Section 6166(h) - Example 1 | |
| Feb-17-2016 | Date of death |
| Nov-17-2016 | Estate tax return due date and the return filing date. The return reports a taxable estate of $5,124,400 (which in this example is also the §6166(b)(6) adjusted gross estate) and zero estate tax due. A closely held business is included in the gross estate at a value of $3,000,000, but neither a §6166 election nor a protective §6166 election is filed with the return. |
| NOTE: With these figures the §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments is 58.5434%, which equals zero tax payable in installments for the return as filed (58.5434% of $0.00 tax = $0.00 payable in installments). | |
| Apr-26-2018 | An IRS field examination is completed. The only changes are an increase in the value of the closely held business interest to $5,500,000 and a new Schedule J deduction for $10,794.24 deductible interest, which results in a deficiency of $856,442.30. The Estate agrees to the proposed deficiency by signing a waiver, Form 890. The Estate also files a §6166(h) election for the deficiency with the examining IRS Estate Tax Attorney and submits a catch-up payment to the Attorney to bring the account current under the §6166(a) election (made via the §6166(h) election) as of that date. |
| The 1st anniversary date under the §6166(a) election was Nov-17-2017, when interest only was due (the 1st installment of tax will be due Nov-17-2021). | |
The catch-up payments due on Apr-26-2018 are:
| |
| While 100% of the deficiency is attributable to the closely held business interest, §6166(a)(2) limits the portion of the deficiency that may be paid in installments to 72.1368% of the total. This methodology is explained in PLR 8846001. | |
| This example illustrates that the §6166(a)(2) ratio determines the maximum amount of tax and the maximum amount of a deficiency that may be paid in installments, and only when the §6166(a)(2) ratio equals 1.000000 (100%) will 100% of a deficiency be eligible under a §6166(h) election to be paid in installments. This is in keeping with the principles outlined in PLR 8846001. | |
Section 6166(h) - Example 1 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 | 5,124,400.00 | ||||
| 2 | Increase/Decrease in Tentative Taxable Estate | 2,489,205.76 | ||||
| 3a | Tentative Taxable Estate as Corrected (Line 1 plus/minus Line 2) | 7,613,605.76 | ||||
| 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) | 5,124,400.00 | 7,613,605.76 | |||
| 4 | Adjusted taxable gifts | 0.00 | 0.00 | |||
| 5 | Total | 5,124,400.00 | 7,613,605.76 | |||
| 6 | Tentative Tax | 1,995,560.00 | 2,991,242.30 | |||
| 7 | Aggregate Gift Tax Payable (After Dec. 31, 1976) | 0.00 | 0.00 | |||
| 8 | Tax Before Unified Credit (Line 6 - Line 7) | 1,995,560.00 | 2,991,242.30 | |||
| 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 | 0.00 | 865,442.30 | |||
| 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) | 0.00 | 865,442.30 | |||
| 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 | 0.00 | 865,442.30 | |||
| 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) | 0.00 | 865,442.30 | |||
| 24 | Total Transfer Tax Previously Assessed | 0.00 | ||||
| 25 | Total Transfer Tax Increase/Decrease (Line 23 - Line 24) | 865,442.30 | ||||
| 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) | 865,442.30 | ||||
Section 6166(h) - Example 1 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 | 0.00 | 0.00 | 0.00 |
| 2 | Schedule B - Stocks and Bonds | 1,000,000.00 | 0.00 | 1,000,000.00 |
| 3 | Schedule C - Mortgages, Notes, and Cash | 500,000.00 | 0.00 | 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 | 3,000,000.00 | 2,500,000.00 | 5,500,000.00 |
| 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 | 5,700,000.00 | 2,500,000.00 | 8,200,000.00 |
| 11 | Schedule U - Qualified Conservation Easement Exclusion | 0.00 | 0.00 | 0.00 |
| 12 | Gross Estate less exclusion | 5,700,000.00 | 2,500,000.00 | 8,200,000.00 |
| 13 | Schedule J - Funeral and Administration Expenses | 450,000.00 | 10,794.24 | 460,794.24 |
| 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 | 10,794.24 | 586,394.24 |
| 17 | Allowable deductions from Schedules J and K | 575,600.00 | 10,794.24 | 586,394.24 |
| 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 | 10,794.24 | 586,394.24 |
| 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 | 10,794.24 | 586,394.24 |
| 26 | Tentative taxable estate | 5,124,400.00 | 2,489,205.76 | 7,613,605.76 |
Section 6166(h) - Example 1 Form 886-A - EXPLANATION OF ITEMS | |||
| Schedule F - Other Miscellaneous Property | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| 1 | Section 6166 business interest | 3,000,000.00 | 5,500,000.00 |
| Total of these Items | 3,000,000.00 | 5,500,000.00 | |
| Shown on Return | 3,000.000.00 | ||
| Change to Schedule | 2,500,000.00 | ||
Section 6166(h) - Example 1 Form 886-A - EXPLANATION OF ITEMS | |||
| Schedule J - Funeral and Administrative Expenses | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| B-4(d) Interest on Federal estate tax | 0.00 | 10,794.24 | |
| Total of these Items | 0.00 | 10,794.24 | |
| Shown on Return | 0.00 | ||
| Change to Schedule | 10,794.24 | ||
Section 6166(h) - Example 1 §6166(b)(6) Adjusted Gross Estate Computation | ||||||
|---|---|---|---|---|---|---|
| Gross estate | 8,200,000.00 | |||||
| Schedule J - Funeral and Administrative Expenses | ||||||
| A. | Funeral expenses | 25,000.00 | ||||
| B. | Administration expenses | 435,794.24 | ||||
| Total Schedule J | 460,794.24 | |||||
| Schedule K - Debts of Decedent | 125,600.00 | |||||
| Schedule K - Mortgages and Liens | 0.00 | |||||
| Total Schedule K | 125,600.00 | |||||
| Total Schedules J and K debts and expenses | 586,394.24 | |||||
| Allowable amount of deductions | 586,394.24 | |||||
| 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 | 586,394.24 | |||||
| Adjustment for expenses incurred after the return was filed | (10,794.24) | |||||
| Adjusted Schedules J, K, and L debts and expenses | 575,600.00 | 575,600.00 | ||||
| Section 6166(b)(6) adjusted gross estate | 7,624,400.00 | |||||
Section 6166(h) - Example 1 §6166(a)(2) Ratio Computation | ||||
| Section 6166 business value, divided by | 5,500,000.00 | |||
| Section 6166(b)(6) adjusted gross estate, yields | 7,624,400.00 | |||
| Section 6166(a)(2) ratio for the maximum amount of tax payable in installments | 0.721368 | |||
Section 6166(h) - Example 1 §6166(a) Annual Installment | |
| Portion of deficiency attributable to the closely held business interest, which is also the total amount of estate tax as corrected | 865,442.30 |
| Section 6166(a)(2) ratio expressed as a percentage | 72.1368% |
| Maximum amount of deficiency that may be paid in installments | 624,302.38 |
| Number of installments selected | 10 |
| The annual installment, the first of which is due Nov-17-2021 | 62,430.24 |
| Tax not deferred under section 6166 and due on the return due date | 241,139.92 |
Section 6166(h) Example 1 §6166(a) Catch-Up Payment Due Apr-26-2018 | ||
| Non-deferred tax due Nov-17-2016 | 241,139.92 | |
| Amounts due on the 1st anniversary date of Nov-17-2017 | ||
| Interest at R% on the non-deferred tax | 7,341.04 | |
| Interest at 2% on the first $592,000 of deferred tax | 11,954.88 | |
| Interest at 45% of R% on the $32,302.39 balance of deferred tax | 438.89 | 12,393.77 |
| Additional amounts due on Apr-26-2018 | ||
| Additional interest at R% on the non-deferred tax | 3,191.97 | |
| Interest at R% on the past-due interest of $12,393.77 | 261.23 | |
| Total catch-up payment due Apr-26-2018 | 264,327.93 | |
| Allowable interest deduction on Schedule J | ||
| Interest at R% on the non-deferred tax | 7,341.04 | |
| Additional interest at R% on the non-deferred tax | 3,191.97 | |
| Interest at R% on the past-due interest of $12,393.77 | 261.23 | |
| Allowable interest deduction | 10,794.24 | |
| 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. | ||