Section 6166(h) - Example 5 (Based on Modified CCA 201302037) Tax Assessed on the Original Return is Fully Paid A Deficiency Results From Increases to Non - §6166 Assets Only | ||
| Feb-17-2016 | Date of death | |
| Nov-17-2016 | The estate tax return is timely filed. It reports a taxable estate of $11,124,400 and estate tax of $2,269,760.00, which is paid in full. A closely held business is included in the gross estate at a value of $5,000,000 (44.9462 % of the adjusted gross estate). In this example a protective §6166 election is filed with the return. | |
| Apr-26-2018 | An IRS field examination is completed. There are 5 adjustments to the return. | |
| • Schedule A non-§6166 asset values increase by $1,100,000. | ||
| • Schedule B non-§6166 asset values increase by $900,000. | ||
| • Schedule C non-§6166 asset values increase by $1,000,000. | ||
| • Schedule J attorney fees increase by $150,000. | ||
| • Schedule J administration expenses increase by $387.40 for regular underpayment interest accrued on late-paid Federal §6166 annual interest payments due through the catch-up payment date of Apr-26-2018. | ||
| • The closely held business value remains unchanged at $5,000,000, which is 35.7797% of the adjusted gross estate as corrected on examination. | ||
| • Because of the Protective §6166 Election, in this example the Schedule J deduction for interest accrued on Federal estate tax is much less than in Example 4 because §2053(c)(1)(D) prohibits a deduction for interest accrued on tax deferred under §6166. | ||
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) Report of Estate Tax Examination Changes | ||||||
|---|---|---|---|---|---|---|
| Form 1273 | ||||||
| Estate of: Decedent SSN: 999-99-9999V D/D: Feb-17-2016 | ||||||
| 1 | Tentative Taxable Estate Shown on Return or Previously Adjusted | 11,124,400.00 | ||||
| 2 | Increase/Decrease in Tentative Taxable Estate | 2,849,612.60 | ||||
| 3a | Tentative Taxable Estate as Corrected (Line 1 plus/minus Line 2) | 13,974,012.60 | ||||
| Shown on Return/ As Previously Assessed | As Corrected | |||||
| 3b | State Death Tax Deduction | 0.00 | 0.00 | |||
| 3c | Taxable Estate as Corrected (Line 3a - Line 3b) | 11,124,400.00 | 13,974,012.60 | |||
| 4 | Adjusted taxable gifts | 0.00 | 0.00 | |||
| 5 | Total | 11,124,400.00 | 13,974,012.60 | |||
| 6 | Tentative Tax | 4,395,560.00 | 5,535,405.04 | |||
| 7 | Aggregate Gift Tax Payable (After Dec. 31, 1976) | 0.00 | 0.00 | |||
| 8 | Tax Before Unified Credit (Line 6 - Line 7) | 4,395,560.00 | 5,535,405.04 | |||
| 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 | 2,269,760.00 | 3,409,605.04 | |||
| 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) | 2,269,760.00 | 3,409,605.04 | |||
| 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 | 2,269,760.00 | 3,409,605.04 | |||
| 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) | 2,269,760.00 | 3,409,605.04 | |||
| 24 | Total Transfer Tax Previously Assessed | 2,269,760.00 | ||||
| 25 | Total Transfer Tax Increase/Decrease (Line 23 - Line 24) | 1,139,845.04 | ||||
| 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) | 1,139,845.04 | ||||
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) Line Adjustment - Estate Tax | ||||
| Form 6180 | ||||
| Estate of: Decedent SSN: 999-99-9999V D/D: Feb-17-2016 | ||||
| Shown on Return/ As Previously Assessed | Change | As Corrected | ||
| 1 | Schedule A - Real Estate | 4,000,000.00 | 1,100,000.00 | 5,100,000.00 |
| 2 | Schedule B - Stocks and Bonds | 1,000,000.00 | 900,000.00 | 1,900,000.00 |
| 3 | Schedule C - Mortgages, Notes, and Cash | 500,000.00 | 1,000,000.00 | 1,500,000.00 |
| 4 | Schedule D - Life Insurance | 1,200,000.00 | 0.00 | 1,200,000.00 |
| 5 | Schedule E - Jointly Owned Property | 0.00 | 0.00 | 0.00 |
| 6 | Schedule F - Other Miscellaneous Property | 5,000,000.00 | 0.00 | 5,000,000.00 |
| 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 | 11,700,000.00 | 3,000,000.00 | 14,700,000.00 |
| 11 | Schedule U - Qualified Conservation Easement Exclusion | 0.00 | 0.00 | 0.00 |
| 12 | Gross Estate less exclusion | 11,700,000.00 | 3,000,000.00 | 14,700,000.00 |
| 13 | Schedule J - Funeral and Administration Expenses | 450,000.00 | 150,387.40 | 600,387.40 |
| 14 | Schedule K - Debts of Decedent | 125,600.00 | 0.00 | 125,600.00 |
| 15 | Schedule K - Mortgages | 0.00 | 0.00 | 0.00 |
| 16 | Total of Schedules J and K | 575,600.00 | 150,387.40 | 725,987.40 |
| 17 | Allowable deductions from Schedules J and K | 575,600.00 | 150,387.40 | 725,987.40 |
| 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 | 575,600.00 | 150,387.40 | 725,987.40 |
| 21 | Schedule M - Marital Deduction | 0.00 | 0.00 | 0.00 |
| 22 | Schedule O - Charitable Deduction | 0.00 | 0.00 | 0.00 |
| 23 | ESOP Deduction | 0.00 | 0.00 | 0.00 |
| 24 | Schedule T - QFOBI Deduction | 0.00 | 0.00 | 0.00 |
| 25 | Total allowable deductions | 575,600.00 | 150,387.40 | 725,987.40 |
| 26 | Tentative taxable estate | 11,124,400.00 | 2,849,612.60 | 13,974,012.60 |
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) Form 886-A - EXPLANATION OF ITEMS | |||
| Schedule A - Real Estate | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| 1 | Real estate parcel A | 350,000.00 | 425,000.00 |
| 2 | Real estate parcel C | 275,000.00 | 400,000.00 |
| 4 | Real estate parcel D | 225,000.00 | 725,000.00 |
| 5 | Real estate parcel G | 0.00 | 400,000.00 |
| Total of these Items | 850,000.00 | 1,950,000.00 | |
| Shown on Return | 850.000.00 | ||
| Change to Schedule | 1,100,000.00 | ||
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) Form 886-A - EXPLANATION OF ITEMS | |||
| Schedule B - Stocks and Bonds | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| 3 | Value of publicly-traded stock in Business A | 175,000.00 | 280,000.00 |
| 6 | Value of publicly-traded stock in Business D | 200,000.00 | 220,000.00 |
| 14 | Value of publicly-traded stock in Business H | 25,000.00 | 50,000.00 |
| 16 | Additional asset discovered after the return was filed | 0.00 | 750,000.00 |
| Total of these Items | 400,000.00 | 1,300,000.00 | |
| Shown on Return | 400,000.00 | ||
| Change to Schedule | 900,000.00 | ||
Section 6166(h) - Example 4 Example 5 (Based on Modified CCA 201302037) Form 886-A - EXPLANATION OF ITEMS | |||
| Schedule C - Mortgages, Notes and Cash | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| 1 | Receivable from MNO Corporation | 0.00 | 1,000,000.00 |
| Total of these Items | 0.00 | 1,000,000.00 | |
| Shown on Return | 0.00 | ||
| Change to Schedule | 1,000,000.00 | ||
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) Form 886-A - EXPLANATION OF ITEMS | |||
| Schedule J - Funeral and Administrative Expenses | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| B-2 Attorney fees | 150,000.00 | 300,000.00 | |
| B-4(d) Interest on Federal estate tax | 0.00 | 387.40 | |
| Total of these Items | 150,000.00 | 300,387.40 | |
| Shown on Return | 150,000.00 | ||
| Change to Schedule | 150,387.40 | ||
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) §6166(b)(6) Adjusted Gross Estate Computation | ||||||
|---|---|---|---|---|---|---|
| Gross estate | 14,700,000.00 | |||||
| Schedule J - Funeral and Administrative Expenses | 600,387.40 | |||||
| Schedule K - Debts of Decedent | 125,600.00 | |||||
| Schedule K - Mortgages and Liens | 0.00 | |||||
| Total Schedules J and K debts and expenses | 725,987.40 | |||||
| Allowable amount of deductions | 725,987.40 | |||||
| Schedule L - Net Losses | 0.00 | |||||
| Schedule L - Expenses on property not subject to claims | 0.00 | |||||
| Total Schedules J, K, and L debts and expenses | 725,987.40 | |||||
| Adjustment for expenses incurred after the return was filed | (387.40) | |||||
| Adjusted Schedules J, K, and L debts and expenses | 725,600.00 | 725,600.00 | ||||
| Section 6166(b)(6) adjusted gross estate | 13,974,400.00 | |||||
| The return was filed on the return due date; an extension of time to file had not been requested. Any interest on Federal estate tax allowable as a Schedule J deduction therefore accrued for periods occurring after the date the return was filed and cannot be included in the §6166(b)(6) adjusted gross estate computation. | ||||||
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) §6166(a)(2) Ratio Computation | ||||
| Section 6166 business value | 5,000,000.00 | |||
| Section 6166(b)(6) adjusted gross estate | 13,974,400.00 | |||
| Section 6166(a)(2) ratio for the maximum amount of tax which may be paid in installments | .357797 | |||
| 6166(h) Example 5, Comment 1: Because in this Example a Protective §6166 Election was filed with the original return, §6166(h) is not applicable. When viewed in conjunction with Section 6166(h) Example 4, this Example 5 illustrates the different results that would have followed had a Protective Election been filed with the return: Instead of no part of the deficiency being eligible for a §6166(h) election as in Example 4, 100% of the deficiency would be eligible for a perfected §6166(a) election in Example 5 even though no part of the deficiency was attributable to the closely held business. |
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) §6166(a)(2) Maximum Amount of Tax Which May be Paid in Installments - Protective Election Filed | |
| Net estate tax | 3,409,605.04 |
| Section 6166(a)(2) ratio expressed as a percentage | 35.7797% |
| Maximum amount of tax which may be paid in installments under the Protective Election | 1,219,946.45 |
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) - Protective Election Filed Perfected Section 6166 Election | ||||
| Finally determined estate tax | 3,409,605.04 | |||
| Maximum amount of tax payable in installments | 1,219,946.45 | |||
| Tax not payable in installments and due on the return due date | 2,189,658.59 | |||
| Payment on the return due date | 2,269,760.00 | |||
| Overpayment of non-deferred tax | 80,101.41 | |||
| Application of the Overpayment of Non-Deferred Tax | ||||
| Maximum amount of tax payable in installments | 1,219,946.45 | |||
| Overpayment of non-deferred tax treated as a prepayment of tax installments | 80,101.41 | |||
| Balance of tax payable in installments | 1,139,845.04 | |||
| Deficiency | 1,139,845.04 | |||
| Portion of deficiency that is payayble in installments | 1,139,845.04 | |||
| Portion of deficiency that is not payable in installments | 0.00 | |||
| The Annual Installment | ||||
| Maximum amount of tax payable in installments | 1,219,946.45 | |||
| Number of installments selected | 10 | |||
| Annual Installment | 121,994.65 | |||
| Application of the Prepayment Credit to the First Installment | ||||
| First annual installment due on the 5th anniversary date of Nov-17-2021 | 121,994.65 | |||
| Prepayment credit applied | 80,101.41 | |||
| Balance of first installment payable | 41,893.24 | |||
| The installment amounts shown do not include accrued interest, which would also be payable. | ||||
| 6166(h) Example 5, Comment 2: This example assumes that the estate filed a Protective Election to defer the maximum amount of tax payable in installments. Accordingly, there was an overpayment of non-deferred tax on the return filing date, which is applied as a credit against the tax installment(s) as they come due. See Example 1(i) in Reg. §20.6166-1(i). For further information about calculating the annual installment when there has been an overpayment of non-deferred tax that reduces the unpaid balance of tax deferred under §6166, see The Annual Installment under the Computations section of General Concepts on the Home page. |
Section 6166(h) - Example 5 (Based on Modified CCA 201302037) - Protective Election Filed §6166(a) Catch-Up Payment Due Apr-26-2018 | ||
| Estate tax due | 3,409,605.04 | |
| Estate tax paid | 2,269,760.00 | |
| Deficiency | 1,139,845.04 | |
| Portion of deficiency deferred under the §6166(a) election and payable in installments | 1,139,845.04 | |
| Amounts due on the 1st anniversary date of Nov-17-2017 | ||
| Interest at 2% on the first $592,000 of deferred tax | 11,954.88 | |
| Interest at 45% of R% on the $547,845.04 balance of deferred tax | 9,946.94 | 21,901.82 |
| Additional amount due on Apr-26-2018 | ||
| Additional interest at R% on the past-due interest of $21,901.82 | 387.40 | |
| Total catch-up payment due Apr-26-2018 | 22,289.22 | |
| Allowable interest deduction on Schedule J | ||
| Interest at R% on the past-due interest on deferred tax of $21,901.82 | 387.40 | |
| Allowable interest deduction | 387.40 | |
| NOTE: R% interest means the regular underpayment interest rate(s) in effect during each interest computation period, which can vary from period to period or within a single period. Interest rates are set quarterly pursuant to §6621. | ||