Minnesota 6166 Computation 3 | NELSON M BLAKELY, LLC

(k5) - Section 6166(k)(5) - Transfers Within 3 Years of Death - Section 2035(c)(2)

Section 6166(k)(5)

This computation example is loosely based on McNeely v. United States, but with a 2016 date of death and several other additional factors.

Minnesota 6166 Computation 3 2016 Date of Death
May-10-2016	Date of Death.
Feb-10-2017	Federal Form 4768 filed requesting an extension of time to file and an extension of time to pay, with a similar request filed with Minnesota.
	$18,000,000.00 - Federal estate tax paid for the estimated amount of tax that will not be deferred under the projected section 6166 election.
	$8,000,000.00 - Minnesota estate tax paid for the estimated amount of tax that will not be deferred under the projected Minnesota section 6166 election.
Aug-10-2017	Federal and Minnesota estate tax return and section 6166 election filing dates. The 6166 election statements show that there were overpayments of Federal and Minnesota non-deferred estate taxes on the estate tax return due dates.
Feb-10-2022	First installment due dates under the section 6166 elections.
Adjusted Taxable Gifts
$34,266,000.00	Adjusted taxable gifts on Line 4, page 1, Form 706.
$11,534,400.00	Line 7 gift tax paid or payable at 2016 rates.

There are adjusted taxable gifts reported on the estate tax return. The estate must therefore prepare a §6166(k)(5) and §2035(c)(2) secondary §6166(b)(6) adjusted gross estate computation to determine if the closely held business value exceeds 35% of the modified adjusted gross estate. If it does exceed 35%, the estate will be permitted to make the regular §6166 election.

Minnesota 6166 Computation 3 2013 Federal Form 706, Page 1 - Tax Computation for 2016 Date of Death
1	Total gross estate less exclusion			1	276,644,400.00
2	Tentative total allowable deductions			2	37,525,000.00
3a	Tentative taxable estate (before state death tax deduction) (subtract line 2 from line 1)			3a	239,119,400.00
b	State death tax deduction			b	8,000,000.00
c	Taxable estate (subtract line 3b from line 3a)			c	231,119,400.00
4	Adjusted taxable gifts			4	34,266,000.00
5	Add lines 3c and 4			5	265,385,400.00
6	Tentative tax on the amount on line 5			6	106,099,960.00
7	Total gift tax paid or payable			7	11,534,400.00
8	Gross estate tax (subtract line 7 from line 6)			8	94,565,560.00
9a	Basic exclusion amount	9a	5,450,000.00
9b	DSUE amount from predeceased spouse	9b	0.00
9c	Applicable exclusion amount (add lines 9a and 9b)	9c	5,450,000.00
9d	Applicable credit amount (tentative tax on amount in 9c)	9d	2,125,800.00
10	Adjustment to unified credit (applicable credit amount)	10	0.00
11	Allowable applicable credit amount (subtract line 10 from line 9)			11	2,125,800.00
12	Subtract line 11 from line 8 (but do not enter less than zero)			12	92,439,760.00
13	Credit for foreign death taxes (from Schedule P)	13	0.00
14	Credit for tax on prior transfers (from Schedule Q)	14	0.00
15	Total credits (add lines 13 and 14)			15	0.00
16	Net estate tax (subtract line 15 from line 12)			16	92,439,760.00
17	Generation-skipping transfer (GST) taxes payable (from Schedule R, Part 2, line 10)			17	0.00
18	Total transfer taxes (add lines 16 and 17)			18	92,439,760.00
19	Prior payments. Explain in an attached schedule.			19	18,000,000.00
20	Balance due (or overpayment)			20	74,439,760.00

Minnesota 6166 Computation 3 2013 Federal Form 706, Page 3 - Recapitulation
Item No.	Gross estate		Alternate value		Value at date of death
1	Schedule A - Real Estate	1			12,500,000.00
2	Schedule B - Stocks and Bonds	2			27,000,000.00
3	Schedule C - Mortgages, Notes, and Cash	3			10,000,000.00
4	Schedule D - Insurance on the Decedent's Life	4			2,500,000.00
5	Schedule E - Jointly Owned Property	5			16,750,000.00
6	Schedule F - Other Miscellaneous Property	6			200,000,000.00
7	Schedule G - Transfers During Decedent's Life	7			7,894,400.00
8	Schedule H - Powers of Appointment	8			0.00
9	Schedule I - Annuities	9			0.00
10	Total gross estate (add items 1 through 9)	10			276,644,400.00
11	Schedule U - Qualified Conservation Easement Exclusion			11	0.00
12	Total gross estate less exclusion (subtract line 11 from line 10).			12	276,644,400.00
Item No.	Deductions				Amount
13	Schedule J - Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims			13	16,525,000.00
14	Schedule K - Debts of the Decedent			14	13,500,000.00
15	Schedule K - Mortgages and Liens			15	7,500,000.00
16	Total of items 13 through 15			16	37,525,000.00
17	Allowable amount of deductions from item 16			17	37,525,000.00
18	Schedule L - Net Losses During Administration			18	0.00
19	Schedule L - Expenses Incurred in Administering Property Not Subject to Claims			19	0.00
20	Schedule M - Bequests, etc., to Surviving Spouse			20	0.00
21	Schedule O - Charitable, Public, and Similar Gifts and Bequests			21	0.00
22	Tentative total allowable deductions (add lines 17 through 21)			22	37,525,000.00

Schedule G includes gift tax paid on gifts made by the decedent within 3 years of the date of death. See §2035(b).

Minnesota 6166 Computation 3 Federal Section 6166(b)(6) Adjusted Gross Estate Computation
1	Total gross estate less exclusion	276,644,400.00
2	Total allowable sections 2053 and 2054 deductions	37,525,000.00
3	Section 6166(b)(6) adjusted gross estate	239,119,400.00
Section 6166(a)(2) Ratio for Maximum Amount of Tax Which May be Paid in Installments
4	Section 6166 business value	195,000,000.00
5	Section 6166(b)(6) adjusted gross estate	239,119,400.00
6	Section 6166(a)(2) ratio for the maximum amount of tax which may be paid in installments	0.815492
Section 6166(a)(2) Amount of Tax Which May be Paid in Installments and the Annual Installment
7	Net estate tax	92,439,760.00
8	Federal §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments	0.815492
9	Amount of tax which may be paid in installments	75,383,884.76
10	Number of annual installments elected	10
11	Annual installment	7,538,388.48
Overpayment of Non-Deferred Tax
12	Total Federal estate tax	92,439,760.00
13	Less: Federal estate tax which may be paid in installments	75,383,884.76
14	Federal estate tax not deferred and due on the return due date	17,055,875.24
15	Federal estate tax paid on the return due date	18,000,000.00
16	Overpayment of non-deferred tax, to be applied against tax installments as they come due	(944,124.76)

See IRS Form 4349 [computer generated] for Minnesota 6166 Computation 3.

Minnesota 6166 Computation 3 Federal Sections 6166(k)(5) and 2035(c)(2) Secondary Section 6166(b)(6) Computation
		Federal Estate Tax Return Values	§6166 Interests Gifted Within 3 Years of D/D	Total Gifts Within 3 Years of D/D	§6166(k)(5) and §2035(c)(2) Secondary Values
		(a)	(b)	(c)	(a) + (b) divided by (a) + (c)
1	§6166 closely held business value	195,000,000.00	0.00		195,000,000.00
2	§6166(b)(6) adjusted gross estate	239,119,400.00		20,000,000.00	259,119,400.00
3	§6166(a)(2) ratios for the maximum amount of tax which may be paid in installments - line 1 divided by line 2	0.815492			0.752549
Conclusion: The §6166(a)(2) ratios exceed 35% of the adjusted gross estate both before and after considering the gifts made by the decedent within 3 years of the date of death. Gifts of any §6166 interests (before any annual exclusions) are included in the numerator of the fraction, and all gifts made within 3 years of the date of death (before any annual exclusions) are included in the denominator. A regular §6166 election can therefore be made in this example. Only the figures reported on the estate tax return are to be used in calculating the tax to be paid in installments. This presentation follows the

Minnesota 6166 Computation 3 Minnesota Estate Tax and Minnesota Section 6166 Computation - 2016 Date of Death Form M706
1	Federal tentative taxable estate (from Federal Form 706 line 3(a))				1	239,119,400.00
2	a	Federal taxable gifts (from Federal Form 706 line 4)	2a	34,266,000.00
	b	Portion of line 2a made after June 30, 2013			2b	19,406,000.00
3	Any deduction taken for death taxes paid to a foreign country (from Federal Form 706, Schedule K)				3	0.00
4	Minnesota-Only QTIP property allowed on previously deceased spouse's estate tax return				4	0.00
5	Add lines 1, 2b, 3, and 4				5	258,525,400.00
6	Enter the total value of any deduction for qualified small business property or qualified property on Schedule M706Q, Part 7, line 4				6	0.00
7	Minnesota-Only QTIP Property. Enter the amount from Worksheet A (page 3 of this form)				7	0.00
8	Add lines 6 and 7				8	0.00
9	Subtract line 8 from line 5. This is your Minnesota taxable estate				9	258,525,400.00
10	Determine value by applying the amount on line 9 to the 2016 rate table in the instructions				10	40,828,064.00
11	Multiply line 10 by the amount calculated on Worksheet B, step 7				11	40,828,064.00
12	Nonresident decedent tax credit				12	0.00
13	Minnesota estate tax (subtract line 12 from line 11). If less than zero, enter zero				13	40,828,064.00
14	Total payments, including any extension payments				14	8,000,000.00
15	Subtract line 14 from line 13.				15	32,828,064.00
16	Penalties				16	0.00
17	Interest, if any				17	0.00

Minnesota 6166 Computation 3 Minnesota Estate Tax and Minnesota Section 6166 Computation - 2016 Date of Death
Minnesota Section 6166 Deferred Tax Computation
1	Total Minnesota estate tax	40,828,064.00
2	Federal §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments	0.815492
3	Minnesota estate tax which may be paid in installments	33,294,959.57
4	Number of Federal §6166 installments selected	10
5	Minnesota annual installment	3,329,495.96
Minnesota Overpayment of Non-Deferred Tax
6	Total Minnesota estate tax	40,828,064.00
7	Less: Minnesota estate tax which may be paid in installments	33,294,959.57
8	Minnesota tax not deferred and due on the return due date	7,533,104.43
9	Minnesota estate tax paid on the return due date	8,000,000.00
10	Overpayment of non-deferred tax, to be credited against Minnesota installments as they come due	(466,895.57)

The Federal and Minnesota estate tax returns were filed on their extended return due dates 6 months after the regular return due dates. Interest on Minnesota estate tax was accrued on the return filing dates (but is not payable (with additional interest) until the 1st anniversary date). Such interest is allowable in full as a deduction on Schedule J of the Federal estate tax return and could have been deducted in these return filing computations. However, we are assuming here that the estate will file supplemental estate tax returns in the near future to claim such interest as a deduction.

§6166/K/4