Instructions For Form 706 - 2016 Page 14
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54Where successive interests in
how much of the estate tax may be paid
requirement by both including in and
specially valued property are created,
in installments under section 6166, later.
excluding from the gross estate any gifts
remainder interests are treated as being
In general, that amount is the amount of
made by the decedent in the 3-year
received by qualified heirs only if the
tax that bears the same ratio to the total
period ending on the date of death.
remainder interests are not contingent
estate tax that the value of the
Passive assets. In determining the
on surviving a nonfamily member or are
closely-held business included in the
value of a closely-held business and
not subject to divestment in favor of a
gross estate bears to the adjusted gross
whether the 35% requirement is met, do
nonfamily member.
estate.
not include the value of any passive
Bond or lien. The IRS may require that
assets held by the business. A passive
Protective Election
an estate furnish a surety bond when
asset is any asset not used in carrying
granting the installment payment
on a trade or business. Any asset used
You may make a protective election to
election. In the alternative, the executor
in a qualifying lending and financing
specially value qualified real property.
may consent to elect the special lien
business is treated as an asset used in
Under this election, whether or not you
provisions of section 6324A, in lieu of
carrying on a trade or business; see
may ultimately use special-use valuation
the bond. The IRS will contact you
section 6166(b)(10) for details. Stock in
depends upon final values (as shown on
regarding the specifics of furnishing the
another corporation is a passive asset
the return determined following
bond or electing the special lien. The
unless the stock is treated as held by
examination of the return) meeting the
IRS will make this determination on a
the decedent because of the election to
requirements of section 2032A.
case-by-case basis, and you may be
treat holding company stock as
asked to provide additional information.
To make a protective election, check
business company stock; see Holding
“Yes,” on line 2 and complete
company stock, later.
If you elect the lien provisions,
Schedule A-1 according to the
section 6324A requires that the lien be
If a corporation owns at least 20% in
instructions for Protective Election.
placed on property having a value equal
value of the voting stock of another
to the total deferred tax plus 4 years of
corporation, or the other corporation
If you make a protective election,
interest. The property must be expected
had no more than 45 shareholders and
complete the initial Form 706 by valuing
to survive the deferral period, and does
at least 80% of the value of the assets of
all property at its FMV. Do not use
not necessarily have to be property of
each corporation is attributable to
special-use valuation. Usually, this will
the estate. In addition, all people with an
assets used in carrying on a trade or
result in higher estate and GST tax
interest in the designated property must
business, then these corporations will
liabilities than will be ultimately
consent to the creation of this lien.
be treated as a single corporation, and
determined if special-use valuation is
the stock will not be treated as a passive
Percentage requirements. To qualify
allowed. The protective election does
asset. Stock held in the other
for installment payments, the value of
not extend the time to pay the taxes
corporation is not taken into account in
the interest in the closely-held business
shown on the return. If you wish to
determining the 80% requirement.
that is included in the gross estate must
extend the time to pay the taxes, file
be more than 35% of the adjusted gross
Interest in closely held business.
Form 4768 in adequate time before the
estate (the gross estate less expenses,
For purposes of the installment payment
due date of the return. See the
indebtedness, taxes, and losses –
election, an interest in a closely-held
instructions for Form 4768.
Schedules J, K, and L of Form 706 (do
business means:
not include any portion of the state
Ownership of a trade or business
If the estate qualifies for special-use
death tax deduction)).
carried on as a proprietorship,
valuation based on the values as finally
An interest as a partner in a
determined, you must file an amended
Interests in two or more closely-held
partnership carrying on a trade or
Form 706 (with a complete section
businesses are treated as an interest in
business if 20% or more of the total
2032A election) within 60 days after the
a single business if at least 20% of the
capital interest was included in the
date of this determination. Prepare the
total value of each business is included
gross estate of the decedent or the
amended return using special-use
in the gross estate. For this purpose,
partnership had no more than 45
values under the rules of section 2032A,
include any interest held by the
partners, or
complete Schedule A-1, and attach all
surviving spouse that represents the
Stock in a corporation carrying on a
of the required statements.
surviving spouse's interest in a business
trade or business if 20% or more in
held jointly with the decedent as
value of the voting stock of the
community property or as joint tenants,
Additional information
corporation is included in the gross
tenants by the entirety, or tenants in
For definitions and additional
estate of the decedent or the
common.
information, see section 2032A and the
corporation had no more than 45
Value. The value used for meeting
related regulations.
shareholders.
the percentage requirements is the
Line 3. Section 6166 Installment
The partnership or corporation must
same value used for determining the
be carrying on a trade or business at the
Payments
gross estate. Therefore, if the estate is
time of the decedent's death. For further
valued under alternate valuation or
If the gross estate includes an interest in
information on whether certain
special-use valuation, you must use
a closely-held business, you may be
partnerships or corporations owning real
those values to meet the percentage
able to elect to pay part of the estate tax
property interests constitute a
requirements.
in installments under section 6166.
closely-held business, see Rev. Rul.
Transfers before death. Generally,
2006-34, 2006-26 I.R.B. 1171, available
The maximum amount that can be
gifts made before death are not
at
paid in installments is that part of the
included in the gross estate. However,
estate tax that is attributable to the
the estate must meet the 35%
closely-held business; see Determine
-14-
Part Instructions
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