,933,388.75 | 0.00 | 4,933,388.75 |
| 6 | Sep-06-2019 | 592,000.00 | 16,071.27 | 575,928.73 | 4,933,388.75 | 133,928.73 | 4,799,460.02 |
| 7 | Feb-10-2020 | 575,928.73 | 0.00 | 575,928.73 | 4,799,460.02 | 0.00 | 4,799,460.02 |
| 8 | Feb-10-2021 | 575,928.73 | 0.00 | 575,928.73 | 4,799,460.02 | 0.00 | 4,799,460.02 |
| 9 | Feb-10-2022 | 575,928.73 | 43,128.73 | 532,800.00 | 4,799,460.02 | 359,410.14 | 4,440,049.88 |
| 10 | Feb-10-2023 | 532,800.00 | 59,200.00 | 473,600.00 | 4,440,049.88 | 493,338.88 | 3,946,711.00 |
| Section 6601(j) Example 5, Comment 7: A true section 6166 interrelated tax computation program will run all of these computations, plus the lower-level computations on which they are based, behind the scenes, so to speak, and only the more basic "bottom line" information would ordinarily be displayed for the user. |