PLR 8846001 - §6166(h) Computation Illustration 2
§6166(h) - Calculation Of The Amount Of A Deficiency Payable In Installments
Interest Is Interrelated With The Tax
May-17-1980Date of death
Feb-17-1981Estate tax return due date and the return filing date. The tax shown due of $115,287.42 is paid in full. (The figure given on the first page of PLR 8846001 contains a typo, reporting this figure as $115,787.42.) A closely held business is included in the gross estate, but neither a §6166 election nor a protective §6166 election is filed with the return. (In 1980 a closely held business value had to exceed 65% of the adjusted gross estate in order to qualify for a §6166 election.)
An IRS field examination is completed . The estate agrees to a deficiency of $67,449.18, for total estate tax of $182,736.60. The closely held business represents 74.18347% of the adjusted gross estate. The maximum amount of tax that could have been paid in installments had a §6166 election been filed with the return was $135,560.36.
NOTE: The computations shown below are hypothetical - the only figures given in the PLR are those cited above, from which we derived a set of hypothetical figures to flesh out the computations. In this Illustration the Federal estate tax is interrelated with the tax (for dates of death in 1980, 100% of the interest accrued on tax deferred under §6166 was deductible on Schedule J as an administration expense).
Also, these sample computations use analogues of current IRS Estate Tax Examination report forms which are generated by the IRS Notebook application used by IRS Estate Tax Attorneys in their examinations of estate tax returns, Forms 706. The IRS Notebook application can run computations for dates of death from 1977 through 2016.
PLR 8846001 - §6166(h) Computation Illustration 2
Hypothetical Report of Estate Tax Examination Changes
Interest Is Interrelated With The Tax
Form 1273
Estate of: Decedent SSN: 999-99-9999V D/D: May-17-1980
1Tentative Taxable Estate Shown on Return or Previously Adjusted536,325.50
2Increase/Decrease in Tentative Taxable Estate205,403.08
3aTentative Taxable Estate as Corrected (Line 1 plus/minus Line 2)741,728.58
NOTE: The only figures given in PLR 8846001 are those shown on Lines 23 through 29, below, the maximum amount that could have been paid in installments ($135,560.36), and the §6166(a)(2) ratio.Shown on Return/ As Previously AssessedAs Corrected
3bState Death Tax Deduction0.000.00
3cTaxable Estate as Corrected (Line 3a - Line 3b)536,325.50741,728.58
4Adjusted taxable gifts0.000.00
5Total536,325.50741,728.58
6Tentative Tax169,240.44245,239.57
7Aggregate Gift Tax Payable (After Dec. 31, 1976)0.000.00
8Tax Before Unified Credit (Line 6 - Line 7)169,240.44245,239.57
9aBasic Exclusion Amount161,562.50161,562.50
9bDeceased Spousal Unused Exclision (DSUE)0.000.00
9cApplicable Exclusion Amount (Line 9a + Line 9b)161,562.50161,562.50
9dApplicable Credit Amount (From Table A, using Line 9c)42,500.0042,500.00
10Adjustment to Unified Credit0.000.00
11Allowable Applicable Credit Amount42,500.0042,500.00
12Tax Before SDTC (Line 8 - Line 11)*Cannot be < 0126,740.44202,739.57
13State Death Tax Credit11,453.0220,002.97
Tentatively Allowed
Submit Evidence by
14Net Tax Post State Death Tax Credit (Line 12 - Line 13)115,287.42182,736.60
15Gift Tax Credit (Pre-1977 Gifts)0.000.00
16Foreign Death Tax Credit (Statutory)0.000.00
17Prior Transfer Credit0.000.00
18Foreign Death Tax Credit (Treaty)/Canadian Marital Credit0.000.00
19Total Credits (Sum of Lines 15 through 18)0.000.00
20Net Estate Tax Payable115,287.42182,736.60
21Generation-Skipping Transfer Taxes (Schedule R, Part 2, Line 12)0.000.00
22Increased Estate Tax (Section 4980A, Schedule S)0.000.00
23Total Federal Estate Tax (Sum of Lines 20 through 22)115,287.42182,736.60
24Total Transfer Tax Previously Assessed115,287.42
25Total Transfer Tax Increase/Decrease (Line 23 - Line 24)67,449.18
26Penalties Previously Assessed - Code(s)0.00
27Penalties as Corrected - Code(s)0.00
28Net Penalties Increase/Decrease (Line 27 - Line 28)0.00
29Net Tax and Penalties Payable Increase/Decrease (Line 25 + Line 28)67,449.18
PLR 8846001 - §6166(h) Computation Illustration 2
Hypothetical Line Adjustment - Estate Tax
Form 6180
Estate of: Decedent SSN: 999-99-9999V D/D: May-17-1980
Shown on Return/ As Previously AssessedChangeAs Corrected
1Schedule A - Real Estate100,000.000.00100,000.00
2Schedule B - Stocks and Bonds300,000.00258,292.00558,292.00
3Schedule C - Mortgages, Notes, and Cash148,500.000.00148,500.00
4Schedule D - Life Insurance50,000.000.0050,000.00
5Schedule E - Jointly Owned Property0.000.000.00
6Schedule F - Other Miscellaneous Property54,825.50(12,934.50)41,891.00
7Schedule G - Transfers During Decedent's Life0.000.000.00
8Schedule H - Powers of Appointment0.000.000.00
9Schedule I - Annuities0.000.000.00
10Gross estate653,325.50245,357.50898,683.00
11Schedule U - Qualified Conservation Easement Exclusion0.000.000.00
12Gross Estate less exclusion653,325.50245,357.50898,683.00
13Schedule J - Funeral and Administration Expenses75,000.0039,954.42114,954.42
14Schedule K - Debts of Decedent42,000.000.0042,000.00
15Schedule K - Mortgages0.000.000.00
16Total of Schedules J and K117,000.0039,954.42156,954.42
17Allowable deductions from Schedules J and K117,000.0039,954.42156,954.42
18Schedule L - Net Losses During Administration0.000.000.00
19Schedule L - Expenses on Property Not Subject to Claims0.000.000.00
20Total - Lines 17, 18, and 19117,000.0039,954.42156,954.42
21Schedule M - Marital Deduction0.000.000.00
22Schedule O - Charitable Deduction0.000.000.00
23ESOP Deduction0.000.000.00
24Schedule T - QFOBI Deduction0.000.000.00
25Total allowable deductions117,000.0039,954.42156,954.42
26Tentative taxable estate536,325.50205,403.08741,728.58
PLR 8846001 - §6166(h) Computation Illustration 2
Form 886-A - HYPOTHETICAL EXPLANATION OF ITEMS
Schedule B - Stocks and Bonds
Shown on Return/ As Previously AssessedAs Corrected
1Value of closely held business interest300,000.00558,292.00
Total of these Items300,000.00558,292.00
Shown on Return300,000.00
Change to Schedule258,292.00
PLR 8846001 - §6166(h) Computation Illustration 2
Form 886-A - HYPOTHETICAL EXPLANATION OF ITEMS
Schedule F - Other Miscellaneous Property
Shown on Return/ As Previously AssessedAs Corrected
1Total of miscellaneous assets54,825.5041,891.00
Total of these Items54,825.5041,891.00
Shown on Return54,825.50
Change to Schedule(12,934.50)
PLR 8846001 - §6166(h) Computation Illustration 2
Form 886-A - HYPOTHETICAL EXPLANATION OF ITEMS
Schedule J - Funeral and Admistrative Expenses
Shown on Return/ As Previously AssessedAs Corrected
B-2 Attorney fees50,000.0075,000.00
B-4(d) Additional administration expenses0.004,100.46
B-4(e) Interest on Federal estate tax0.0010,853.96
Total of these Items50,000.0089,954.42
Shown on Return50,000.00
Change to Schedule39,954.42
PLR 8846001 - §6166(h) Computation Illustration 2
§6166(b)(6) Adjusted Gross Estate Computation
Gross estate 898,683.00
Schedule J - Funeral and Administrative Expenses
A.Funeral expenses15,000.00
B.Administration expenses99,954.42
Total Schedule J114,954.42
Schedule K - Debts of Decedent42,000.00
Schedule K - Mortgages and Liens0.00
Total Schedule K42,000.00
Total Schedules J and K debts and expenses156,954.42
Allowable amount of deductions156,954.42
Schedule L - Net Losses0.00
Schedule L - Expenses on property not subject to claims0.00
Total Schedules J, K, and L debts and expenses156,954.42
Adjustment for expenses incurred after the return was filed(10,853.96)
Adjusted Schedules J, K, and L debts and expenses146,100.46146,100.46
Section 6166(b)(6) adjusted gross estate 752,582.54
PLR 8846001 - §6166(h) Computation Illustration 2
§6166(a)(2) Ratio Computation
Section 6166 business value, divided by558,292.00
Section 6166(b)(6) adjusted gross estate, yields752,582.54
Section 6166(a)(2) ratio for the maximum amount of tax payable in installments0.741835
NOTE: The 6166(a)(2) percentage given in the PLR is 74.18347%, which is a decimal carried out to 7 places. Our example carries the ratio out to 6 decimal places instead of 7, which is consistent with page 15 of the current Form 706 Instructions, and is shown here as 74.1835%.
PLR 8846001 - §6166(h) Computation Illustration 2
§6166(a) Annual Installment
Total deficiency67,449.18
Section 6166(a)(2) ratio expressed as a percentage74.1835%
Maximum amount of tax eligible for payment in installments50,036.16
Number of installments selected10
The annual installment, the first of which is due Feb-17-19865,003.62
PLR 8846001 - §6166(h) Computation Illustration 2
Maximum Amount of Tax That Could Have Been Paid in Installments
Corrected total estate tax182,736.60
Section 6166(a)(2) ratio expressed as a percentage74.1835%
Maximum amount of tax that could have been paid in installments135,560.41
Number of installments selected10
The annual installment, the first of which is due Feb-17-198613,556.04
Tax not deferred under section 6166 and due on the return due date47,176.19
NOTE: The PLR reports the maximum amount of tax that could have been paid in installments as $135,560.36. The difference here is attributable to reducing the number of decimal places in the §6166(a)(2) ratio from 7 in the PLR to 6 pursuant to the Instructions for Form 706. The PLR also states that the §6166(a)(2) ratio was "rounded to 74 percent" of the adjusted gross estate, but this is not borne out by the mathematics (74.0000% of $182,736.60 = $135,225.09). The "rounding" was only for discussion purposes.