S6166_Paragraph
(c) - Section 6166(c) - Interest in 2 or More Closely Held Businesses
| Section 6166(c) - Example 3 | |||||
| Decedent died in 2016 owning an interest in 2 closely held businesses. Decedent's spouse also owned an interest in one of the businesses. The Decedent's estate wishes to make a §6166 election for the combined value of the two businesses. | |||||
| Business 1: Total value is $40,000,000. Decedent owned 20% of the business. Decedent's spouse also owned 20% of the business. There are fewer than 45 partners or shareholders. After valuation discounts of 35%, the estate tax value of the decedent's interest is 13.00% of the total value of the closely held business. The same valuation methods are applicable for the spouse's equal interest in the business, although only the value of the Decedent's interest is includible in the gross estate. Because the spouse's putative estate tax value equal to 13.00% of the total value is added to the Decedent's 13.00% interest for purposes of §6166(c) only, the Decedent's interest equal to 13.00% of the total value is eligible for aggregation under §6166(c). | |||||
| Business 2: Total value is $12,500,000. Decedent owned 30% of the business. There are fewer than 45 partners or shareholders. After valuation discounts of 30%, the estate tax value is 22.75% of the total business value, which means it is eligible for aggregation under §6166(c). However, the estate tax value of this business alone is 23.5605% of the adjusted gross estate, which means that a §6166 election cannot be made for this business alone. | |||||
| A surviving spouse is the only §267(c)(4) family member whose interest can be attributed to a decedent for purposes of the 20% test of §6166(c) without a §6166(b)(7) election. | |||||
| Closely Held Business Interests Owned by Decedent | |||||
| Total Value of Closely Held Business | Percentage Owned by Decedent | Gross Value of Decedent's Interest Before Discounts | Total Valuation Discounts | Value Included in Decedent's Gross Estate | Estate Tax Value as a Percentage of Total Value |
| 40,000,000.00 | 20.00% | 8,000,000.00 | 35% | 5,200,000.00 | 13.00% |
| 12,500,000.00 | 32.50% | 4,062,500.00 | 30% | 2,843,750.00 | 22.75% |
| Gross estate | 14,750,000.00 | ||||
| Allowable §2053 and §2054 deductions | 2,680,000.00 | ||||
| §6166(b)(6) adjusted gross estate | 12,070,000.00 | ||||
| Closely Held Business Interests Owned by Decedent's Spouse | |||||
| Total Value of Closely Held Business 1 | Percentage Owned by Decedent's Spouse as Tenant in Common | Gross Value of Spouse's Interest Before Discounts | Total Valuation Discounts | Value Included in Decedent's Gross Estate | Spouse's Interest as a Percentage of Total Value |
| 40,000,000.00 | 20.00% | 8,000,000.00 | 35% | - 0 - | 13.00% |
| Percentage of Total Value of Business 1 Treated as Having Been Included in Decedent's Gross Estate | |||||
| Percentage of total business value owned by Decedent outright | 13.00% | ||||
| Percentage of total business value owned by Decedent's spouse - automatically attributed to Decedent by §6166(c) for purposes of the 20-percent requirement within §6166(c) | 13.00% | ||||
| Percentage of total business value that is treated as having been included in Decedent's gross estate | 26.00% | ||||
| Conclusion: Section 6166(c) Aggregation is Available - Section 6166(b)(7) Election Not Required | |||||
| Closely held Business 1 value included in the gross estate | 5,200,000.00 | ||||
| Closely held Business 2 value included in the gross estate | 2,843,750.00 | ||||
| Section 6166(c) value treated as an interest in a single closely held business | 8,043,750.00 | ||||
| Taxable estate (which in this case happens to be the same as the adjusted gross estate) | 12,070,000.00 | ||||
| Net estate tax | 2,648,000.00 | ||||
| §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments | .666425 | ||||
| Maximum amount of tax which may be paid in installments | 1,764,693.40 | ||||
| Estate tax not deferred under §6166 and due on the return due date (determined without regard to any extensions of time to file) | 883,306.60 | ||||
If a §267(c)(4) family member other than the Decedent's surviving spouse held the interest in Business 1 described above, a §6166(c) aggregation could occur only with a §6166(b)(7) election. The automatic attribution rules of §6166(b)(2)(D) do not effect an increase for purposes of the 20% test of §6166(c) - an estate must make a §6166(b)(7) election for such a result. Only with the automatic attribution of a surviving spouse's interest to the Decedent within §6166(c) itself can this result be accomplished without a §6166(b)(7) election.