Basic 6166(a) Overpayment Maximum

Basic §6166(a) – Overpayment of non-deferred tax - maximum deferral election

This is a section 6166(a) regular election where the deferred tax tax is payable in a maximum of 10 equal installments over a maximum period of 14 years; interest only is paid for the first 4 years and, beginning on the fifth anniversary date, equal installments of the deferred tax, plus interest, are paid annually for 10 years, for a maximum deferral period of 14 years beyond the original return due date (determined without regard to any extensions of time to file).

Date of death is Dec-11-2009. Estimated non-deferred estate tax of $1,000,000 is paid on the return due date of Sep-11-2010 with the filing of Form 4768 to request an automatic 6-month extension of time to file the return. The return is filed on the extended due date of Mar-11-2011. The 6166 election statement attached to the return shows that the actual non-deferred tax is $738,607.87, which is $261,392.13 less than the estimated amount that was paid with the Form 4768. The 6166 election statement elects to defer the "maximum amount of tax eligible for deferral," or $1,440,742.13. The overpayment of non-deferred tax on Sep-11-2010 is therefore treated as a prepayment of the tax payable in installments. See Reg. section 20.6166-1(i), example 1(i).

The balance on which interest is computed is reduced by the overpayment even though the tax considered deferred under section 6166 is not reduced. The overpayment of non-deferred tax flows forward as a credit to be applied against the tax installment(s) due in the future. An IRS examination deficiency is assessed on Jun-05-2013, which falls between the second and third anniversary dates. The computation examples are carried out through the fifth anniversary date of Sep-11-2015, when the first installment of tax is due and the prepayment credit is applied against the installment. The section 2058 state death tax deduction is zero.

NOTES:

1. Interrelated computations are run with Inter-Est, a Visual Basic stand-alone program that is no longer available. The Inter-Est computations are supplemented and complemented with separate Excel spreadsheet computations, which in many instances on this site also independently compute tax and interest.

2. The Inter-Est computations display a line for each interest period in Part 3 captioned “Qua. (4%)”. This is built into the display framework and does not change even though interest is actually being computed at 2% under current law. Although this fixed display language is a result of the program having been created many years ago when the special low interest rate in 6166 cases was 4%, computed interest is consistent with the law applicable for all interest periods.

3. This set of computations was run in 2010, when the IRS regular underpayment interest rate (the R% interest rate) was 4%. The 4% interest rate was used for all future interest period computations in the series including those in which the actual R% rate dropped to 3%. Since these projections are for illustration purposes only, the computations have not been adjusted to reflect the actual 3% interest rate beginning in 2011.

COMPUTATIONS:

1.  Basic 6166(a) Inter-Est computation for the original return filed on the extended due date of Mar-11-2011. There was an overpayment of non-deferred tax of $261,392.13 on Sep-11-2010 ($1,000,000 - $738,607.87) . The 6166 election statement filed with the return elected to defer the maximum amount of tax eligible for deferral under section 6166. Interest was not due on any past-due amounts at the time of filing (interest accrued on the tax deferred under section 6166 at the time of filing is not payable until the first anniversary date of Sep-11-2011).

2.  Basic 6166(a) Inter-Est computation for the first anniversary date of Sep-11-2011 Cincinnati Campus billing notice. The Inter-Est computation shows the amount due on the first anniversary date of Sep-11-2011 - interest of $22,418.54. Interest is not allowed as a deduction.

3. Basic 6166(a) Inter-Est  computation for the second anniversary date of Sep-11-2012 Cincinnati Campus billing notice. The Inter-Est computation shows the amount due on the second anniversary date of Sep-11-2012 - interest of $22,480.55. Interest is not allowed as a deduction.

4.  Basic 6166(a) Inter-Est computation with a Jun-05-2013 IRS examination deficiency. The Inter-Est computation shows the amounts due on the agreed deficiency date of Jun-05-2013 - interest of $21,253.47 (interest of $23,727.57 accrued on the deferred tax is not due (plus additional interest) until the next anniversary date). Also attached is the IRS field examination report showing the line item changes that result in the deficiency. Deductible interest of $1,026.14 from the separate Inter-Est computation is entered in the tax report program as a hard number deduction on the Form 886-A analogue for Schedule J. The gross estate, total deductions, total tax, and the value of the 6166 business interest are increased. Interest is allowed as a deduction.

NOTE: The IRS examination resulted in a new figure of $1,884,522.98 for the total tax deferred under section 6166. The new figure for non-deferred tax is $844,265.25 and the recomputed overpayment of non-deferred tax is $155,734.75.

5. Basic 6166(a) Inter-Est computation for the third anniversary date of Sep-11-2013Cincinnati Campus billing notice. The Inter-Est computation shows the amount due on the third anniversary date of Sep-11-2013 - interest of $32,518.24. Interrelated interest of $1,026.14 is allowed as a deduction, but there is no change from the figure in the IRS deficiency computation because all payments since then have been timely and in the proper amounts.

6.  Basic 6166(a) Inter-Est computation for the fourth anniversary date of Sep-11-2014 Cincinnati Campus billing notice. The Inter-Est computation shows the increased interest amount due on the fourth anniversary date of Sep-11-2014 - interest of $32,518.25. Interrelated interest of $1,026.14 is allowed as a deduction, but there is no change from the figure in the IRS deficiency computation because all payments since then have been timely and in the proper amounts.

7.  Basic 6166(a) Inter-Est computation for the fifth anniversary date Sep-11-2015 Cincinnati Campus billing.The Inter-Est computation shows the amount due on the fifth anniversary date of Sep-11-2015, when the first installment of tax is due - tax of $32,717.55 (the annual installment of $188,452.30 less the recomputed prepayment credit of $155,734.75) and interest of $32,518.24.Interrelated interest of $1,026.14 is allowed as a deduction, but there is no change from the figure in the IRS deficiency computation because all payments since then have been timely and in the proper amounts.