Through 2009, about 12% of all Federal section 6166 elections filed were for estates of New York resident decedents (the proportion for estates of decedents dying from 2011 forward might be about the same). Many of the New York estates making 6166 elections also elect a parallel New York section 6166 election. The computational elements of the New York 6166 election generally follow those of the Federal 6166 election; i.e., the anniversary dates, method of computing the 6166(b)(6) adjusted gross estate, installment period, and type of 6166 election are the same as for the Federal election. The vast majority of these elections (Federal and New York) are for the regular 14-year section 6166(a) deferral, where interest only is paid on the first four annual anniversary dates and, beginning with the fifth anniversary date, payments of equal installments of the deferred tax plus interest are made for 10 years. (An estate can elect to pay installments over a shorter period, with a minimum of 2 installments. IRC section 6166(a)(1)).
One significant difference is that New York applies only two interest rates to the 6166(a) deferral, charging 2% interest on the first $54,000 of deferred tax (except for IRC section 6166(b)(7) or 6166(b)(8) elections) and regular underpayment interest (currently 7.5%) on the balance of deferred tax and any unpaid non-deferred tax.
Under the Federal system, interest in 6166(a) and 6166(b)(10) elections is charged at three rates -
- 2% on the first $596,000 of deferred tax for a decedent dying in 2017. See the table for computing the amount of Federal estate tax deferred at 2% for other years;
- 45% of regular underpayment interest rates (45% of R%) on the balance of deferred tax (see the table of 45% interest factors), and
- regular underpayment interest rates (R% rates) on any unpaid non-deferred tax, late-paid deferred tax installments, or late-paid interest on deferred tax.
In 6166(b)(7) and 6166(b)(8) elections, Federal interest is charged at 45% of R% on the entire balance of deferred tax, and at R% on any late-paid non-deferred tax, late-paid installments of deferred tax, or late-paid interest on deferred tax. New York charges the regular underpayment interest rate (currently 7.5%) on the entire amount of tax deferred under a section 6166(b)(7) or (b)(8) election.
Section 2053(c)(1)(D) prohibits a Federal estate tax deduction for Federal interest paid on the tax deferred under section 6166. However, an interest deduction is allowable for any Federal interest paid on late payments of non-deferred tax, late payments of tax deferred under section 6166, or late payments of interest computed on the tax deferred under section 6166. Deductible interest on the non-deferred tax is computed from the return due date (determined without regard to any extensions) to the payment date. Deductible interest on late-paid installments of deferred tax is computed from the installment due date to the payment date, and, for late-paid interest computed on the deferred tax, from the respective anniversary due dates until the payment dates. (The late-paid interest amounts themselves are not deductible pursuant to section 2053(c)(1)(d).)
New York interest is allowed by IRS as a deduction on the Federal estate tax return. See Reg. section 20.2053-1(a)(1). None of the otherwise deductible Federal interest (if any) is allowable as a deduction on the Federal income tax return, Form 1041, despite its categorization as an administration expense - the only place it can be deducted is on the estate tax return, Form 706.
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