In general, the federal estate tax is due within 9 months of the date of death. However, if the estate is illiquid the executor of the estate may have a difficult time raising the cash to pay the taxes this quickly. Section 6166 can be used to remedy this situation. Congress created this code section as a safety valve to protect family run businesses from destruction due to the estate tax being due within 9 months.
A Section 6166 election allows the taxpayer to pay the estate tax attributable to a closely held business in up to 10 equal annual installments. The first payment can be deferred up to 5 years.
Qualification for a Section 6166 Election
1) Decedent must be a citizen or resident at the time of death.
2) Value of the interest in the closely held business must must exceed 35% of the decedent's adjusted gross estate.
3) The executor must make an election on a timely filed estate tax return.
This response does not constitute legal, accounting or other professional advice. Only through a personal, confidential consultation with qualified legal counsel can anyone properly evaluate their own unique legal challenges and determine what, if any, appropriate legal strategies and tactics should be implemented to meet those challenges.
Circular 230 Disclaimer - Nothing in this response is intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties regarding any transactions or matters addressed herein. You should always seek advice from independent tax advisers regarding the same."
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