Annual Installment Example 4

Annual Installment Example 4

Feb-17-2016 Date of death
Nov-17-2016 Estate tax return due date. Form 4768 is filed to request an automatic 6-month extension of time to file with a separate request to extend the time to pay. The estimated amount of tax that will not be deferred under §6166 is $3,000,000, which designated sum is paid with the Form 4768 filing. The estate expects to file a section 6166(b)(8) election but does not make any payment toward the first installment that is due.
May-17-2017 Estate tax return filing date. The estate makes a section 6166(b)(8) election. There is an overpayment of non-deferred tax. The estate elects to defer the maximum amount of tax eligible for deferral. The first installment was due on Nov-17-2016 but was not paid then. The overpayment of non-deferred tax is applied against the first installment but does not completely offset it.

The payments due with the return are:

  • The balance of the first installment of deferred tax, plus regular rate interest thereon.

Pursuant to Rev. Rul. 76-51, amplifying Rev. Rul. 74-499, if the first installment is paid timely on the extended return filing due date, the estate will be treated as if it had made a timely section 6161 request for extension of time for its payment.

Because it is a past-due installment, only regular rate interest will be calculated on the installment, and this interest is deductible on Schedule J of the return and is here interrelated with the tax. See Rev. Rul. 89-32. It is also included in the section 6166(b)(6) adjusted gross estate computation.

The actual amount of non-deferred tax is $2,797,321.23. The overpaid non-deferred tax is $200,108.18.

The total deferred tax is $12,563,110.56. The first installment that was due Nov-17-2017 is $1,256,270.14. The total tax payment due May-17-2017 is the first installment plus the unpaid non-deferred tax of $297,321.23, for a total of $1,553,591.37. Interest accrued on this amount is $23,268.56 as of May-17-2017 (the interest is allowable as a deduction on Schedule J and is interrelated with the tax). The total amount paid with the return is $1,576,859.93.


Annual Installment Computation - Example 4
§6166(b)(6) Adjusted Gross Estate Computation
Gross estate   50,000,000.00
Schedule J -    
  A. Funeral expenses 25,000.00  
  B. 1. Executors' commissions 1,000,000.00  
    2. Attorney fees 1,400,000.00  
    3. Accountant fees 415,000.00  
    4. Miscellaneous    
      a. Appraisals 250,000.00  
      b. Utilities 14,375.00  
      c. Other 1,215.00  
      d. Interest accrued and paid on unpaid non-deferred tax and the first installment of deferred tax, calculated through the return filing date 15,819.04  
  Total Schedule J 3,121,409.04  
Schedule K - Debts    
  Debts of decedent 144,535.00  
Schedule K - Mortgages and Liens    
  Mortgages 876,550.00  
  Total Schedule K 1,021,085.00  
Total Schedules J and K debts and expenses 4,142,494.04  
Allowable amount of deductions 4,142,494.04  
Schedule L - Net Losses 0  
Schedule L - Expenses on property not subject to claims 0  
Total Schedules J, K, and L debts and expenses 4,142,494.04 4,142,494.04
Section 6166(b)(6) adjusted gross estate   45,857,505.96


Annual Installment Computation - Example 4
§6166(a)(2) Ratio Computation
Section 6166 business value, divided by   37,500,000.00
Section 6166(b)(6) adjusted gross estate, yields   45,857,505.96
Section 6166(a)(2) ratio for the maximum amount of tax which may be paid in installments   0.817751


Annual Installment Computation - Example 4
Estate Tax Computation
1 Gross estate   50,000,000.00
    Schedules J, K, and L deductions 4,142,494.04  
    Marital deduction 0.00  
    Charitable deduction 2,000,000.00  
2 Total allowable deductions   6,142,494.04
3a Tentative taxable estate   43,857,505.96
3b State death tax deduction   0.00
3c Taxable estate   43,857,505.96
4 Adjusted taxable gifts   0.00
5 Add lines 3c and 4   43,857,505.96
6 Tentative tax on the line 5 amount   17,488,802.38
7 Total gift tax paid or payable   0.00
8 Gross estate tax   17,488,802.38
9a Basic exclusion amount 5,450,000.00  
9b DSUE amount 0.00  
9c Applicable exclusion amount 5,450,000.00  
9d Applicable credit amount 2,125,800.00  
10 Adjustment to applicable credit amount   0.00
11 Allowable applicable credit amount   2,125,800.00
12 Subtract line 11 from line 8   15,363,002.38
13 Credit for foreign death taxes 0.00  
14 Credit for tax on prior transfers 0.00  
15 Total credits   0.00
16 Net estate tax   15,363,002.38
17 Generation-Skipping taxes payable   0.00
18 Total transfer taxes   15,363,002.38


Annual Installment Computation - Example 4
§6166(b)(8) Annual Installment and Catch-Up Payment Due May-17-2017
Net estate tax (equal to total transfer taxes in this example) 15,363,002.38
Section 6166(a)(2) ratio expressed as a percentage 81.7751%
Maximum amount of tax eligible for a section 6166 election 12,563,110.56
Tax not deferred and due on the return due date of Nov-17-2016 2,799,891.82
Non-deferred tax paid on the return due date 3,000,000.00
Balance (or Overpayment) of non-deferred tax due (200,108.18)
The Annual Installment
Maximum amount of tax eligible for the section 6166(b)(8) election 12,563,110.56
Number of installments selected 10
The annual installment, the first of which was due Nov-17-2016 1,256,311.06
The Catch-Up Payment Due May-17-2017
Balance (or Overpayment) of non-deferred tax due (200,108.18)
Balance of first installment due 1,056,202.88
Total tax payment due May-17-2017 1,056,202.88
Interest at regular underpayment interest rates on this sum due May-17-2017 15,819.04
Total catch-up payment due May-17-2017 1,072,021.92
This result is predicated upon the estate's having elected to defer the maximum amount of tax which may be paid in installments. In many cases, however, estates elect to defer only the unpaid balance of tax, which is a lesser amount, and in that event there are no prepayment credits to be applied against the installments of tax.