Nebraska Probate Form 807 - Notice Of Election Under Irc § 6166 To Extend Time For Payment Of Estate

FULL NAME OF FORM: Notice Of Election Under Irc § 6166 To Extend Time For Payment Of Estate Tax Attributable To Interest In A Closely Held Business

WHEN TO USE THE FORM: This form should be used when the Personal Representative wants to extend the time for payment of part or all of the federal estate tax attributable to an interest in a closely held business which qualifies under IRC § 6166. The tax attributable to such interest may be paid in equal annual installments over ten years or such shorter period as a Personal Representative elects, with the first installment deferred for five years or such shorter period as the Personal Representative elects. Interest only is payable annually during the deferral period. Interest on the first $153,000 of deferred tax is at 4%. If qualification is based on the Personal Representative electing to have IRC § 6166(b)(7) or (8) apply, the first installment is due on the normal due date and the 4% rate does not apply.

There is no Internal Revenue Service form for the election. See IRC § 6166(d) and the Regulations for the time and manner of making the election.

Basic requirements on IRC § 6166 qualification:

1. The interest in the closely held business included in the gross estate must exceed 35% of the adjusted gross estate. See comments.
2. The interest may be in a proprietorship, a partnership in which the Decedent had a 20% or more capital interest or in which there were fifteen or fewer partners, or a corporation if the interest is 20% or more in value of the voting stock or the corporation had fifteen or fewer shareholders. See comments.
3. The entity in which the interest is held must be engaged in the active conduct of a trade or business.

HOW TO USE THE FORM: This form is not designed to be photocopied. It is only a suggested format for the required notice of election designed to set forth the information required by the Regulations, including the facts upon which qualification under IRC § 6166 is based. It should not be used indiscriminately and may have to be revised to fit the particular situation, such as when Decedent's interest in two (2) or more closely held businesses are combined in order to qualify or when one or more of the IRC § 6166(b) special rules apply.

COMMENTS:

1. Do not assume the estate does or does not qualify until the special rules of IRC § 6166(b) have been applied. Also, under IRC § 6166(c) it may be possible to combine two or more closely held businesses in order to qualify.
2. In determining whether the 35% test is met and how much tax may be paid in installments, IRC § 6166(b)(9) re passive assets must be considered.
3. If IRC § 2032A special use value is elected, such values are used in determining qualification under IRC § 6166.
4. The notice of election must be attached to a timely filed return. Preserve evidence of timely filing. A protective election may be filed to preserve the right to pay in installments should valuation changes on audit result in the requirements of IRC § 6166 first being met.
5. A disposition of the interest in the closely held business or a withdrawal of money or other property from the business can accelerate the installments. IRC § 6166(g).
6. If election is made, any deficiency attributable to an increase in the value of the business interest is prorated among the remaining installments. IRC § 6166(e). If a deficiency in estate tax is assessed, but the IRC § 6166 election has not been made, then, if the estate qualifies, the Personal Representative may elect, within sixty (60) days after issuance of the notice of deficiency and demand for payment, to pay the deficiency in installments. See IRC § 6166(h).
7. When IRC § 6166(b)(7) or (8) is used, the date under paragraph 3 is the normal due date of the tax and IRC § 6601(j) - the 4% interest rate - does not apply. Pay first installment with timely filed return.
8. When the business is a proprietorship such as farming, all business assets, debts and liabilities should be set forth under paragraph 5. Only the net value of the business assets is used to meet the 35% requirement.
9. See also Form 809 re the Personal Representative's election of a special lien for the deferred tax discharging the Personal Representative from personal liability.
10. See Form 808 Worksheet and its notes and instructions.