IRC Section 6166, Estate Tax Stretch, etsTool™

Note -- this program has been updated to reflect the changes made by the Taxpayer Relief Act of 1997. See the Post-1997 section that follows.

IRC Section 6166 provides for a 5-year deferral, 10-year installment payment method of liquidating the estate tax liability. An estate is eligible for the Code 6166 election if the value of a closely held business included in the gross estate exceeds 35% of the adjusted gross estate [I.R.C., 6166(a)(1)].

First the estate may pay only interest on the principal amount of the estate tax liability for the first 5 years [I.R.C., 6166(a)(3), (f)(1)]. And second, the estate tax liability itself may then be paid in 10 equal annual installments in years six through fifteen.

Current: The interest rate is only 4% on the first $1 million of the qualifying farm or closely-held business interest . The interest rate on any excess value is equal to the Federal short-term rate plus three percentage points. [I.R.C. 6166(k)(4), 6601(a) and 6621(a)(2).] The rate for each month is published on or shortly after the twentieth day of the previous month and is carried in section C of the Wall Street Journal.

Post-1997: The conference agreement reduces the 4-percent interest rate to 2-percent, and makes the interest paid on estate taxes deferred under section 6166 non-deductible for estate or income tax purposes. The 2-percent interest rate is imposed on the amount of deferred estate tax attributable to the first $1,000,000 in taxable value of the closely held business (i.e., the first $1,000,000 in value in excess of the effective exemption provided by the unified credit and any other exclusions). The interest rate imposed on the amount of deferred estate tax attributable to the taxable value of the closely held business in excess of $1,000,000 is reduced to an amount equal to 45 percent of the rate applicable to underpayments of tax.

Business interests that are eligible for the 15-year spread out are:

1. a proprietor's interest in a sole proprietorship;
2. an interest in a partnership with 15 or fewer partners;
3. an interest in a partnership where 20% or more of the total capital interest is included in decedent's gross estate;
4. stock in a corporation with 15 or fewer shareholders; or
5. stock in a corporation where 20% or more of the voting stock is included in decedent's gross estate [I.R.C., 6166(b)(1)].

For calculations associated with the estate tax deferral of IRC Section 6166 out, try etsTool from yyyZ, Ltd. -- it can highlight both the benefits and the pitfalls of using the 6166 approach.

System Requirements

The minimum recommended system configuration is a Pentium computer operating  Windows 95 or Windows NT

The Price

etsTool is priced at $45