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property of the estate. In addition, all of

in a qualifying lending and financing

available at

the persons having an interest in the

business is treated as an asset used in

irb06-26.pdf.

designated property must consent to

carrying on a trade or business; see

In determining the number of

the creation of this lien on the property

section 6166(b)(10) for details. Stock in

partners or shareholders, a partnership

pledged.

another corporation is a passive asset

or stock interest is treated as owned by

unless the stock is treated as held by

Percentage requirements. To qualify

one partner or shareholder if it is

the decedent because of the election to

for installment payments, the value of

community property or held by a

treat holding company stock as

the interest in the closely held business

husband and wife as joint tenants,

business company stock; see Holding

that is included in the gross estate must

tenants in common, or as tenants by

company stock, below.

be more than 35% of the adjusted

the entirety.

gross estate (the gross estate less

If a corporation owns at least 20% in

Property owned directly or indirectly

expenses, indebtedness, taxes, and

value of the voting stock of another

by or for a corporation, partnership,

losses — Schedules J, K, and L of Form

corporation, or the other corporation

estate, or trust is treated as owned

706 (do not include any portion of the

had no more than 45 shareholders and

proportionately by or for its

state death tax deduction)).

at least 80% of the value of the assets

shareholders, partners, or beneficiaries.

of each corporation is attributable to

Interests in two or more closely held

For trusts, only beneficiaries with

assets used in carrying on a trade or

businesses are treated as an interest in

present interests are considered.

business, then these corporations will

a single business if at least 20% of the

The interest in a closely held farm

be treated as a single corporation, and

total value of each business is included

business includes the interest in the

the stock will not be treated as a

in the gross estate. For this purpose,

residential buildings and related

passive asset. Stock held in the other

include any interest held by the

improvements occupied regularly by the

corporation is not taken into account in

surviving spouse that represents the

owners, lessees, and employees

determining the 80% requirement.

surviving spouse’s interest in a

operating the farm.

business held jointly with the decedent

Interest in closely held business.

Holding company stock. The

as community property or as joint

For purposes of the installment

executor may elect to treat as business

tenants, tenants by the entirety, or

payment election, an “interest in a

company stock the portion of any

tenants in common.

closely held business” means:

holding company stock that represents

•

Value. The value used for meeting

Ownership of a trade or business

direct ownership (or indirect ownership

the percentage requirements is the

carried on as a proprietorship,

through one or more other holding

•

same value used for determining the

An interest as a partner in a

companies) in a business company. A

gross estate. Therefore, if the estate is

partnership carrying on a trade or

holding company is a corporation

valued under alternate valuation or

business if 20% or more of the total

holding stock in another corporation. A

special-use valuation, you must use

capital interest was included in the

business company is a corporation

those values to meet the percentage

gross estate of the decedent or the

carrying on a trade or business.

requirements.

partnership had no more than 45

In general, this election applies only

partners, or

Transfers before death. Generally,

to stock that is not readily tradable.

•

Stock in a corporation carrying on a

gifts made before death are not

However, the election can be made if

trade or business if 20% or more in

included in the gross estate. However,

the business company stock is readily

value of the voting stock of the

the estate must meet the 35%

tradable, as long as all of the stock of

corporation is included in the gross

requirement by both including in and

each holding company is not readily

estate of the decedent or the

excluding from the gross estate any

tradable.

corporation had no more than 45

gifts made by the decedent in the

For purposes of the 20% voting

shareholders.

3-year period ending on the date of

stock requirement, stock is treated as

death.

The partnership or corporation must

voting stock to the extent the holding

Passive assets. In determining the

be carrying on a trade or business at

company owns voting stock in the

value of a closely held business and

the time of the decedent’s death. For

business company.

whether the 35% requirement is met,

further information on whether certain

If the executor makes this election,

do not include the value of any passive

partnerships or corporations owning

the first installment payment is due

assets held by the business. A passive

real property interests constitute a

when the estate tax return is filed. The

asset is any asset not used in carrying

closely held business, see Revenue

5-year deferral for payment of the tax,

on a trade or business. Any asset used

Ruling 2006-34, 2006-26 I.R.B. 1171,

as discussed below under Time for

payment, does not apply. In addition,

the 2% interest rate, discussed below

Line 3 Worksheet — Adjusted Gross Estate

under Interest computation, will not

apply. Also, if the business company

What is the value of the decedent’s interest in closely held

stock is readily tradable, as explained

business(es) included in the gross estate (less value of passive

above, the tax must be paid in five

assets, as mentioned in section 6166(b)(9))? . . . . . . . . . . . . . . . . .

installments.

What is the value of the gross estate (Form 706, page 3, Part 5,

line 12)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Determine how much of the estate

Add lines 17, 18, and 19 from Form 706, page 3, Part 5. . . . . . . . . .

tax may be paid in installments

Subtract line 3 from line 2 to calculate the adjusted gross estate. . . .

under section 6166. To determine

Divide line 1 by line 4 to calculate the value the business interest

whether the election may be made, you

bears to the value of the adjusted gross estate. For purposes of this

must calculate the adjusted gross

calculation, carry the decimal to the sixth place; the IRS will make this

estate. (See Line 3

adjustment for purposes of determining the correct amount. If this

Worksheet — Adjusted Gross Estate

amount is less than 0.350000, the estate does not qualify to make the

below.) To determine the value of the

election under section 6166. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

adjusted gross estate, subtract the

Multiply line 5 by the amount on line 16 of Form 706, page 1, Part 2.

deductions (Schedules J, K, and L)

This is the maximum amount of estate tax that may be paid in

from the value of the gross estate.

installments under section 6166. (Certain GST taxes may be deferred

To determine over how many

as well; see section 6166(i) for more information.) . . . . . . . . . . . . .

installments the estate tax may be paid,

-11-

Part Instructions

Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return - 2011 Page 11

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