Instructions For Form 706 - United States Estate (And Generation-Skipping Transfer) Tax Return Page 15
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55The interest in a closely held farm
must calculate the adjusted gross
Interest in closely held business.
business includes the interest in the
estate. (See, Line 3
For purposes of the installment payment
residential buildings and related
Worksheet —Adjusted Gross Estate,
election, an interest in a closely held
improvements occupied regularly by the
later.) To determine the value of the
business means:
owners, lessees, and employees
adjusted gross estate, subtract the
Ownership of a trade or business
operating the farm.
deductions (Schedules J, K, and L) from
carried on as a proprietorship,
the value of the gross estate.
An interest as a partner in a
Holding company stock. The
partnership carrying on a trade or
To determine over how many
executor may elect to treat as business
business if 20% or more of the total
installments the estate tax may be paid,
company stock the portion of any
capital interest was included in the
please refer to sections 6166(a), (b)(7),
holding company stock that represents
gross estate of the decedent or the
(b)(8), and (b)(10).
direct ownership (or indirect ownership
partnership had no more than 45
through one or more other holding
Time for payment. Under the
partners, or
companies) in a business company. A
installment method, the executor may
Stock in a corporation carrying on a
holding company is a corporation
elect to defer payment of the qualified
trade or business if 20% or more in
holding stock in another corporation. A
estate tax, but not interest, for up to 5
value of the voting stock of the
business company is a corporation
years from the original payment due
corporation is included in the gross
carrying on a trade or business.
date. After the first installment of tax is
estate of the decedent or the
paid, you must pay the remaining
In general, this election applies only
corporation had no more than 45
installments annually by the date 1 year
to stock that is not readily tradable.
shareholders.
after the due date of the preceding
However, the election can be made if
The partnership or corporation must
installment. There can be no more than
the business company stock is readily
be carrying on a trade or business at the
10 installment payments.
tradable, as long as all of the stock of
time of the decedent's death. For further
each holding company is not readily
Interest on the unpaid portion of the
information on whether certain
tradable.
tax is not deferred and must be paid
partnerships or corporations owning real
annually. Interest must be paid at the
For purposes of the 20% voting stock
property interests constitute a closely
same time as and as a part of each
requirement, stock is treated as voting
held business, see Rev. Rul. 2006-34,
installment payment of the tax.
stock to the extent the holding company
2006-26 I.R.B. 1171, available at
owns voting stock in the business
Acceleration of payments. If the
IRS.gov/pub/irs-irbs/irb06-26.pdf.
company.
estate fails to make payments of tax or
In determining the number of
If the executor makes this election,
interest within 6 months of the due date,
partners or shareholders, a partnership
the first installment payment is due
the IRS may terminate the right to make
or stock interest is treated as owned by
when the estate tax return is filed. The
installment payments and force an
one partner or shareholder if it is
5-year deferral for payment of the tax,
acceleration of payment of the tax upon
community property or held by a
as discussed later under Time for
notice and demand.
husband and wife as joint tenants,
payment, does not apply. In addition,
Generally, if any portion of the
tenants in common, or as tenants by the
the 2% interest rate, discussed later
interest in the closely held business
entirety.
under Interest computation, will not
which qualifies for installment payments
Property owned directly or indirectly
apply. Also, if the business company
is distributed, sold, exchanged, or
by or for a corporation, partnership,
stock is readily tradable, as explained
otherwise disposed of, or money and
estate, or trust is treated as owned
above, the tax must be paid in five
other property attributable to such an
proportionately by or for its
installments.
interest is withdrawn, and the aggregate
shareholders, partners, or beneficiaries.
of those events equals or exceeds 50%
Determine how much of the estate
For trusts, only beneficiaries with
of the value of the interest, then the right
tax may be paid in installments un-
present interests are considered.
to make installment payments will be
der section 6166. To determine
terminated, and the unpaid portion of
whether the election may be made, you
the tax will be due upon notice and
Line 3 Worksheet—Adjusted Gross Estate
demand. See section 6166(g)(1)(A).
Interest computation. A special
1
Enter the value of the decedent's interest in closely-held business(es)
interest rate applies to installment
included in the gross estate (less value of passive assets, as mentioned
payments. For decedents dying in 2017,
in section 6166(b)(9)).
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Enter the value of the gross estate (Form 706, page 3, Part 5,
the interest rate is 2% on the lesser of:
line 13).
$596,000, or
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Add lines 18, 19, and 20 from Form 706, page 3, Part 5.
. . . . . . . .
The amount of the estate tax that is
4
Subtract line 3 from line 2 to calculate the adjusted gross estate.
. . .
attributable to the closely held business
5
Divide line 1 by line 4 to calculate the value the business interest bears
and that is payable in installments.
to the value of the adjusted gross estate. For purposes of this
2% portion. The 2% portion is an
calculation, carry the decimal to the sixth place; the IRS will make this
amount equal to the amount of the
adjustment for purposes of determining the correct amount. If this
amount is less than 0.350000, the estate does not qualify to make the
tentative estate tax (on $1,000,000 plus
election under section 6166.
the applicable exclusion amount in
. . . . . . . . . . . . . . . . . . . . . . . . .
6
Multiply line 5 by the amount on line 16 of Form 706, page 1, Part 2. This
effect) minus the applicable credit
is the maximum amount of estate tax that may be paid in installments
amount in effect. However, if the
under section 6166. (Certain GST taxes may be deferred as well; see
amount of estate tax extended under
section 6166(i) for more information.)
. . . . . . . . . . . . . . . . . . .
section 6166 is less than the amount
Part Instructions
-15-
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