Section 6166(h) - Example 1 | |
| Feb-17-2016 | Date of death |
| Nov-17-2016 | Estate tax return due date and the return filing date. The return reports a taxable estate of $5,124,400 (which in this example is also the §6166(b)(6) adjusted gross estate) and zero estate tax due. A closely held business is included in the gross estate at a value of $3,000,000, but neither a §6166 election nor a protective §6166 election is filed with the return. |
| NOTE: With these figures the §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments is 58.5434%, which equals zero tax payable in installments for the return as filed (58.5434% of $0.00 tax = $0.00 payable in installments). | |
| Apr-26-2018 | An IRS field examination is completed. The only changes are an increase in the value of the closely held business interest to $5,500,000 and a new Schedule J deduction for $10,794.24 deductible interest, which results in a deficiency of $856,442.30. The Estate agrees to the proposed deficiency by signing a waiver, Form 890. The Estate also files a §6166(h) election for the deficiency with the examining IRS Estate Tax Attorney and submits a catch-up payment to the Attorney to bring the account current under the §6166(a) election (made via the §6166(h) election) as of that date. |
| The 1st anniversary date under the §6166(a) election was Nov-17-2017, when interest only was due (the 1st installment of tax will be due Nov-17-2021). | |
The catch-up payments due on Apr-26-2018 are:
| |
| While 100% of the deficiency is attributable to the closely held business interest, §6166(a)(2) limits the portion of the deficiency that may be paid in installments to 72.1368% of the total. This methodology is explained in PLR 8846001. | |
| This example illustrates that the §6166(a)(2) ratio determines the maximum amount of tax and the maximum amount of a deficiency that may be paid in installments, and only when the §6166(a)(2) ratio equals 1.000000 (100%) will 100% of a deficiency be eligible under a §6166(h) election to be paid in installments. This is in keeping with the principles outlined in PLR 8846001. | |
Section 6166(h) - Example 1
Form 1273Estate of: Decedent SSN: 999-99-9999V D/D: Feb-17-20161Tentative Taxable Estate Shown on Return or Previously Adjusted5,124,400.002Increase/Decrease in Tentative Taxable Estate2,489,205.763aTentative Taxable Estate as Corrected (Line 1 plus/minus Line 2)7,613,605.76 Shown on Return/ As Previously AssessedAs Corrected3bState Death Tax Deduction0.000.003cTaxable Estate as Corrected (Line 3a - Line 3b)5,124,400.007,613,605.764Adjusted taxable gifts0.000.005Total5,124,400.007,613,605.766Tentative Tax1,995,560.002,991,242.307Aggregate Gift Tax Payable (After Dec. 31, 1976)0.000.008Tax Before Unified Credit (Line 6 - Line 7)1,995,560.002,991,242.309aBasic Exclusion Amount5,450,000.005,450,000.009bDeceased Spousal Unused Exclusion (DSUE)0.000.009cApplicable Exclusion Amount (Line 9a + Line 9b)5,450,000.005,450,000.009dApplicable Credit Amount (From Table A, using Line 9c)2,125,800.002,125,800.0010Adjustment to Unified Credit0.000.0011Allowable Applicable Credit Amount2,125,800.002,125,800.0012Tax Before SDTC (Line 8 - Line 11)*Cannot be < 00.00865,442.3013State Death Tax Credit0.000.00 Tentatively Allowed Submit Evidence by 14Net Tax Post State Death Tax Credit (Line 12 - Line 13)0.00865,442.3015Gift Tax Credit (Pre-1977 Gifts)0.000.0016Foreign Death Tax Credit (Statutory)0.000.0017Prior Transfer Credit0.000.0018Foreign Death Tax Credit (Treaty)/Canadian Marital Credit0.000.0019Total Credits (Sum of Lines 15 through 18)0.000.0020Net Estate Tax Payable0.00865,442.3021Generation-Skipping Transfer Taxes (Schedule R, Part 2, Line 12)0.000.0022Increased Estate Tax (Section 4980A, Schedule S)0.000.0023Total Federal Estate Tax (Sum of Lines 20 through 22)0.00865,442.3024Total Transfer Tax Previously Assessed0.0025Total Transfer Tax Increase/Decrease (Line 23 - Line 24)865,442.3026Penalties Previously Assessed - Code(s)0.0027Penalties as Corrected - Code(s)0.0028Net Penalties Increase/Decrease (Line 27 - Line 28)0.0029Net Tax and Penalties Payable Increase/Decrease (Line 25 + Line 28)865,442.30
Section 6166(h) - Example 1 Line Adjustment - Estate Tax | ||||
| Form 6180 | ||||
| Estate of: Decedent SSN: 999-99-9999V D/D: Feb-17-2016 | ||||
| Shown on Return/ As Previously Assessed | Change | As Corrected | ||
| 1 | Schedule A - Real Estate | 0.00 | 0.00 | 0.00 |
| 2 | Schedule B - Stocks and Bonds | 1,000,000.00 | 0.00 | 1,000,000.00 |
| 3 | Schedule C - Mortgages, Notes, and Cash | 500,000.00 | 0.00 | 500,000.00 |
| 4 | Schedule D - Life Insurance | 1,200,000.00 | 0.00 | 1,200,000.00 |
| 5 | Schedule E - Jointly Owned Property | 0.00 | 0.00 | 0.00 |
| 6 | Schedule F - Other Miscellaneous Property | 3,000,000.00 | 2,500,000.00 | 5,500,000.00 |
| 7 | Schedule G - Transfers During Decedent's Life | 0.00 | 0.00 | 0.00 |
| 8 | Schedule H - Powers of Appointment | 0.00 | 0.00 | 0.00 |
| 9 | Schedule I - Annuities | 0.00 | 0.00 | 0.00 |
| 10 | Gross estate | 5,700,000.00 | 2,500,000.00 | 8,200,000.00 |
| 11 | Schedule U - Qualified Conservation Easement Exclusion | 0.00 | 0.00 | 0.00 |
| 12 | Gross Estate less exclusion | 5,700,000.00 | 2,500,000.00 | 8,200,000.00 |
| 13 | Schedule J - Funeral and Administration Expenses | 450,000.00 | 10,794.24 | 460,794.24 |
| 14 | Schedule K - Debts of Decedent | 125,600.00 | 0.00 | 125,600.00 |
| 15 | Schedule K - Mortgages | 0.00 | 0.00 | 0.00 |
| 16 | Total of Schedules J and K | 575,600.00 | 10,794.24 | 586,394.24 |
| 17 | Allowable deductions from Schedules J and K | 575,600.00 | 10,794.24 | 586,394.24 |
| 18 | Schedule L - Net Losses During Administration | 0.00 | 0.00 | 0.00 |
| 19 | Schedule L - Expenses on Property Not Subject to Claims | 0.00 | 0.00 | 0.00 |
| 20 | Total - Lines 17, 18, and 19 | 575,600.00 | 10,794.24 | 586,394.24 |
| 21 | Schedule M - Marital Deduction | 0.00 | 0.00 | 0.00 |
| 22 | Schedule O - Charitable Deduction | 0.00 | 0.00 | 0.00 |
| 23 | ESOP Deduction | 0.00 | 0.00 | 0.00 |
| 24 | Schedule T - QFOBI Deduction | 0.00 | 0.00 | 0.00 |
| 25 | Total allowable deductions | 575,600.00 | 10,794.24 | 586,394.24 |
| 26 | Tentative taxable estate | 5,124,400.00 | 2,489,205.76 | 7,613,605.76 |
Section 6166(h) - Example 1 Form 886-A - EXPLANATION OF ITEMS | |||
| Schedule F - Other Miscellaneous Property | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| 1 | Section 6166 business interest | 3,000,000.00 | 5,500,000.00 |
| Total of these Items | 3,000,000.00 | 5,500,000.00 | |
| Shown on Return | 3,000.000.00 | ||
| Change to Schedule | 2,500,000.00 | ||
Section 6166(h) - Example 1 Form 886-A - EXPLANATION OF ITEMS | |||
| Schedule J - Funeral and Administrative Expenses | |||
| Shown on Return/ As Previously Assessed | As Corrected | ||
| B-4(d) Interest on Federal estate tax | 0.00 | 10,794.24 | |
| Total of these Items | 0.00 | 10,794.24 | |
| Shown on Return | 0.00 | ||
| Change to Schedule | 10,794.24 | ||
Section 6166(h) - Example 1 §6166(b)(6) Adjusted Gross Estate Computation | ||||
|---|---|---|---|---|
| Gross estate | 8,200,000.00 | |||
| Schedule J - Funeral and Administrative Expenses | ||||
| A. | Funeral expenses | 25,000.00 | ||
| B. | Administration expenses | 435,794.24 | ||
| Total Schedule J | 460,794.24 | |||
| Schedule K - Debts of Decedent | 125,600.00 | |||
| Schedule K - Mortgages and Liens | 0.00 | |||
| Total Schedule K | 125,600.00 | |||
| Total Schedules J and K debts and expenses | 586,394.24 | |||
| Allowable amount of deductions | 586,394.24 | |||
| Schedule L - Net Losses | 0.00 | |||
| Schedule L - Expenses on property not subject to claims | 0.00 | |||
| Total Schedules J, K, and L debts and expenses | 586,394.24 | |||
| Adjustment for expenses incurred after the return was filed | (10,794.24) | |||
| Adjusted Schedules J, K, and L debts and expenses | 575,600.00 | 575,600.00 | ||
| Section 6166(b)(6) adjusted gross estate | 7,624,400.00 | |||
Section 6166(h) - Example 1 §6166(a)(2) Ratio Computation | |
| Section 6166 business value, divided by | 5,500,000.00 |
| Section 6166(b)(6) adjusted gross estate, yields | 7,624,400.00 |
| Section 6166(a)(2) ratio for the maximum amount of tax payable in installments | 0.721368 |
Section 6166(h) - Example 1 §6166(a) Annual Installment | |
| Portion of deficiency attributable to the closely held business interest, which is also the total amount of estate tax as corrected | 865,442.30 |
| Section 6166(a)(2) ratio expressed as a percentage | 72.1368% |
| Maximum amount of deficiency that may be paid in installments | 624,302.38 |
| Number of installments selected | 10 |
| The annual installment, the first of which is due Nov-17-2021 | 62,430.24 |
| Tax not deferred under section 6166 and due on the return due date | 241,139.92 |
Section 6166(h) Example 1 §6166(a) Catch-Up Payment Due Apr-26-2018 | ||
| Non-deferred tax due Nov-17-2016 | 241,139.92 | |
| Amounts due on the 1st anniversary date of Nov-17-2017 | ||
| Interest at R% on the non-deferred tax | 7,341.04 | |
| Interest at 2% on the first $592,000 of deferred tax | 11,954.88 | |
| Interest at 45% of R% on the $32,302.39 balance of deferred tax | 438.89 | 12,393.77 |
| Additional amounts due on Apr-26-2018 | ||
| Additional interest at R% on the non-deferred tax | 3,191.97 | |
| Interest at R% on the past-due interest of $12,393.77 | 261.23 | |
| Total catch-up payment due Apr-26-2018 | 264,327.93 | |
| Allowable interest deduction on Schedule J | ||
| Interest at R% on the non-deferred tax | 7,341.04 | |
| Additional interest at R% on the non-deferred tax | 3,191.97 | |
| Interest at R% on the past-due interest of $12,393.77 | 261.23 | |
| Allowable interest deduction | 10,794.24 | |
| NOTE: R% interest means the regular underpayment interest rate(s) in effect during each interest computation period, which can vary from period to period or within a single period. Interest rates are set quarterly. | ||