Overview - Section 6166(b)(8)

Section 6166(b)(8) is the holding company election. Section 6166(b)(8) provides:

(8) Stock in holding company treated as business company stock in certain cases

(A) In general

If the executor elects the benefits of this paragraph, then-

(i) Holding company stock treated as business company stock

For purposes of this section, the portion of the stock of any holding company which represents direct ownership (or indirect ownership through 1 or more other holding companies) by such company in a business company shall be deemed to be stock in such business company.

(ii) 5-year deferral for principal not to apply

The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a).

(iii) 2-percent interest rate not to apply

For purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero.

(B) All stock must be non-readily-tradable stock

(i) In general

No stock shall be taken into account for purposes of applying this paragraph unless it is non-readily-tradable stock (within the meaning of paragraph (7)(B)).

(ii) Special application where only holding company stock is non-readily-tradable stock

If the requirements of clause (i) are not met, but all of the stock of each holding company taken into account is non-readily-tradable, then this paragraph shall apply, but subsection (a)(1) shall be applied by substituting "5" for "10".

(C) Application of voting stock requirement of paragraph (1)(C)(i)

For purposes of clause (i) of paragraph (1)(C), the deemed stock resulting from the application of subparagraph (A) shall be treated as voting stock to the extent that voting stock in the holding company owns directly (or through the voting stock of 1 or more other holding companies) voting stock in the business company.

(D) Definitions

For purposes of this paragraph-

(i) Holding company

The term "holding company" means any corporation holding stock in another corporation.

(ii) Business company

The term "business company" means any corporation carrying on a trade or business.

Section 6166(b)(8) Election Statement caveat:  

In order for an estate to make a valid section 6166(b)(8) election, the Notice of Election MUST contain a specific reference to either "section 6166(b)(8)" or "section 1021(d)(2) of the Deficit Reduction Act of 1984". Reg. section 301.9100-6T(k) provides:

(k) Election of extension of time for payment of estate tax for interests in certain holding companies. An election under section 6166(b)(8), as added by section 1021(a) of the Act, or under section 1021(d)(2) of the Act, shall be made by including on the notice of election under section 6166 required by §20.6166-1(b) a statement that an election is being made under section 6166(b)(8) or section 1021(d)(2) of the Act (whichever is applicable) and the facts which formed the basis for the executor's conclusion that the estate qualified for such election. If a taxpayer makes an election described in this paragraph (k), then the special 4-percent interest rate of section 6601(j) and the 5-year deferral of principal payments of section 6166(a)(3) are not available. Thus, the first installment of tax is due on the date prescribed by section 6151(a) and subsequent installments bear interest at the rate determined under section 6621. If the executor makes an election described in this paragraph (k) and the notice of election under section 6166 fails to state the amount of tax to be paid in installments or the number of installments, then the election is presumed to be for the maximum amount so payable and for payment thereof in 10 equal annual installments, beginning on the date prescribed in section 6151(a). The elections described under this paragraph (k) are available for estates of decedents dying after July 18, 1984.

The author has direct knowledge as an IRS Estate Tax Attorney of a section 6166 election being denied because the Notice of Election did not contain either specific phrase referenced above, even though the Notice of Election contained the phrase "holding company election" throughout. The estate in that case was advised to seek annual section 6161 extensions of time to pay, a more onerous process with no guarantee of its receiving the maximum 10 years of extensions mentioned in section 6161(a)(2).