Illinois allows deferral of its estate tax if there is a Federal section 6166 deferral in effect. Illinois Form 4350a is used to calculate the amount of Illinois tax to be deferred. The "gross" values are to be used in calculating the percentage of tax to be deferred, not the adjusted values as for Federal purposes. As noted on Form 4350a, interest on the deferred tax is a flat 6% per year. When an Illinois 6166 deferral is in effect, the section 2058 deduction for state death tax allowed on the Federal Form 706 is limited to the amount of Illinois tax that has been paid to date, which will be less than the total computed Illinois tax until the total Illinois tax has been paid.
By statute - 35 ILCS 405/9 - interest on Illinois tax that is not deferred under section 6166 accrues at a flat 10% per year. The statute provides:
Sec. 9. Interest. If any amount of Illinois transfer tax imposed by this Act is not paid on or before the initial due date for the Illinois transfer tax return (without extensions), interest shall be charged and collected on the unpaid amount at the rate of 10% per annum from and after the initial due date and for the time thereafter as the tax is not paid, provided that the rate of interest on the outstanding amount of Illinois transfer tax permitted to be deferred or paid in installments under this Act shall be 6%.
(Source: P.A. 86 737.)
The Illinois tax is deferred and paid in the same manner as in the Federal 6166 deferral. 35 ILCS 405/6b provides:
(b) Installment payments and deferral. In the event that any portion of the federal transfer tax is deferred or to be paid in installments under the provisions of the Internal Revenue Code, the portion of the Illinois transfer tax which is subject to deferral or payable in installments shall be determined by multiplying the Illinois transfer tax by a fraction, the numerator of which is the gross value of the assets included in the transferred property having a tax situs in this State and which give rise to the deferred or installment payment under the Internal Revenue Code, and the denominator of which is the gross value of all assets included in the transferred property having a tax situs in this State. Deferred payments and installment payments, with interest, shall be paid at the same time and in the same manner as payments of the federal transfer tax are required to be made under the applicable Sections of the Internal Revenue Code, provided that the rate of interest on unpaid amounts of Illinois transfer tax shall be determined under this Act. Acceleration of payment under this Section shall occur under the same circumstances and in the same manner as provided in the Internal Revenue Code.
These two provisions mean that Illinois deferred tax is not segregated into portions that draw interest at different rates as is done for Federal tax purposes - it is simple 6% interest on all Illinois deferred tax.
NOTE: The Illinois estate tax is interrelated with the IRC section 2058 state death tax deduction. Form 700 requires one to obtain the full amount of Illinois estate tax before apportionment from the interactive Illinois web site estate tax calculator. Separate on-line Illinois Estate Tax Calculators are available for estates of decedents dying in:
The Illinois web page also has links to downloadable PDF tax returns and instructions.