| Section 6166(c) - Example 4 | |||||||
| Decedent died May 30, 2016 owning fractional interests in 10 closely held businesses. Family members described in §267(c)(4) owned interests in all 10 businesses, none of which had more than 45 partners or shareholders. The value of each interest owned by family members equalled 10% of the total value of such business. Decedent's spouse did not survive him and is not among the §267(c)(4) family members in this example. | |||||||
| Section 6166(c) requires that in order to treat the Decedent's interests in 2 or more business as an interest in a single closely held business, the Decedent must have owned 20% or more of the total value of each such business. In this example, however, the 20% test is satisfied with only 5 of the 10 business interests. If the estate chooses to file a regular 14-year §6166(a) election (assuming that all other qualifications have been met), the §6166(c) value is $16,119,750 and the maximum amount of tax which may be paid in installments is $5,506,281.88. The first installment is due no later than 5 years after the date the return was due (determined without regard to any extension of time to file). Interest on the first $592,000 of deferred tax accrues at 2% per year and at 45% of R% on the balance of deferred tax. | |||||||
| With a §6166(b)(7) election, however, the interests held by family members described in §267(c)(4) in the 5 businesses in which the Decedent owned less than 20% of total value can be added to the decedent's interests for purposes of §6166(c), and the aggregate of the estate tax values of decedent's interests in all 10 businesses will qualify as an interest in a single closely held business. The §6166(c) value is $20,986,400 and the maximum amount of tax which may be paid in installments is $7,168,672.08. | |||||||
| By making a §6166(b)(7) election, the first installment of deferred tax is due on the return due date (determined without regard to any extension ot fime to file) and none of the interest on the deferred tax is eligible for the 2% interest rate - all interest on the defered tax will accrue at 45% of R% rates. | |||||||
| Business Number | Total Value of Closely Held Business | Percentage Owned by Decedent | Gross Estate Tax Value Before Discounts | Valuation Discounts | Percentage of Total Value Included in Gross Estate | §6166(c) Business Value With a §6166(b)(7) Election | §6166(c) Business Value Without a §6166(b)(7) Election |
| 1 | 15,000,000.00 | 20.00% | 3,000,000.00 | 35.00% | 13.00% | 1,950,000.00 | 0.00 |
| 2 | 20,000,000.00 | 40.00% | 8,000,000.00 | 30.00% | 28.00% | 5,600,000.00 | 5,600,000.00 |
| 3 | 17,500,000.00 | 35.00% | 6,125,000.00 | 30.00% | 24.50% | 4,287,500.00 | 4,287,500.00 |
| 4 | 6,240,000.00 | 50.00% | 3,120,000.00 | 20.00% | 40.00% | 2,496,000.00 | 2,496,000.00 |
| 5 | 3,375,000.00 | 20.00% | 675,000.00 | 37.00% | 12.60% | 425,250.00 | 0.00 |
| 6 | 8,200,000.00 | 17.00% | 1,394,000.00 | 30.00% | 11.90% | 975,800.00 | 0.00 |
| 7 | 7,100,000.00 | 24.00% | 1,704,000.00 | 32.50% | 16.20% | 1,150,200.00 | 0.00 |
| 8 | 2,500,000.00 | 37.50% | 937,500.00 | 30.00% | 26.25% | 656,250.00 | 656,250.00 |
| 9 | 2,900,000.00 | 20.00% | 580,000.00 | 37.00% | 12.60% | 365,400.00 | 0.00 |
| 10 | 11,000,000.00 | 40.00% | 4,400,000.00 | 30.00% | 28.00% | 3,080,000.00 | 3,080,000.00 |
| Section 6166(c) aggregate value treated as an interest in a single closely held business | 20,986,400.00 | 16,119,750.00 | |||||
| With the §6166(b)(7) election, the following interests are treated as having been included in determining the value of the decedent's gross estate for purposes of §6166(c): | |||||||
| Business 1 - 23.00% of the total value for purposes of §6166(c) | |||||||
| Business 5 - 22.60% of the total value for purposes of §6166(c) | |||||||
| Business 6 - 21.90% of the total value for purposes of §6166(c) | |||||||
| Business 7 - 26.20% of the total value for purposes of §6166(c) | |||||||
| Business 9 - 22.60% of the total value for purposes of §6166(c) | |||||||
| Section 6166(c) - Example 4 Computations With and Without a Section 6166(b)(7) Family Attribution Election | |||||||
| Date of Death is May-30-2016 | With a §6166(b)(7) Election | Without a §6166(b)(7) Election | |||||
| Gross estate | 40,000,000.00 | 40,000,000.00 | |||||
| Allowable §2053 and §2054 deductions | 2,680,000.00 | 2,680,000.00 | |||||
| §6166(b)(6) adjusted gross estate | 37,320,000.00 | 37,320,000.00 | |||||
| §6166(c) aggregate value treated as an interest in a single closely held business | 20,986,400.00 | 16,119,750.00 | |||||
| §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments | .562337 | .431933 | |||||
| Deferred Tax Computations | |||||||
| Taxable estate (which is the same as the adjusted gross estate in this example) | 37,320,000.00 | 37,320,000.00 | |||||
| Net estate tax | 12,748,000.00 | 12,748,000.00 | |||||
| §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments | .562337 | .431933 | |||||
| Maximum amount of tax which may be paid in installments | 7,168,672.08 | 5,506,281.88 | |||||
| Non-deferred tax due on the return due date (determined without regard to any extensions of time to file) | 5,579,327.92 | 7,241,718.12 | |||||
| §6166(a)(3) first installment due date | Feb-28-2017 | Feb-28-2022 | |||||
| Last installment due date | Feb-28-2026 | Feb-28-2031 | |||||