Can a business sale end section 6166 estate tax installments?

What ends the installment right

Official guidance ties the end of installments to a 50% total. If an interest is distributed, sold, exchanged or disposed of, or if money or property attributable to it is withdrawn, those events are added together. When they total 50% or more of the interest's value, the right to make installment payments terminates.

• A distribution of the interest counts toward the total.
• A sale or exchange of the interest counts toward the total.
• Any other disposition of the interest counts toward the total.
• A withdrawal of money or property attributable to the interest counts toward the total.

How the election sets up installments

The election starts with a closely held business interest in the gross estate. The IRS instructions say the election may allow part of the estate tax to be paid in installments under section 6166, limited to the part attributable to the business.

Federal law sets an ownership size test. If a qualifying closely held business interest exceeds 35 percent of the adjusted gross estate, the executor may elect to pay some or all section 2001 tax in 2 to 10 equal installments.

The schedule has its own timing. The first installment may be scheduled no more than 5 years after the otherwise prescribed tax payment date, and each later installment is due one year after the preceding installment date.

What a sale means for an estate with a business interest

A sale of the business is a disposition of the interest, so it counts toward the 50% total. A partial sale counts the same way and adds to any distributions or withdrawals.