About the Computations

This site presents computation examples that are intended to illustrate many of the interlocking concepts of Internal Revenue Code sections 6166 and 6601(j). From the author's experience, it is not possible to construct a one-size-fits-all section 6166 computation template - there are too many fact-dependent variables from a legal standpoint, and individual estate behavior regarding the timing of payments and the structure of the election statement constitute additional variables. Every estate section 6166 computation seems to have some wrinkle that makes it different from all other other section 6166 computations.

In many examples on this site IRS deficiency computations generate an estate tax deduction for interest on Federal estate tax notwithstanding Code section 2053(c)(1)(D), which provides:

(D) Section 6166 interest

No deduction shall be allowed under this section for any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6166.

An estate tax deduction for interest will be allowable when a deficiency is assessed or when an anniversary date payment is paid late, even if 100% of the tax is extended under section 6166 both before and after the deficiency date, because such interest is not payable under section 6601 - it is payable under section 6621 (pursuant to section 6601(a)). See Revenue Ruling 89-32.

A deficiency is pro-rated to installments previously due. A deficiency also causes the interest due on each prior anniversary date to be greater than was paid at the time, which results in an unpaid interest balance being carried forward from each of those prior aniversary dates until paid. Regular rate underpayment interest is due on each of those underpayments from their respective due dates forward, and that regular rate (R%) interest is deductible on the estate tax return. It is therefore possible for a Schedule J deduction for interest on Federal estate tax to exist even though 100% of the tax is deferred under section 6166 both before and after a deficiency is assessed.

The Notebook estate tax computation application is used by IRS Estate Tax Attorneys nationwide as part of their overall examination program. This application is able to run section 6166 computations and calculate the Schedule J deduction for interest accrued on additional tax not extended under the section 6166 election, and for additional interest due on anniversary dates for which payments were previously made that were calculated on the pre-deficiency balances then due. Some of the computation examples on this site replicate the IRS Notebook examination report format. (As an historical note, until 2010 IRS Estate Tax Attorneys in the central part of the United States generally used an internally developed Excel spreadsheet application for field examination tax computations. Many features of that Excel program were carried over into the Notebook application.)