UI No. 6166.50-00
Extension of time for payment of estate tax where estate consists largely of interest in closely held business. [Section 6166A]
This is in reply to your letter of October 18, 1966, in which you request a ruling with respect to the qualification of the above-named estate for the election granted by section 6166 of the Internal Revenue Code of 1954 to pay Federal estate tax in installments. Specifically, a ruling is requested whether the properly discounted value of the reversionary interest of the estate of * * * * * * * in the trust shares of * * * * * * * should be added to the value of the shares held in the probate estate of the decedent, for purposes of determining if the requirements of section 6166(c)(3) of the 1954 Code have been satisfied.
The information furnished discloses that more than 90 percent of the property included in the gross estate of the decedent consists of interests in shares of * * * * * * * which is in the business of manufacturing and selling devices to control, confine and utilize the * * * * * * * At the date of death the corporation had * * * * * * * issued and outstanding shares of common voting stock. Based on the Federal estate tax valuation of * * * * * * * per shares, which the executor contemplates using, the total value of such stock is * * * * * * * Twenty percent of such value is * * * * * * * The probate estate includes * * * * * * * shares of the same valuation amounting to * * * * * * * or 19.97 percent of the value of the common voting stock of * * * * * * * In addition, an aggregate of * * * * * * * shares of such stock are held by 9 trusts created in * * * * * * * by * * * * * * * for the benefit of her children, brothers, sisters and brother-in-law. * * * * * * * retained the reversionary interest in all of these trusts. The value attributable to these shares included in the gross estate of the decedent will be * * * * * * * shares), with respect to the trusts which will terminate * * * * * * * and * * * * * * * shares), with respect to the trust which will terminate * * * * * * * The total value of the reversionary interest included in the gross estate of the decedent * * * * * * * or 5.01 percent of the total value of all * * * * * * * common voting stock.
Section 6166(a) provides that the executor may elect to pay part or all of the tax imposed by section 2001 in two or more (but not more than 10) equal installments if the value of an interest in a closely held business which is included in determining the gross estate of a decedent exceeds either 35 percent of the value of the gross estate or 50 percent of the taxable estate. Section 6166(c) states that the term ‘interest in a closely held business’ means stock in a corporation carrying on a trade or business if 20 percent or more in value of the voting stock of such corporation is included in determining the gross estate of the decedent.
The provisions of section 6166 of the Code were designed primarily to make it possible to keep together a business enterprise where the death of one of the large owners of the business results in the imposition of a relatively heavy estate tax. In this connection section 6 of the summary of the House of Representatives Report No. 2198, 85th Congress, 1st Session C.B. 1959-2, 713, contains the following comments:
Where the decedent had a substantial proportion of his estate invested in the business enterprise, under existing law this may confront the heirs with the necessity of either breaking up the business or of selling it to some larger business enterprise in order to obtain funds to pay the Federal estate tax. Your committee hopes that by spreading out the period over which the estate tax may be paid, it will be possible for the estate tax in most cases to be paid for out of earnings of the business, or at least that it will provide the heirs with time to obtain funds to pay the Federal estate tax without upsetting the operation of the business.
In this case, to qualify as an ‘interest in a closely held business,’ 20 percent or more of the value of the voting stock of * * * * * * * must be included in determining the gross estate of the decedent. The information submitted shows that 24.98 percent of the value of the voting stock of * * * * * * * is included in the gross estate of the decedent, which is composed of19.97 percent of the value of such stock in the probate estate and 5.01 percent of the value of such stock included as the value of the reversionary interest in the various trusts. Accordingly, based on the information presented, it is held that the estate of * * * * * * * meets the requirements of sections 6166(a) and 6166(c) of the 1954 Code and qualifies by election, for an extension of time for payment of a specified portion of the Federal estate tax in two or more (but not more than ten) equal installments.
Chief, Administrative Provisions Branch
This document may not be used or cited as precedent. Section 6110(j)(3) of the Internal Revenue Code.