§6166(a) Example 1 A Simple 6166(a) Election Without Any Adjustments | ||||
|---|---|---|---|---|
| May-31-2014 | Date of death | |||
| 50,000,000.00 | Gross estate | |||
| 10,500,000.00 | Less: Total allowable section 2053 and section 2054 deductions | |||
| 39,500,000.00 | Section 6166(b)(6) adjusted gross estate | |||
| Feb-28-2015 | Estate tax return due date and return filing date | |||
| 39,500,000.00 | Taxable estate (may or may not be the same as the adjusted gross estate) | |||
| 13,664,000.00 | Net estate tax | |||
| 20,000,000.00 | Estate tax value of closely held business, divided by | |||
| 39,500,000.00 | Section 6166(b)(6) adjusted gross estate, yields | |||
| 50.6329% | §6166(a)(2) ratio, rounded to 6 decimal places | |||
| 13,664,000.00 | Net estate tax, times | |||
| 50.6329% | §6166(a)(2) ratio, rounded to 6 decimal places, yields | |||
| 6,918,479.46 | Maximum amount of tax which may be paid in installments under §6166(a) | |||
| 10 | Number of installments elected by the estate | |||
| 691,847.95 | Annual installment | |||
| 6,745,520.54 | Tax not deferred under §6166 and paid with the return when filed | |||
| 6,918,479.46 | Maximum amount of tax which may be paid in installments under §6166(a)(1) | |||
| 580,000.00 | Portion of tax deferred at 2% interest rate | |||
| 6,338,479.46 | Portion of tax deferred at 45% of regular underpayment interest rates (45% of R%) | |||
| 0.083833 | §6601(j)(4) ratio of payments allocable to the 2% portion of deferred tax | |||
| 0.916167 | §6601(j)(4) ratio of payments allocable to the 45% of R% portion of deferred tax | |||
| 1.000000 | Total of allocation ratios | |||
Comment
The estate tax return was filed on the return due date. Estate tax of $6,745,520.54 was not deferred under section 6166 and was paid when the return was filed. The estate elected to pay the balance of tax, which was equal to the maximum amount of tax eligible for deferral, in 10 equal installments with the first installment due on the 5th anniversary date of Feb-28-2020. Interest only will be payable on the anniversary dates in 2016, 2017, 2018, and 2019. The first annual installment of $691,847.95 of tax, plus interest from Feb-28-2019, will be payable on Feb-28-2020. This will remain true for the next 9 installments, the last of which will be due on Feb-28-2029. The effective deferral period is 14 years, calculated from the return due date of Feb-28-2015 through the tenth and final installment due date of Feb-28-2029.
NOTE: The interest rates and 6601(j)(4) allocation ratios applicable for a section 6166(a) election are also applicable to an election made under section 6166(b)(10), the only differences being that in a (b)(10) election the first installment is due on the return due date, determined without regard to any extensions, and the maximum number of installments is 5, for an effective deferral period of 4 years; 20% of the deferred tax would be payable on each of the 5 installment due dates.