Section 6166 election
A Section 6166 election is an election to pay in installments the part of estate tax attributable to a qualifying closely held business interest. For owners of operating businesses, real estate and private investments, it concerns estate tax tied to the business interest. The executor makes the election for the tax attributable to that interest.
How it works
The executor attaches a notice of election to a timely filed estate tax return. The notice states the decedent's name and taxpayer identification number, the tax amount to be paid in installments, and the first installment date.
The first installment date may be no more than five years after the otherwise prescribed payment date. Later installments are due one year after the preceding installment date. The balance is paid annually in no more than ten installments.
A contingent protective election may be made when the estate does not qualify based on values as returned or when no tax is shown. The election depends on final values meeting the section 6166(a) percentage tests.
Where it shows up for owners of businesses, real estate and private investments
A closely held business interest is the property interest connected to installment payment. For a qualifying interest exceeding 35 percent of the adjusted gross estate, the executor may elect installments for some or all section 2001 tax.
Points that are easy to confuse
Qualified estate tax may be deferred for up to five years, but interest is not deferred. Interest accrues on deferred estate tax during the initial deferral period, and a lien on business assets secures payment.
Common questions
Does the election cover all estate tax?
The election may cover only the part of estate tax attributable to the closely held business interest. IRS instructions describe installment payment of that portion when the gross estate includes such an interest.
How many installments may the election include?
The election may provide for no more than ten annual installments. The notice states the number of annual installments, including the first, and the date selected for the first installment.