Section 6166 is an extremely complicated provision using different tests and having different rules apply for different purposes. And, as this article explains, little case law has developed under Section 6166. Usually, the U.S. estate tax must be paid within nine months after a decedent's death or penalties may be imposed. If an estate qualifies, however, it may elect to obtain an automatic extension, under IRC Section 6166, to defer the payment of that portion of the U.S. estate tax which is attributable to the inclusion in the gross estate of certain closely held business interests. For example, if 40% of the decedent's adjusted gross estate consists of an interest in a qualifying business, then 40% of the federal estate tax may be deferred pursuant to Section 6166. (No authority upon which a taxpayer may rely seems to resolve whether having the closely held business qualify for the estate tax charitable or marital deduction affects the allowance of the Section 6166 election or the amount of estate tax that may be deferred. However, Ltr. Rul. 200518047 suggests that funding a marital deduction bequest with the closely held business does not affect the allowance of the election or the tax that may be deferred.) Generally, if the estate qualifies, it may elect to defer the payment of the estate tax for five years after the normal nine month payment due date, paying annual interest only. From that fifth anniversary to the 14th anniversary, the estate pays one-tenth of the estate tax due (together with interest on the amount of tax unpaid) each year.
Jonathan G. Blattmachr, Mitchell M. Gans, and Elisabeth O. Madden,
Untangling Installment Payments of Estate Tax Under Section 6166, 36 Est. Plan. 3
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