Extension of time for payment of estate tax where estate consists largely of interest in closely held business

If the value of an interest in a closely held business which is included in determining the gross estate of a decedent who was (at the date of his death) a citizen or resident of the United States exceeds 35 percent of the adjusted gross estate, the executor may elect to pay part or all of the tax imposed by section 2001 in 2 or more (but not exceeding 10) equal installments. The maximum amount of tax which may be paid in installments under this subsection shall be an amount which bears the same ratio to the tax imposed by section 2001 (reduced by the credits against such tax) as— If an election is made under paragraph (1), the first installment shall be paid on or before the date selected by the executor which is not more than 5 years after the date prescribed by section 6151(a) for payment of the tax, and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment. For purposes of this section, the term “interest in a closely held business” means— an interest as a partner in a partnership carrying on a trade or business, if— stock in a corporation carrying on a trade or business if— For purposes of paragraph (1)— Determinations shall be made as of the time immediately before the decedent’s death. Stock or a partnership interest which— Property owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. For purposes of the preceding sentence, a person shall be treated as a beneficiary of any trust only if such person has a present interest in the trust. All stock and all partnership interests held by the decedent or by any member of his family (within the meaning of section 267(c)(4)) shall be treated as owned by the decedent. For purposes of the 35-percent requirement of subsection (a)(1), an interest in a closely held business which is the business of farming includes an interest in residential buildings and related improvements on the farm which are occupied on a regular basis by the owner or lessee of the farm or by persons employed by such owner or lessee for purposes of operating or maintaining the farm. For purposes of this section, value shall be value determined for purposes of chapter 11 (relating to estate tax). For purposes of this section, the term “closely held business amount” means the value of the interest in a closely held business which qualifies under subsection (a)(1). For purposes of this section, the term, “adjusted gross estate” means the value of the gross estate reduced by the sum of the amounts allowable as a deduction under section 2053 or 2054. Such sum shall be determined on the basis of the facts and circumstances in existence on the date (including extensions) for filing the return of tax imposed by section 2001 (or, if earlier, the date on which such return is filed). If the executor elects the benefits of this paragraph (at such time and in such manner as the Secretary shall by regulations prescribe), then— For purposes of this paragraph, the term “non-readily-tradable stock” means stock for which, at the time of the decedent’s death, there was no market on a stock exchange or in an over-the-counter market. If the executor elects the benefits of this paragraph, then— For purposes of this section, the portion of the stock of any holding company which represents direct ownership (or indirect ownership through 1 or more other holding companies) by such company in a business company shall be deemed to be stock in such business company. The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a). For purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero. No stock shall be taken into account for purposes of applying this paragraph unless it is non-readily-tradable stock (within the meaning of paragraph (7)(B)). If the requirements of clause (i) are not met, but all of the stock of each holding company taken into account is non-readily-tradable, then this paragraph shall apply, but subsection (a)(1) shall be applied by substituting “5” for “10”. For purposes of clause (i) of paragraph (1)(C), the deemed stock resulting from the application of subparagraph (A) shall be treated as voting stock to the extent that voting stock in the holding company owns directly (or through the voting stock of 1 or more other holding companies) voting stock in the business company. For purposes of this paragraph— The term “holding company” means any corporation holding stock in another corporation. The term “business company” means any corporation carrying on a trade or business. For purposes of subsection (a)(1) and determining the closely held business amount (but not for purposes of subsection (g)), the value of any interest in a closely held business shall not include the value of that portion of such interest which is attributable to passive assets held by the business. For purposes of this paragraph— The term “passive asset” means any asset other than an asset used in carrying on a trade or business. The term “passive asset” includes any stock in another corporation unless— If— If the executor elects the benefits of this paragraph, then— For purposes of this section, any asset used in a qualifying lending and finance business shall be treated as an asset which is used in carrying on a trade or business. The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a). For purposes of applying subsection (a)(1), “5” shall be substituted for “10”. For purposes of this paragraph— The term “qualifying lending and finance business” means a lending and finance business, if— The term “lending and finance business” means a trade or business of— The term “qualifying lending and finance business” shall not include any interest in an entity, if the stock or debt of such entity or a controlled group (as defined in section 267(f)(1)) of which such entity was a member was readily tradable on an established securities market or secondary market (as defined by the Secretary) at any time within 3 years before the date of the decedent’s death. For purposes of this section, interest in 2 or more closely held businesses, with respect to each of which there is included in determining the value of the decedent’s gross estate 20 percent or more of the total value of each such business, shall be treated as an interest in a single closely held business. For purposes of the 20-percent requirement of the preceding sentence, an interest in a closely held business which represents the surviving spouse’s interest in property held by the decedent and the surviving spouse as community property or as joint tenants, tenants by the entirety, or tenants in common shall be treated as having been included in determining the value of the decedent’s gross estate. Any election under subsection (a) shall be made not later than the time prescribed by section 6075(a) for filing the return of tax imposed by section 2001 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe. If an election under subsection (a) is made, the provisions of this subtitle shall apply as though the Secretary were extending the time for payment of the tax. If an election is made under subsection (a) to pay any part of the tax imposed by section 2001 in installments and a deficiency has been assessed, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments payable under subsection (a). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. If the time for payment of any amount of tax has been extended under this section— Interest payable under section 6601 of any unpaid portion of such amount attributable to the first 5 years after the date prescribed by section 6151(a) for payment of the tax shall be paid annually. Interest payable under section 6601 on any unpaid portion of such amount attributable to any period after the 5-year period referred to in paragraph (1) shall be paid annually at the same time as, and as a part of, each installment payment of the tax. In the case of a deficiency to which subsection (e) applies which is assessed after the close of the 5-year period referred to in paragraph (1), interest attributable to such 5-year period, and interest assigned under paragraph (2) to any installment the date for payment of which has arrived on or before the date of the assessment of the deficiency, shall be paid upon notice and demand from the Secretary. If the executor has selected a period shorter than 5 years under subsection (a)(3), such shorter period shall be substituted for 5 years in paragraphs (1), (2), and (3) of this subsection. If— In the case of a distribution in redemption of stock to which section 303 (or so much of section 304 as relates to section 303) applies— If any stock in a holding company is treated as stock in a business company by reason of subsection (b)(8)(A)— If any stock in a holding company is treated as stock in a business company by reason of subsection (b)(8)(A)— For purposes of subparagraph (A), the undistributed net income of the estate for any taxable year is the amount by which the distributable net income of the estate for such taxable year (as defined in section 643) exceeds the sum of— Except as provided in subparagraph (B), if any payment of principal or interest under this section is not paid on or before the date fixed for its payment by this section (including any extension of time), the unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary. If any payment of principal or interest under this section is not paid on or before the date determined under subparagraph (A) but is paid within 6 months of such date— there is imposed a penalty in an amount equal to the product of— If— An election under this subsection shall be made not later than 60 days after issuance of notice and demand by the Secretary for the payment of the deficiency, and shall be made in such manner as the Secretary shall by regulations prescribe. If an election is made under this subsection, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments which would have been due if an election had been timely made under subsection (a) at the time the estate tax return was filed. The part of the deficiency so prorated to any installment the date for payment of which would have arrived shall be paid at the time of the making of the election under this subsection. The portion of the deficiency so prorated to installments the date for payment of which would not have so arrived shall be paid at the time such installments would have been due if such an election had been made. To the extent that an interest in a closely held business is the subject of a direct skip (within the meaning of section 2612(c)) occurring at the same time as and as a result of the decedent’s death, then for purposes of this section any tax imposed by section 2601 on the transfer of such interest shall be treated as if it were additional tax imposed by section 2001. The Secretary shall prescribe such regulations as may be necessary to the application of this section. For authority of the Secretary to require security in the case of an extension under this section, see section 6165. For special lien (in lieu of bond) in the case of an extension under this section, see section 6324A. For extension of the period of limitation in the case of an extension under this section, see section 6503(d). For provisions relating to interest on tax payable in installments under this section, see subsection (j) of section 6601. For special rule for qualifying an estate under this section where property has been transferred within 3 years of decedent’s death, see section 2035(c)(2).