Section 6166 Bifurcation Computations

Bifurcation Computation Examples

Bifurcation Example 1 An example uses facts extrapolated from PLR 201403012 to illustrate how a bifurcation election could save a portion of the total tax deferred under a section 6166 election from being accelerated if one of several closely held busineses failed to continue qualifying for the deferral. Without bifurcation, the entire balance of tax payable in installments would be payable upon notice and demand.
Bifurcation Example 2 (Section 6166(b)(1)(C) Example 11). Decedent owns 30% of the voting stock in Corporation C and 40% of the voting stock in Corporation D. Both corporations have more than 45 shareholders. More than 20% in value of the voting stock in each corporation is included in the Decedent's gross estate, satisfying the requirements of §6166(b)(1)(C)(i). The estate tax value of each Corporation exceeds 35% of the §6166(b)(6) adjusted gross estate.
  However, Corporation C has 3 classes of stock, only one of which is voting stock. The estate tax value of Decedent's interest in Corporation C is less than 20% of the total value of Corporation C. None of the other shareholders are family members described in §267(c)(4). Accordingly, the estate tax values of both corporations cannot be combined to be treated as an interest in a single closely held business under §6166(c).
  Result:  The estate could elect to bifurcate the tax extended under §6166, in which case §6166(c) would not be applicable. With bifurcation, it is enough that each closely held business interest satisfies the requirement of §6166(b)(1)(C)(i). The estate tax attributable to both closely held business would independently qualify for separate 14-year §6166(a) extension
  Note:  When both bifurcated elections are regular 14-year §6166(a) extensions, the IRS may limit the amount of tax that is extended at the special 2% interest rate. For dates of death in 2016, the first $592,000 of deferred tax draws interest at the 2% rate; the balance of deferred tax, if any, draws interest at 45% of R% rates. The 2% portion in a bifurcation election would probably be apportioned between the two elections so that the total of both 2% portions equals $592,000. IRS clarification is needed.