A later estate tax deficiency does not expand a partial § 6166 election

Plain-English summary

Chief Counsel considered whether an estate that elected to defer estate tax on only part of its interest in a closely held business could later expand that election after an estate tax deficiency arose from the non-business portion of the estate. The advice explains that IRC § 6166(e) prorates a deficiency using the qualified percentage formula in § 6166(a)(2). Because the business value originally elected for deferral stays the same while the adjusted gross estate increases, the qualifying percentage decreases. The estate remains eligible to defer the original closely held business value, but the deficiency attributable to that business is zero, so the estate cannot expand its election to cover the deficiency.

Ruling snapshot

• Question: Can an estate expand a partial § 6166 election after a deficiency is assessed on the non-business portion of the estate?
• Outcome: Advice given, the election cannot be expanded under the described facts.
• Key authorities: IRC § 6166(a)(2) and (e); Treas. Reg. § 20.6166-1(c)(2)

Full text (IRS public release)

ID: CCA_2012112911062846 Number: 201304006
Release Date: 1/25/2013
Office: -------------
UILC: 6166.00-00

From: ---------------------
Sent: Thursday, November 29, 2012 11:06:29
To: -----------------
Cc: ----------------------
Subject: RE: 6166 question

You asked whether an estate that timely made an election under § 6166 to defer the
payment of estate tax on only part of its interest in a closely-held business could expand
its election to its entire interest in that business once exam determined an estate tax
deficiency resulting from the non-business portion of the estate.

Here’s a summary of our conversation this morning:

An election was made originally. Section 6166(h) does not apply.

Section 6166(e) provides for the pro-rating of a deficiency, using the qualified
percentage formula from section 6166(a)(2). Because the numerator of this fraction
(the value of the portion of the closely held business elected for deferral) is staying the
same and the denominator (the value of the adjusted gross estate) is increasing, the
qualifying percentage goes down where the deficiency relates exclusively to the non-
closely-held business portion of the estate. Treas. Reg. 20.6166-1(c)(2) provides that
where an election is made when the estate tax return is filed and a deficiency is later
assessed, the portion of the deficiency attributable to the closely-held business (but not
any accrued interest) will be prorated to the installments payable pursuant to the original
election. The estate remains eligible to defer the original closely-held business value
but none of the deficiency, because the portion of the deficiency attributable to the
closely-held business is zero.

The determination and assessment of a deficiency in estate tax unrelated to the value of
the portion of the closely-held business interest that the estate originally elected for
deferral does not provide the estate an opportunity to expand its § 6166 election.

Please let me know if you have any further questions.

Thanks,

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