Instructions For Form 706 - 2016 Page 15
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54In determining the number of
If the executor makes this election,
Acceleration of payments. If the
partners or shareholders, a partnership
the first installment payment is due
estate fails to make payments of tax or
or stock interest is treated as owned by
when the estate tax return is filed. The
interest within 6 months of the due date,
one partner or shareholder if it is
5-year deferral for payment of the tax,
the IRS may terminate the right to make
community property or held by a
as discussed later under Time for
installment payments and force an
husband and wife as joint tenants,
payment, does not apply. In addition,
acceleration of payment of the tax upon
tenants in common, or as tenants by the
the 2% interest rate, discussed later
notice and demand.
entirety.
under Interest computation, will not
Generally, if any portion of the
apply. Also, if the business company
Property owned directly or indirectly
interest in the closely-held business
stock is readily tradable, as explained
by or for a corporation, partnership,
which qualifies for installment payments
above, the tax must be paid in five
estate, or trust is treated as owned
is distributed, sold, exchanged, or
installments.
proportionately by or for its
otherwise disposed of, or money and
shareholders, partners, or beneficiaries.
Determine how much of the estate
other property attributable to such an
For trusts, only beneficiaries with
tax may be paid in installments un-
interest is withdrawn, and the aggregate
present interests are considered.
der section 6166. To determine
of those events equals or exceeds 50%
whether the election may be made, you
The interest in a closely-held farm
of the value of the interest, then the right
must calculate the adjusted gross
business includes the interest in the
to make installment payments will be
estate. (See, Line 3
residential buildings and related
terminated, and the unpaid portion of
Worksheet —Adjusted Gross Estate,
improvements occupied regularly by the
the tax will be due upon notice and
later.) To determine the value of the
owners, lessees, and employees
demand. See section 6166(g)(1)(A).
adjusted gross estate, subtract the
operating the farm.
Interest computation. A special
deductions (Schedules J, K, and L) from
interest rate applies to installment
Holding company stock. The
the value of the gross estate.
payments. For decedents dying in 2016,
executor may elect to treat as business
To determine over how many
the interest rate is 2% on the lesser of:
company stock the portion of any
installments the estate tax may be paid,
$592,000 or
holding company stock that represents
please refer to sections 6166(a), (b)(7),
The amount of the estate tax that is
direct ownership (or indirect ownership
(b)(8), and (b)(10).
attributable to the closely-held business
through one or more other holding
and that is payable in installments.
companies) in a business company. A
Time for payment. Under the
holding company is a corporation
installment method, the executor may
2% portion. The 2% portion is an
holding stock in another corporation. A
elect to defer payment of the qualified
amount equal to the amount of the
business company is a corporation
estate tax, but not interest, for up to 5
tentative estate tax (on $1,000,000 plus
carrying on a trade or business.
years from the original payment due
the applicable exclusion amount in
date. After the first installment of tax is
In general, this election applies only
effect) minus the applicable credit
paid, you must pay the remaining
to stock that is not readily tradable.
amount in effect. However, if the
installments annually by the date 1 year
However, the election can be made if
amount of estate tax extended under
after the due date of the preceding
the business company stock is readily
section 6166 is less than the amount
installment. There can be no more than
tradable, as long as all of the stock of
figured above, the 2% portion is the
10 installment payments.
each holding company is not readily
lesser amount.
tradable.
Interest on the unpaid portion of the
Inflation adjustment. The
tax is not deferred and must be paid
For purposes of the 20% voting stock
$1,000,000 amount used to calculate
annually. Interest must be paid at the
requirement, stock is treated as voting
the 2% portion is indexed for inflation for
same time as and as a part of each
stock to the extent the holding company
the estates of decedents who died in a
installment payment of the tax.
owns voting stock in the business
calendar year after 1998. For an estate
company.
of a decedent who died in 2016, the
dollar amount used to determine the
“2% portion” of the estate tax payable in
Line 3 Worksheet—Adjusted Gross Estate
installments under section 6166 is
$1,480,000.
1
What is the value of the decedent's interest in closely-held business(es)
included in the gross estate (less value of passive assets, as mentioned
Computation. Interest on the
in section 6166(b)(9))?
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
portion of the tax in excess of the 2%
2
What is the value of the gross estate (Form 706, page 3, Part 5,
portion is figured at 45% of the annual
line 13)?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
rate of interest on underpayments. This
3
Add lines 18, 19, and 20 from Form 706, page 3, Part 5.
. . . . . . . .
rate is based on the federal short-term
4
Subtract line 3 from line 2 to calculate the adjusted gross estate.
. . .
rate and is announced quarterly by the
5
Divide line 1 by line 4 to calculate the value the business interest bears
IRS in the Internal Revenue Bulletin.
to the value of the adjusted gross estate. For purposes of this
calculation, carry the decimal to the sixth place; the IRS will make this
If you elect installment payments and
adjustment for purposes of determining the correct amount. If this
the estate tax due is more than the
amount is less than 0.350000, the estate does not qualify to make the
maximum amount to which the 2%
election under section 6166.
. . . . . . . . . . . . . . . . . . . . . . . . .
interest rate applies, each installment
6
Multiply line 5 by the amount on line 16 of Form 706, page 1, Part 2. This
payment is deemed to comprise both
is the maximum amount of estate tax that may be paid in installments
tax subject to the 2% interest rate and
under section 6166. (Certain GST taxes may be deferred as well; see
tax subject to 45% of the regular
section 6166(i) for more information.)
. . . . . . . . . . . . . . . . . . .
underpayment rate. The amount of each
Part Instructions
-15-
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