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The following information provides some general answers and examples about installment plans under § 6166 of the Internal Revenue Code.  Please see § 6166 of the Internal Revenue Code for details.

Though computing estate tax for estates with closely help business is the same as for other estates, an estate with closely help business can defer the payment of estate taxes attributable to a closely held business.

 

How do I know if an estate can defer taxes owed?

To qualify for a § 6166 Election (as explained in § 6166 Internal Revenue Code):

  • The decedent must have been a citizen or resident of the United States at death.
  • The decedent’s interest in a closely held business must exceed 35 percent of the adjusted gross estate.  The term “interest in a closely held business” means:
    • An interest as proprietor in a trade or business carried on as a proprietor, or
    • An interest as a partner in a partnership carrying on a trade or business, if 20 percent or more of the total capital interest in such partnership is included in determining the gross estate of the decedent, or such partnership had 45 or fewer partners, or
    • Stock in a corporation carrying on a trade or business if 20 percent or more in value of the voting stock of such corporation is included in determining the gross estate, such corporation had 45 or fewer shareholders.

How much estate tax can be deferred?

Deferral of tax under Section § 6166 does not apply to the entire amount owed by the estate.  The deferral applies to the amount of tax attributable to the value of the closely held business as compared to the amount of the adjusted gross estate.  The remaining non deferred estate tax is due nine months after the decedent’s death.

How do I make the election?

An installment plan is elected on the Washington State Estate and Transfer Tax Return on line 12 and on the Federal Estate Tax Return (form 706) under Part 3 – Elections by the Executor.  Washington will allow the same percentage of deferral as the allowable federal deferral.

 

Example of Deferral for a Qualifying Estate:

Gross Estate

 

15,000,000

Taxable Estate (Adjusted Gross Estate)

 

7,000,000

Attributable to a closely held business

 

3,920,000


Estate Tax Due

 

1,070,000

 

3,920,000/7,000,000 = .56 (56% of the Tax Due can be deferred under a § 6166 election; $599,200 deferrable.  44% of the Tax Due must be paid by the nine months after the decedent’s date of death; $470,800 is non-deferrable).