Section 6166(b)(7) Example 1

Section 6166(b)(7) - Example 1
Decedent died in 2016 owning a 50% interest in a closely held business. Decedent's brother owned the other 50% interest. This is the only closely held business interest owned by the Decedent at date of death.
Determining the Estate Tax Value of Decedent's 50% Interest
Full Value of Closely Held Business	Percentage Owned by Decedent	Gross Value of Decedent's Interest Before Discounts	Total Discounts	Value Included in Decedent's Gross Estate
$40,000,000	50%	$20,000,000	30%	$14,000,000
The Value of Decedent's 50% Interest Does Not Exceed 35% of the Adjusted Gross Estate
Estate tax value of Decedent's 50% interest				$14,000,000
Section 6166(b)(6) adjusted gross estate				$45,500,000
Percentage: $14,000,000 divided by $45,500,000 = 0.307692				30.7692%
Result: The value of the interest in Decedent's closely held business does not exceed 35% of the adjusted gross estate; the requirement of §6166(a)(1) has not been met.

Section 6166(b)(7) Example 1, Comment 1: Decedent's brother is a family member as defined in §267(c)(4). However, because the §6166(a)(1) percentage is calculated only with the value of the decedent's interest in the business reported on the estate tax return, the Estate cannot make a §6166(b)(7) election to attribute the Brother's 50% interest to Decedent for purposes of increasing the estate tax value to satisfy the 35% of adjusted gross estate requirement of §6166(a)(1), and the estate tax value of the Decedent's 50% interest in the business does not qualify for a §6166 extension.

Section 6166(b)(7) Example 1, Comment 2: A section 6166(b)(7) election can be made to attribute family members' interests to a decedent only for purposes of satisfying one or more of three 20% tests within section 6166:

Inclusion of 20% or more of the total capital interest in a partnership in the Decedent's gross estate (§6166(b)(1)(B)(i));
Inclusion of 20% or more in value of voting stock in a corporation in the Decedent's gross estate (§6166(b)(1)(C)(i)); or,
Inclusion of 20% of more of the total value of each business in the Decedent's gross estate when 2 or more are to be treated as an interest in a single closely held business (§6166(c)).

In all of these events only the actual value of the Decedent's interest reported on the estate tax return for tax purposes is used in determining the maximum amount of tax which may be paid in installments under §6166(a)(2). If that value does not exceed 35% of the adjusted gross estate, the shortfall cannot be corrected with a §6166(b)(7) election.

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