Section 6601(j) Example 4

 

Section 6601(j) Example 4 - Date of Death May-10-2016
2013 Federal Form 706, Page 1 
1 Total gross estate less exclusion 1 30,000,000.00
2 Tentative total allowable deductions 2 5,750,000.00
 3a Tentative taxable estate (before state death tax deduction) (subtract line 2 from line 1)  3a 24,250,000.00
   b State death tax deduction    b 3,344,000.00
   c Taxable estate (subtract line 3b from line 3a)    c 20,906,000.00
4 Adjusted taxable gifts 4 0.00
5 Add lines 3c and 4 5 20,906,000.00
6 Tentative tax on the amount on line 5 6 8,308,200.00
7 Total gift tax paid or payable 7 0.00
8 Gross estate tax (subtract line 7 from line 6) 8 8,308,200.00
9a Basic exclusion amount 9a 5,450,000.00    
9b DSUE amount from predeceased spouse 9b 0.00
9c Applicable exclusion amount (add lines 9a and 9b) 9c 5,450,000.00
9d Applicable credit amount (tentative tax on amount in 9c) 9d 2,125,800.00
10 Adjustment to unified credit (applicable credit amount) 10 0.00
11 Allowable applicable credit amount (subtract line 10 from line 9) 11 2,125,800.00
12 Subtract line 11 from line 8 (but do not enter less than zero) 12 6,182,400.00
13 Credit for foreign death taxes (from Schedule P) 13 0.00    
14 Credit for tax on prior transfers (from Schedule Q) 14 0.00
15 Total credits (add lines 13 and 14) 15 0.00
16 Net estate tax (subtract line 15 from line 12) 16 6,182,400.00
17 Generation-skipping transfer (GST) taxes payable (from Schedule R, Part 2, line 10) 17 0.00
18 Total transfer taxes (add lines 16 and 17) 18 6,182,400.00
19 Prior payments. Explain in an attached schedule. 19 1,750,000.00
20 Balance due (or overpayment) 20 4,432,400.00

 

Section 6601(j) Example 4 - Date of Death May-10-2016
2013 Federal Form 706, Page 3  - Recapitulation
Item No. Gross estate Alternate value   Value at date of death
1 Schedule A - Real Estate 1     1,250,000.00
2 Schedule B - Stocks and Bonds 2     2,700,000.00
3 Schedule C - Mortgages, Notes, and Cash 3     1,000,000.00
4 Schedule D - Insurance on the Decedent's Life 4     2,500,000.00
5 Schedule E - Jointly Owned Property 5     750,000.00
6 Schedule F - Other Miscellaneous Property 6     21,800,000.00
7 Schedule G - Transfers During Decedent's Life 7     0.00
8 Schedule H - Powers of Appointment 8     0.00
9 Schedule I - Annuities 9     0.00
10 Total gross estate (add items 1 through 9) 10     30,000,000.00
11 Schedule U - Qualified Conservation Easement Exclusion 11 0.00
12 Total gross estate less exclusion (subtract line 11 from line 10). 12 30,000,000.00
Item No. Deductions Amount
13 Schedule J - Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims 13 2,489,750.00
14 Schedule K - Debts of the Decedent 14 260,250.00
15 Schedule K - Mortgages and Liens 15 0.00
16 Total of items 13 through 15 16 2,750,000.00
17 Allowable amount of deductions from item 16 17 2,750,000.00
18 Schedule L - Net Losses During Administration 18 0.00
19 Schedule L - Expenses Incurred in Administering Property Not Subject to Claims 19 0.00
20 Schedule M - Bequests, etc., to Surviving Spouse 20 0.00
21 Schedule O - Charitable, Public, and Similar Gifts and Bequests 21 3,000.000.00
22 Tentative total allowable deductions (add lines 17 through 21) 22 5,750,000.00

 

Section 6601(j) Example 4 Worksheet - Date of Death May-10-2016
§6166(a) Regular 14-Year Election
Voluntary Interim Payments Between Anniversary Dates
In this example the return was filed on the extended return due date 6 months after the statutory return due date. The following facts exist.
  • Form 4768 was filed on the return due date with a payment of $1,750,000, which was the amount of tax that was estimated would not be deferred under a §6166 election to be filed 6 months later
  • The return was filed 6 months later with a regular §6166(a) 14-year election. A maximum deferral election was made. No payment was due with the return. The non-deferred tax due on the return due date was $1,644,858.43, which was less than the $1,750,000 actually paid.
  • Pursuant to the §6166 maximum deferral election, the overpayment of $105,141.57 was treated as a prepayment of the tax payable in installments
  • An undesignated voluntary payment of $100,000 was made in 2018. Another voluntary payment of $150,000, designated as tax, was made in 2019.
  • Anniversary date interest payments were timely made in the amounts billed by Cincinnati Campus on February 10 each year through 2021. Installment payments of tax and interest were timely made in 2022 and 2023.
1 Gross estate 30,000,000.00
2 Schedules J, K, and L deductions (§2053 and §2054) 2,750,000.00
2a Expenses included in line 2 amount but which are not includible in the §6166(b)(6) adjusted gross estate computation 0.00  
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 0.00
2d Deductible state interest accrued on return filing date 0.00
2e Total adjustments to line 2 (sum of lines 2b, 2c, and 2d less line 2a) 0.00
3 Adjusted Schedules J, K, and L §2053 and §2054 deductions (line 2 plus line 2e) 2,750,000.00
4 §6166(b)(6) adjusted gross estate (line 1 less line 3) 27,250,000.00
5 Closely held business value 20,000,000.00
6 §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments 0.733945
7 Net estate tax 6,182,400.00
8a Maximum amount of tax payayble in installments (line 6 times line 7) 4,537,541.57  
8b Unpaid balance of tax 4,432,400.00
8c Unpaid balance of tax payable in installments on return filing date (not greater than line 8a) 4,432,400.00
8d Tax payable in installments - maximum deferral election 4,537,541.57
9    2% portion of tax payayble in installments (lesser of $592,000 or line 8d) 592,000.00
10    45% of R% portion of tax payable in installments (line 8d less line 9) 3,945,541.57
11 Tax not payable in installments and due on return due date (line 7 less line 8d) 1,644,858.43
12 Payment on return due date 1,750,000.00
13 Underpayment or (Overpayment) of tax payable in installments (line 11 less line 12) (105,141.57)
14 Prepayment of the tax payable in installments 105,141.57

 

Section 6601(j) Example 4 - 2% and 45% Portions of Deferred Tax
Tax payable in installments - maximum deferral election 4,537,541.57
Portion drawing interest at 2% rate 592,000.00
     2% portion of annual installment 59,200.00
Portion drawing interest at 45% of R% rates 3,945,541.57
     45% of R% portion of annual installment 394,554.16

 

Section 6601(j) Example 4 - Payment History Through the 6th Anniversary Date
  Date Payment Undesignated Payment Payment Designated As Tax Payment Designated As Interest Payment 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
6 Sep-06-2019 150,000.00 0.00 150,000.00 0.00 0.00 0.00
7 Feb-10-2020 79,058.68 0.00 0.00 79,058.68 0.00 0.00
8 Feb-10-2021 77,525.26 0.00 0.00 77,525.26 0.00 0.00
9 Feb-10-2022 199,235.72 0.00 121,734.47 77,501.25 0.00 0.00
10 Feb-10-2023 529,012.03 0.00 453,754.16 75,257.87 0.00 0.00
Totals 3,023,759.58 100,000.00 2,475,488.63 448,270.95 0.00 0.00

 

Section 6601(j) Example 4, Comment 1:  The anniversary date payments were paid in response to billing notices from Cincinnati Campus. The voluntary payments were made at the estate's discretion.

 

Section 6601(j) Example 4 - Application of Payments Through the 6th Anniversary Date
Period Date Tax Balance Due Payment Interest Accrued   Interest Paid  Tax Paid
Due Date Feb-10-2017 6,182,400.00 1,750,000.00 0.00 0.00 1,750,000.00
1 Aug-10-2017 4,432,400.00 0.00 40,318.77 0.00 0.00
2 Feb-10-2018 4,432,400.00 81,682.26 81,682.26 81,682.26 0.00
3 May-25-2018 4,432,400.00 100,000.00 23,121.89 23,121.89 76,878.11
4 Feb-10-2019 4,355,521.89 57,245.63 57,245.63 57,245.63 0.00
5 Sep-06-2019 4,355,521.89 150,000.00 45,560.39 0.00 150,000.00
6 Feb-10-2020 4,205,521.89 79,058.68 79,058.68 79,058.68 0.00
7 Feb-10-2021 4,205,521.89 77,525.26 77,525.26 77,525.26 0.00
8 Feb-10-2022 4,205,521.89 199,235.72 77,501.25 77,501.25 121,734.47
9 Feb-10-2023 4,083,787.42 529,012.03 75,257.87 75,257.87 453,754.16

 

Determining the Amount of the First Installment That is Actually Payable
Tax payable in 10 installments under the §6166(a) election 4,537,541.57
Annual installment 453,754.16
Overpayment of non-deferred tax on the return due date (105,141.57)
Portion of the undesignated May-25-2018 voluntary payment allocated to tax (76,878.10)
Designated voluntary tax payment Sep-06-2019 (150,000.00)
Balance of the first installment that is actually payable 121,734.49

 

Determine the §6601(j)(4) 2% and 45% of R% Factors
2% portion of deferred tax 592,000.00 = 0.130467124 The 2% portion of any tax payment
Total amount of deferred tax 4,537,541.57
45% of R% portion of deferred tax 3,945,541.57 = 0.869532876 The 45% of R% portion of any tax payment (or, 1 - 0.130467124 = 0.869532876)
Total amount of deferred tax 4,537,541.57

 

Section 6601(j) Example 4 - Application of 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 1,644,858.43 105,141.57 13,717.52 91,424.05
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 76,878.11 0.00 76,878.11 10,030.07 66,848.04
4 Feb-10-2019 0.00 0.00 0.00 0.00 0.00
6 Sep-06-2019 150,000.00 0.00 150,000.00 19,570.07 130,429.93
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 121,734.47 0.00 121,734.47 15,882.35 105,852.12
10 Feb-10-2023 453,754.16 0.00 453,754.16 59,200.00 394,554.16

 

Section 6601(j) Example 4, Comment 2:   Section 6601(j) applies only to payments of tax deferred under §6166. It has no bearing on payments of non-deferred tax.

 

Section 6601(j) - Example 4
Determination of the Annual Installment Interest Computation Base After Applying §6601(j)(4)
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 13,717.52 578,282.48 3,945,541.57 91,424.05 3,854,117.52
1 Aug-10-2017 578,282.48 0.00 578,282.48 3,854,117.52 0.00 3,854,117.52
2 Feb-10-2018 578,282.48 0.00 578,282.48 3,854,117.52 0.00 3,854,117.52
3 May-25-2018 578,282.48 10,030.07 568,252.42 3,854,117.52 66,848.04 3,787,269.47
4 Feb-10-2019 568,252.42 0.00 568,252.42 3,787,269.47 0.00 3,787,269.47
6 Sep-06-2019 568,252.42 19,570.07 548,682.35 3,787,269.47 130,429.93 3,656,839.54
7 Feb-10-2020 548,682.35 0.00 548,682.35 3,656,839.54 0.00 3,656,839.54
8 Feb-10-2021 548,682.35 0.00 548,682.35 3,656,839.54 0.00 3,656,839.54
9 Feb-10-2022 548,682.35 15,882.35 532,800.00 3,656,839.54 105,852.12 3,550,987.42
10 Feb-10-2023 532,800.00 59,200.00 473,600.00 3,550,987.42 394,554.16 3,156,433.26

 

Section 6601(j) Example 4, Comment 3:   Interest overpayments are allocated to tax in the same manner as the undesignated payment on May-25-2018 in this example was applied to tax. See the Period 3 alocations above. Occasional one-cent discrepancies are due to rounding.