Section 6166(b)(2)(C) - Example 1 (Based on PLR 200006034)
This example is based on PLR 200006034. The only mathematical information given in the PLR is that the value of the real estate with building was "approximately 44% of the value of the automotive parts business." The automotive parts business was a single business entity composed of the real estate with building and the operating Corporation. The figures in this example are hypothetical and are based on a 2016 date of death.
Section 6166(b)(2)(C) - Example 1 (Based on PLR 200006034) Closely Held Business Assets Owned by the Grantor Trust on Date of Death | |
| Land and building - value is "approximately 44%" of the total business value (43.95% here) | 6,680,000.00 |
| 100% of the Corporate stock value | 8,520,000.00 |
| Total closely held business value owned by the Grantor Trust | 15,200,000.00 |
Section 6166(b)(2)(C) - Example 1 (Based on PLR 200006034) Closely Held Business Assets Indirectly Owned by Decedent on Date of Death | |
| Land and building - assets used in Decedent's active trade or business as a sole proprietor under § 6166(b)(1)(A) | 6,680,000.00 |
| Decedent's stock in a corporation carrying on a trade or business under § 6166(b)(1)(C) | 8,520,000.00 |
| Total closely held business value included in Decedent's gross estate | 15,200,000.00 |
| §6166(b)(6) Adjusted Gross Estate Computation | |
| Gross estate | 40,000,000.00 |
| Allowable §2053 and §2054 deductions | 3,180,000.00 |
| Section 6166(b)(6) adjusted gross estate | 36,820,000.00 |
| §6166(a)(2) Ratio Computation | |
| Section 6166 business value | 15,200,000.00 |
| Section 6166(b)(6) adjusted gross estate | 36,820,000.00 |
| Section 6166(a)(2) ratio - maximum amount of tax which may be paid in installments | 0.412819 |
Section 6166(b)(2)(C) - Example 1 (Based on PLR 200006034) Hypothetical Estate Tax Computation | ||||
|---|---|---|---|---|
| 1 | Gross estate | 40,000,000.00 | ||
| Schedules J, K, and L deductions | 3,180,000.00 | |||
| Marital deduction | 0.00 | |||
| Charitable deduction | 2,500,000.00 | |||
| 2 | Total allowable deductions | 5,680,000.00 | ||
| 3a | Tentative taxable estate | 34,320,000.00 | ||
| 3b | State death tax deduction | 4,958,000.00 | ||
| 3c | Taxable estate | 29,362,000.00 | ||
| 4 | Adjusted taxable gifts | 0.00 | ||
| 5 | Add lines 3c and 4 | 29,362,000.00 | ||
| 6 | Tentative tax on the line 5 amount | 11,690,600.00 | ||
| 7 | Total gift tax paid or payable | 0.00 | ||
| 8 | Gross estate tax | 11,690,600.00 | ||
| 9a | Basic exclusion amount | 5,450,000.00 | ||
| 9b | DSUE amount | 0.00 | ||
| 9c | Applicable exclusion amount | 5,450,000.00 | ||
| 9d | Applicable credit amount | 2,125,800.00 | ||
| 10 | Adjustment to applicable credit amount | 0.00 | ||
| 11 | Allowable applicable credit amount | 2,125,800.00 | ||
| 12 | Subtract line 11 from line 8 | 9,564,800.00 | ||
| 13 | Credit for foreign death taxes | 0.00 | ||
| 14 | Credit for tax on prior transfers | 0.00 | ||
| 15 | Total credits | 0.00 | ||
| 16 | Net estate tax | 9,564,800.00 | ||
| 17 | Generation-Skipping taxes payable | 0.00 | ||
| 18 | Total transfer taxes | 9,564,800.00 | ||
| Maximum Amount of Tax Which May be Paid in Installments | ||||
| Net estate tax | 9,564,800.00 | |||
| Section 6166(a)(2) ratio - maximum amount of tax which may be paid in installments | 0.412819 | |||
| Maximum amount of tax which may be paid in installments | 3,948,531.17 | |||
| Tax not deferred under § 6166 and payable on the return due date | 5,616,268.83 | |||
6166(b)(2)(C) Example 1, Comment 1: In the PLR, § 6166(b)(2)(C) treats Decedent as having owned outright 100% of the real estate with building as a sole proproietorship and 100% of the stock in Corporation that was carrying on an active trade or business. Both assets were aggregated for purposes of § 6166 in the PLR. The PLR does not specifically mention § 6166(c), which applies when the estate tax values of 2 or more qualifying businesses are to be aggregated for treatment as an interest in a single closely held business, although it does state that "we conclude that these assets are interests in a single closely held business for purposes of section 6166", which is the language used in § 6166(c).) The PLR states that the real estate and building "were clearly essential" to Decedent's automotive supply business and "constituted a fundamental part of the overall operation" of the business. See PLR 8419002, where IRS ruled that a number of fractional interests in oil well drilling partnerships owned by the Decedent, whose estate tax values were each less than 20% of the total partnership value, were assets used in the Decedent's oil production business as a sole proprietor and were not to be treated as separate partnership interests subject to the 20% of total value requirement of § 6166(c). Had § 6166(c) been required in order to aggregate their estate tax values, none of the fractional interests in the oil well drilling partnerships would have constituted an interest in a single closely held business and that decedent's estate would not have been able to defer payment of estate tax under § 6166. Also see Rev. Rul. 2006-34, Example 5 (real estate owned by decedent and leased to decedent's auto dealership both qualified as assets used in an active trade or business for purposes of § 6166).