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CAN WE ELECT SECTION 6166 TO PAY ESTATE TAXES ON THE TOTAL TAX LIABILITY-
An estate qualifies for a section 6166 election if the value of the decedent's interest in the closely held business exceeds 35 percent of the adjusted gross estate, the decedent was a United States citizen or resident at the time of his or her death, and the estate made the election by attaching a full and complete notice of election with a timely filed federal estate tax return. I.R.C. § 6166(a) and (d). Under section 6166, an estate that meets all of the requirements of the statute may elect to pay the estate tax attributable to the decedent's interest in a closely held business. The election is to pay the tax on the closely held interest only.
WHAT HAPPENS IF THE IRS AUDITS
The 6166 would be disallowed and penalties would apply for underpayment.
ARE THE PROCEDURES FOR QUALIFYING, THE EITHER OF FILING A LIEN ON THE
CLOSELY HELD PROPERTY- OR GETTING A BOND FOR UP TO 2X THE TAXES DUE.
Sections 6166(k)(1) and 6165, however, permit the IRS to require a surety bond (not exceeding double the amount with respect to which the extension is granted) from an estate to ensure payment of the deferred estate tax to be paid in installments under section 6166. In lieu of the requirement to post a surety bond, the executor may elect to grant the IRS a special extended estate tax lien (in the amount of the deferred amount plus any interest, additional amount, addition to tax, assessable penalty, and costs attributable to the deferred amount) to secure the government's interest. I.R.C. §§ 6166(k)(2) and 6324A. This special lien does not expire until the earlier of the date the estate tax is paid in full or the tax becomes uncollectible. I.R.C. §§ 6324A(d)(2), 6502, and 6503(d).
WHAT EXACTLY ARE THE RATES OF INTEREST FOR THE FIRST FIVE YEARS(2%)
AND FOR THE NEXT TEN YEAR WHAT IS THE INTEREST RATE, AND ARE THE BALANCE
TAXES AMORTIZED EQUALLY OVER THE NEXT TEN YEARS.
Beginning with estates of decedents dying on or after January 1, 1998, there were two new special interest rates charged on the tax deferred under section 6166.
- 2% interest on the tax attributable to the first $1,000,000 of taxable business value (adjusted for inflation); and,
- 45% of the regular underpayment interest rate on the balance of deferred tax. This rate varies over the course of a section 6166 deferral. From January 1, 1998 through December 31, 2012 the regular underpayment (and overpayment) interest rates have ranged from 9% to the current 3%.
- There is no adjustment to the 2% portion of tax when the unified credit is reduced by 20% of the gift tax specific exemption used for transfers by the decedent after September 8, 1976 and before January 11, 1977.
- None of the interest on tax deferred under section 6166 is deductible on the estate tax return, pursuant to section 2053(c)(1)(D).
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