| Section 6166(b)(1)(C) - Example 9 |
| Decedent and his brother each owned 19% of the voting stock of Corporation A at his death. There are 50 shareholders. No other §267(c)(4) family members own any voting stock. 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. |
| The brother's ownership interest in the Corporation A voting stock is automatically attributed to Decedent under §6166(b)(2)(D) for purposes of determining the number of shareholders, but the number of shareholders is still greater than 45. It is therefore necessary to attribute his percentage of the voting stock to Decedent by way of a §6166(b)(7) election to satisfy the 20% test of §6166(b)(1)(C)(i). The value of the brother's interest does not affect the estate tax value of Decedent's interest for purposes of the §6166(a)(2) tax computation. |
| Decedent also owned 100% of Corporation B, the estate tax value of which is less than 35% of the adjusted gross estate. Decedent's estate wants to combine the discounted estate tax value of Decedent's interest in Corporation A with the estate tax value of Corporation B, to treat the total value as an interest in a single Corporation under §6166(c). However, the discounted estate tax value of Decedent's interest in Corporation A is less than 20% of the full value of Corporation A. |
| Section 6166(c) requires that 20% of the full value of Corporation A must be included in Decedent's gross estate in order for its value to be combined with the value of Decedent's interest in Corporation B to be treated as an interest in a single closely held business. The estate must make a §6166(b)(7) election to attribute the brother's interest in Corporation A to Decedent to satisfy this 20% test. |
| Result: The combined estate tax values of Decedent's interests in Corporation A and Corporation B qualify for treatment as an interest in a single closely held business, but 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 9 Decedent's Brother Also Owns Voting Stock §6166(b)(1)(C)(i) 20% Test Requires a §6166(b)(7) Election §6166(c) Election Requires a §6166(b)(7) Election | ||||
| Corporation A | One class of stock - voting common. Decedent owned 19% of the voting stock and his brother owned another 19%. | |||
| Corporation B | Decedent owned 100% of the single class of stock - voting common. | |||
| Corporation A | ||||
| Full value of Corporation A | 50,000,000.00 | |||
| Outstanding shares of voting common stock | 10,000 | |||
| Per-share value of voting common stock | 5,000.00 | |||
| Shares of voting common stock owned by Decedent | 1,900 | |||
| Shares of voting common stock owned by Decedent's brother | 1,900 | |||
| Corporation A Shareholders | ||||
| Total number of shareholders including Decedent | 50 | |||
| Brother - §6166(b)(2)(D) attribution to Decedent | 1 | |||
| Number of shareholders after §6166(b)(2)(D) attribution to Decedent | 49 | |||
| Decedent's Interest in Corporation A | ||||
| Per-share value of voting common stock in Corporation A before discounts | 5,000.00 | |||
| Valuation discounts | 28% | |||
| §6166(b)(4) discounted estate tax value per share | 3,600.00 | |||
| Shares of voting common stock owned by Decedent at date of death | 1,900 | |||
| §6166(b)(4) estate tax value of Decedent's 1,900 shares of voting stock | 6,840,000.00 | |||
| Full value of voting common stock in Corporation A | 50,000,000.00 | |||
| Percentage in value of voting stock in Corporation A | 13.68% | |||
| Brother's Interest in Corporation A | ||||
| Per-share value of voting common stock in Corporation A before discounts | 5,000.00 | |||
| Valuation discounts | 28% | |||
| §6166(b)(4) discounted estate tax value per share | 3,600.00 | |||
| Shares of voting common stock owned by Brother at date of death | 1,900 | |||
| §6166(b)(4) estate tax value of Brother's 1,900 shares of voting stock | 6,840,000.00 | |||
| Full value of voting common stock in Corporation A | 50,000,000.00 | |||
| Percentage in value of voting stock in Corporation A owned by Brother treated as included in determining Decedent's gross estate for purposes of the 20% test of §6166(b)(1)(C)(i) pursuant to the §6166(b)(7) election | 13.68% | |||
| Corporation B Shareholders | ||||
| Full value of Corporation B | 5,000,000.00 | |||
| Outstanding shares of voting common stock - 100% owned by Decedent | 1,000 | |||
| Estate tax value of Decedent's 100% interest in Corporation B | 5,000,000.00 | |||
| The §6166(c) 20% Determinations | ||||
| Full value of Corporation A | 50,000,000.00 | |||
| Estate tax value of Decedent's interest | 6,840,000.00 | |||
| Percentage of total value of Corporation A owned by Decedent included in the gross estate | 13.68% | |||
| Percentage of total value of Corporation A owned by Decedent's Brother, which is treated as having been included in Decedent's gross estate for purposes of the 20% test of §6166(c) pursuant to the §6166(b)(7) election. | 13.68% | |||
| Percentage of total value of Corporation A that is treated as having been included in Decedent's gross estate | 27.36% | |||
| Percentage of total value of Corporation B that is included in Decedent's gross estate | 100.00% | |||
| More than 20% of the total values of Corporation A and Corporation B are treated as having been included in Decedent's gross estate. The values may be combined to be treated as an interest in a single closely held business for purposes of §6166. | ||||
| Closely Held Business Value Included in Decedent's Gross Estate Under §6166(c) | ||||
| §6166(b)(4) estate tax value of Decedent's interest in Corporation A | 6,840,000.00 | |||
| §6166(b)(4) estate tax value of Decedent's interest in Corporation B | 5,000,000.00 | |||
| Estate tax value of an interest in a single closely held business under §6166(c) after the §6166(b)(7) election to attribute the Brother's interest in Corporation A to Decedent for purposes of the 20% test of §6166(c). | 11,840,000.00 | |||
| §6166(b)(6) Adjusted Gross Estate Computation | ||||
| Gross estate | 20,840,000.00 | |||
| Sections J, K, and L deductions - §2053 and §2054 | 5,250,000.00 | |||
| §6166(b)(6) adjusted gross estate | 15,590,000.00 | |||
| §6166(a)(2) Ratio Computation | ||||
| Section 6166 closely held business amount | 11,840,000.00 | |||
| Section 6166(b)(6) adjusted gross estate | 15,590,000.00 | |||
| 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). | 0.759461 | |||
| 6166(b)(1)(C) Example 9, Comment 1: Section 6166(b)(4) provides that for purposes of section 6166, "value" shall be the value determined for purposes of determining the Decedent's gross estate. |
| 6166(b)(1)(C) Example 9, Comment 2: The §6166(b)(7) election must specifically attribute the brother's interest in Corporation A to Decedent for purposes of the 20% test of §6166(b)(1)(C)(i), and must also specifically attribute the brother's interest in Corporation A to Decedent for purposes of the 20% test of §6166(c). These are 2 separate and distinct 20% tests. |