(b1) - Section 6166(b)(1) - Interest in a Closely Held Business
Section 6166(b)(1)(C)  - Example 5
Decedent owned 19% of the voting stock of Corporation A. There are more than 45 shareholders. The gross value of Decedent's 19% interest is discounted 28% to arrive at its §6166(b)(4) estate tax value, which is more than 35% of the adjusted gross estate. This is the only business interest for which a §6166 election is contemplated. Three of the other shareholders are family members described in §267(c)(4) who own a total of 15% of the voting stock (5% each). Even after their ownership interests are automatically attributed to Decedent under §6166(b)(2)(D), there are still more than 45 shareholders. The estate makes a §6166(b)(7) election to attribute the family members' interests in the voting stock to Decedent for purposes of the 20% test in §6166(b)(1)(C)(i).
Result: The discounted estate tax value of Decedent's 19% portion of the voting stock qualifies for a §6166 election under §6166(b)(1)(C)(i), since Decedent is treated as having more than 20% in value of the voting stock included in determining the gross estate. However, the maximum deferral period is 9 years, no part of the deferred tax draws interest at the special 2% rate, and the first installment is due on the return due date determined without regard to any extensions of time to file.
Section 6166(b)(1)(C)  - Example 5 
Corporation A - Some Shareholders are §267(c)(4) Family Members
More Than 45 Shareholders After §6166(b)(2)(D) Attribution
§6166(b)(7) Election
Full value of Corporation A50,000,000.00
Outstanding shares of voting common stock10,000
Per-share value of voting common stock5,000.00
Shares of voting common stock owned by Decedent1,900
Shares of voting common stock owned by Brother500
Shares of voting common stock owned by Sister A500
Shares of voting common stock owned by Sister B500
Corporation A Shareholders
Total number of shareholders including Decedent50
Brother - §6166(b)(2)(D) attribution to Decedent1
Sister A - §6166(b)(2)(D) attribution to Decedent1
Sister B - §6166(b)(2)(D) attribution to Decedent1
Number of shareholders after §6166(b)(2)(D) attribution to Decedent47
Decedent's Interest in Corporation A
Per-share value of voting common stock in Corporation A before discounts5,000.00
Valuation discounts28%
§6166(b)(4) discounted estate tax value per share3,600.00
Shares of voting common stock owned by Decedent at date of death1,900
§6166(b)(4) estate tax value of Decedent's 1,900 shares of voting stock6,840,000.00
Full value of voting common stock in Corporation A50,000,000.00
Percentage in value of voting stock in Corporation A included in determining Decedent's gross estate13.68%
Siblings' Interests in Corporation A
Per-share value of voting common stock in Corporation A before discounts5,000.00
Valuation discounts28%
§6166(b)(4) discounted estate tax value per share3,600.00
Shares of voting common stock owned by each sibling at date of death500
§6166(b)(4) estate tax value of each sibling's 500 shares of voting stock1,800,000.00
Full value of voting common stock in Corporation A50,000,000.00
Percentage in value of voting stock in Corporation A owned by each sibling3.60%
§6166(b)(1)(C)(i) Percentage in Value of Voting Stock Owned by Family Members
 No. of Shares% in Value
Brother - 5% of the voting stock5003.60%
Sister A - 5% of the voting stock5003.60%
Sister B - 5% of the voting stock5003.60%
Totals1,50010.80%
§6166(b)(1)(C)(i) Percentage in Value of Voting Stock Owned by Decedent
 No. of Shares% in Value
Decedent - 19% of the voting stock1,90013.68%
Decedent - from §267(c)(4) family members via §6166(b)(7) election to attribute their percentages in value of voting stock to Decedent for purposes of the 20% test of §6166(b)(1)(C)(i)1,50010.80%
Totals3,40024.48%
Corporation Value Included in Decedent's Gross Estate
Per-share value of voting common stock5,000.00
Valuation discounts28%
Discounted estate tax value per share3,600.00
Shares of voting common owned by Decedent at date of death - 19% of the total1,900
§6166(b)(4) estate tax value of Decedent's interest in Corporation A6,840,000.00
§6166(b)(6) Adjusted Gross Estate Computation
Gross estate20,840,000.00
Sections J, K, and L deductions - §2053 and §20545,250,000.00
§6166(b)(6) adjusted gross estate15,590,000.00
§6166(a)(2) Ratio Computation
Section 6166 closely held business amount6,840,000.00
Section 6166(b)(6) adjusted gross estate15,590,000.00
Section 6166(a)(2) ratio - maximum amount of tax which may be paid in installments - Qualifies for a §6166(b)(7) 9-year Extension - ratio is greater than 0.350000. The first installment is due on the return due date determined without regard to any extensions of time to file, and the entire amount of tax which may be paid in installments draws interest at 45% of R% (regular underpayment interest rates).0.438743

There are more than 45 shareholders in Corporation A and the estate tax value of Decedent's interest in Corporation A exceeds 35% of the adjusted gross estate. Less than 20% in value of the voting stock in Corporation A is included in Decedent's gross estate. Three of the other shareholders are family members described in §267(c)(4). After the automatic attributions of §6166(b)(2)(D), there are still more than 45 shareholders. The estate makes a §6166(b)(7) election to attribute the family members' percentages in value of the voting stock to Decedent for purposes of the 20% test in §6166(b)(1)(C)(i). The Decedent's interest in Corporation A qualifies for a §6166(b)(7) extension.

Note that the §6166(b)(1)(C)(i) percentages in value do not equal the percentages of voting stock owned. Section 6166(b)(4) provides:

  • For purposes of this section, value shall be value determined for purposes of chapter 11 (relating to estate tax).

The discounted estate tax value of $3,600 per share is related to the $50,000,000 full value of all 10,000 shares when determining the percentage in value of voting stock owned by Decedent and each of the §267(c)(4) family members.