Bifurcated 6166 Elections

There is nothing in the Code that prohibits a bifurcated section 6166 election.

A section 6166 bifurcation election allocates the total extended tax between two closely held business values. Each business value exceeds 35% of the adjusted gross estate. One business value might qualify for a regular 6166(a) 14-year deferral, while the other business value might qualify for a 9-year deferral under sections 6166(b)(7) or 6166(b)(8)(A)(i) or a 4-year deferral under sections 6166(b)(8)(A)(ii) or 6166(b)(10), or a separate 14-year deferral under section 6166(a).

Bifurcated section 6166 elections have been accepted by IRS for many years. The author directly worked with several such bifurcated elections during his career with IRS.

Until Aug-30-2018, Internal Revenue Manual (IRM) Part 4.25.2.1.6.4 (Campus Procedures for Estate and Gift Tax) dated Sep-11-2009 provided:

4.  If the decedent owns two businesses that independently qualify for the IRC section 6166 election, the estate may elect to bifurcate the installment payments. Bifurcation allows the taxpayer to pay taxes attributable to each closely held business over the longest installment period available for that particular business. To receive this treatment, the executor must make a separate election for each business.

Revised and updated Campus Procedures for Estate and Gift Tax in IRM 4.25.2.1 was published Aug-30-2018. The materials in the current version of IRM 4.25.2.1 et seq. treat many aspects of section 6166 elections, but no longer mention bifurcation of tax extended under section 6166.

Notwithstanding the omission of any references in the current IRM to bifurcated section 6166 elections, bifurcation elections continue to be filed with and accepted by the IRS.

IRS Appeals IRM 8.7.4.2.2.9, issued Aug-18-2014, provided:

9.  If the estate owns two businesses that independently qualify for the IRC 6166 election, the executor may elect to bifurcate the installment payments. By contrast, if the estate owns two or more businesses that do not independently qualify for the IRC 6166 election, the interests may be treated as an interest in a single closely held business to determine eligibility. IRC 6166(c).  

Appeals Estate and Gift Tax IRM 8.7.4 was updated July 30, 2019 to omit any references to bifurcation.

The IRS has yet to publish guidance on how to do bifurcated section 6166 computations. However, existing rules for section 6166(a), 6166(b)(7), 6166(b)(8), and 6166(b)(10) computations, together with rules regarding interrelated interest deductions and allocations of payments in various scenarios, allow us to construct rules for running bifurcation computations that should agree with rules that will eventually be published by IRS.