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Tuesday, October 30, 2007


An estate may elect under Internal Revenue Code Section 6166 to pay the portion of federal estate tax attributable to a closely held business interest in up to ten equal annual installments starting no later than five years after the regular due date for payment if certain requirements are met, including the requirement that the value of the business interest is more than 35% of the decedent's adjusted gross estate. The purpose of the deferral is to protect businesses – without it, many times a business would have to be sold to pay estate taxes which are due within 9 months of the date of death. By obtaining a substantial deferral to pay the tax, the heirs have a long time to spread out the payments and/or make arrangements for sale or payment of the tax.

The Internal Revenue Code allows the IRS to demand a bond or lien to secure the payment of the tax. Presently, the Internal Revenue Manual REQUIRES estates to furnish a surety bond as a prerequisite for granting the installment payment election. Instead of furnishing a surety bond, the estate may choose to elect a special lien on property.

Earlier this year, the Tax Court ruled that this mandatory bond or lien was not intended by Congress and is inappropriate. Instead, the IRS needs to examine each situation to see if a bond or lien is needed and appropriate. Estate of Edward P. Roski, Sr., et al. v. Commissioner, 128 T.C. No. 10, 04/12/2007.

The IRS now acknowledges and agrees to make the examination on a case-by-case basis for each estate electing under Section 6166. Pending the issuance of Regulations, it has issued a notice that it will consider the following factors in examining whether a bond or special lien is needed, namely:

--The duration and stability of the business.

--The ability of the estate and business to pay the installments of tax and interest timely.

--The tax compliance history of the business.

Note, however, that special effective provisions detail to which estates these provisions will apply.

Notice 2007-90.

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