4.25.2  Campus Procedures For Estate Tax

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4.25.2.1  (09-11-2009)
Miscellaneous Accounting

  1. This section provides information on miscellaneous accounting procedures concerning collection procedures and special election payments.

4.25.2.1.1  (09-11-2009)
Extension of Time to File Estate Tax Returns — IRC Section 6081

  1. IRC section 6081 provides for the extension of time to file estate and gift tax returns. A Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is generally due within 9 months after the date of death. An authorized representative filing an estate tax return for a decedent's estate may file Form 4768 to apply for an extension of time to file.

  2. An executor may apply for an automatic 6 month extension of time to file a Form 706, Form 706-A, Form 706-D, Form 706-NA or Form 706-QDT. Unless the executor is out of the country, the maximum extension of time to file is 6 months from the due date of the applicable return.

  3. A request for an extension of time to file must be made by the due date of the return. A request for an extension of time to file that is not timely may be granted upon a showing of good and sufficient cause.

  4. No acknowledgement of the extension approval is sent to the taxpayer.

  5. An extension of time to file does not extend the time to pay.

  6. Approval actions for extensions of time to file:

    1. Form 4768, Application for Extension of Time to File and/or Pay U.S. Estate Taxes, must be input via IDRS.

    2. Initiate research, using local processing procedures (i.e., BMFOL, INOLE) to see if an account has been established for the SSN on the BMF for MFT 52. The date of death must be present to prevent an unpostable.

    3. If the account cannot be found through research, establish the Entity, and MFT 52.

    4. If the extension is APPROVED, use Command Code REQ77 or REQ77A and input a Transaction Code (TC) 460 and the date to which the extension is approved.

  7. There may be correspondence with the taxpayer to obtain any appropriate information needed for a request for an automatic extension of time to file; however, such request will be disapproved if any of the following conditions are met:

    1. Form 4768was received after the return due date (including grace period).

    2. The request is not signed.

  8. Disapproval actions for extension of time to file:

    1. If the extension request is DENIED, use Command Code REQ77 and input a TC 460 and the original return due date, or the previously approved extension date (whichever is later). At the end of the data on the screen, type "Denied."

    2. Use Letter 297C to advise taxpayer of the denial. Use the appropriate paragraphs in the explanation.

    3. If extension of time to file is denied, the case should be set up in a suspense file and monitored for the filing of the return.

4.25.2.1.2  (09-11-2009)
Extension of Time to File Gift Tax Returns-IRC Section 6081

  1. A Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, is generally due on April 15 following the close of the calendar year in which the gift was made. If the donor dies in the calendar year in which the donor made a gift, the Form 709 is due on or before the due date of the estate tax return (including extensions), or on April 15 of the year following the calendar year of the gift, whichever date is earlier.

  2. Except as provided below with respect to certain U.S. citizens and residents living outside the United States, an extension of time to file a gift tax return may not exceed six months from the due date of the return. See Treas. Reg. section 1.6081-1(a).

  3. A request for an extension of time to file must be made by the due date of the return, without extensions.

  4. Form 8892, Application for Automatic Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax, is used to request an automatic 6-month extension of time to file a gift tax return where the taxpayer is not also requesting an extension to file Form 1040. (The Form 8892 may also be used as a payment voucher.) The Form 1040 extension request, Form 4868, is used to request an automatic 6-month extension of time to file both the Forms 1040 and 709.

  5. Requests for an extension of time to file a return are submitted to the Internal Revenue Service office where the return is required to be filed. Form 4868 is filed with the Cincinnati Campus where the taxpayer’s Form 1040 should be filed.

  6. Forms 709 are required to be filed with the Cincinnati Campus.

  7. Upon a timely request, an automatic 6-month extension of time to file a gift tax return will be granted. See Treas. Reg. section 25.6081-1. No acknowledgement of the automatic extension approval is sent to the taxpayer.

  8. All Form 8892 requests for extensions of time to file postmarked after the due date of the Form 709 shall be denied.

  9. An extension of time for filing a Form 709 does not extend the time for payment of tax. Treas. Reg. section 25.6081-1(c).

  10. There are special rules for extensions of time to file gift tax returns for citizens and residents living outside the United States.

    1. United States citizens or residents with tax homes or abodes outside the United States, or who are in military or naval service on duty outside the United States or Puerto Rico, receive an automatic two-month extension for filing income tax returns and paying any tax shown on the return. See Treas. Reg. section 1.6081-5. To receive this extension, the taxpayer must attach a statement to the return showing that the taxpayer is described in Treas. Reg. section 1.6081-(5)(a). See Treas. Reg. section 1.6081-5(b)(1).

    2. United States citizens or residents may also request a six-month extension to file their income tax returns (but not an extension to pay tax) by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, no later than the last day of the two-month extension granted under Treas. Reg. section 1.6081-5(a). See Treas. Reg. section 1.6081-5(b)(2).

    3. The automatic six month extension will run concurrently with the two-month extension of time granted by Treas. Reg. section 1.6081-5(a). See Treas. Reg. section 1.6081-4(a). Such an extension of time to file a return on Form 4868 will be deemed to be a six-month extension to file a return on Form 709. See IRC section 6075(b)(2).

    4. If the donor does not obtain a six month extension to file his or her income tax return under IRC section 1.6081-4(b), the donor may request an automatic six-month extension of time to file Form 709 by filing Form 8892, Application for Extension of Time To File Form 709 and/or Payment of Gift/GST Tax, no later than the due date of the return or the expiration of the two month extension granted under Treas. Reg. section 1.6081-5(a). See Treas. Reg. section 25.6081-1. This automatic extension will also run concurrently with the two month extension granted by Treas. Reg. section 1.6081-5(a).

  11. The treasury regulation sections cited in this section are applicable for applications for an automatic extension of time to file Form 709 filed after July 1, 2008 and for returns of income due after July 1, 2008.

  12. To avoid imposition of a failure to file penalty, the taxpayer must file a return that is as complete as possible before the extension date expires.

  13. APPROVED actions for extensions of time to file:

    1. Initiate research, using local processing procedures (i.e., BMFOL, INOLE) to see if an account has been established for the SSN on the BMF for MFT 51. If the account cannot be found through research, establish the Entity, and MFT 51.

    2. If the extension is APPROVED, use Command Code REQ77 or REQ77A and input a TC 460 and the extension approved to date.

    3. Notate on IDRS, Form 8892 received in remarks section.

  14. DENIED actions for extension of time to file:

    1. If the extension request is DENIED, use Command Code REQ77 and input a TC 460 and the original return due date or the previously approved extension date (whichever is later). At the end of the data on the screen, type "Denied."

    2. Send Letter 297C advising the taxpayer of the denial of the extension request. Use the appropriate paragraphs in the explanation.

    3. A case should be set up in a suspense file and monitored for filing of the return.

4.25.2.1.3  (09-11-2009)
Extension of Time to Pay Estate Tax — IRC Section 6161

  1. IRC section 6161(a)(1) permits an extension of time to pay tax shown on the return or required to be shown, for a reasonable period not to exceed 12 months in the case of estate tax from the date the payment is due.

  2. IRC section 6161(a)(2)(A) permits an extension of time to pay tax shown on return, for a reasonable period not in excess of 10 years from the date prescribed for payment of the tax, if the estate shows reasonable cause for the extension. For examples of reasonable cause, see Treas. Reg. section 20.6161-1(a)(1). Extensions may be granted for one year at a time only.

    Note:

    The tax shown on the return may differ from what is finally determined because it does not reflect information provided after the expiration of any extension.

  3. IRC section 6161(a)(2)(B) permits the extension for any installment payment (including deficiency installment payments) under IRC section 6166, installments of tax or interest for a reasonable time, not to exceed 10 years from the installment payment date (or if later,12 months after the last installment due date), if the estate shows reasonable cause for the extension. For examples of reasonable cause, see Treas.Reg. section 20.6161-1(a).

    1. This extension must be filed on or before the due date of the installment to be considered.

    2. The procedures for processing are similar to procedures for processing IRC section 6161(a)(2)(A) extensions. The main difference is interest and penalty amounts are computed on the installment amount not paid instead of the total unpaid tax.

  4. IRC section 6161(b)(2) allows for the granting of an extension of time to pay an estate tax deficiency. The maximum allowable extension of time to pay is 12 months.

    1. The extension may be granted for a period not to exceed 4 years from the date fixed for payment of the deficiency if the estate shows reasonable cause for the extension.

    2. The extension application must be filed on or before the date fixed for payment of the deficiency, in order to be considered.

    3. The extension request may be made on Form 4768. The request must show there is reasonable cause to extend the payment date.

    4. The extension will not be granted if the deficiency is due to negligence, intentional disregard of rules and regulations or to fraud with intent to evade tax.

  5. An extension request may be made on Form 4768 and should contain a written statement explaining in detail why it is impossible or impractical to pay the full amount of tax by the due date. In certain circumstances explained above, the estate will have to show reasonable cause. See Treas.Reg. section 20.6161–(1)(a) for examples of reasonable cause.

  6. In lieu of filing Form 4768, the application for extension of time to pay shall be in writing, shall state the period of extension requested and shall include a declaration that it is made under a penalty of perjury.

  7. Any extension for time to pay will not be considered unless the extension is applied for on or before the date fixed for payment of tax.

  8. All extension requests should be referred to the Cincinnati Campus Estate and Gift Operation for processing.

  9. Reasonable cause statements for extensions of time to pay requests, in which the estate has requested the automatic six month (6) extension to file and a non-automatic twelve month (12) extension to pay tax due upon filing, must be evaluated.

    • If the reasonable cause statement sent by the estate provides details (see instructions to Form 4768) explaining why it is unable to determine the tax liability or the liquidity of assets, it may be reasonable to limit approval of the extension of time to pay to six (6) months. This corresponds with the extended due date of the estate tax return; making it reasonable to expect that the executor knows the tax liability and liquidity of assets by the end of that six (6) month period.

    • If the executor then needed additional time to pay the estate tax, another request could be made on Form 4768.

    • If the estate indicates no tax will be due, it may be reasonable to deny a request for extension of time to pay when the taxpayer believes in good faith that no liability is owed. Although an estate's request for an extension of time to pay may state that no tax liability will be due with the return, consideration will be given to the reasonable cause explanation in evaluating these requests for an extension of time to pay.

  10. A reasonable cause statement must establish why it is impossible or impractical for the executor to pay the full amount of the estate tax by the estate tax return due date. Examples of reasonable cause include the following:

    • An estate includes sufficient liquid assets to pay estate (and GST) tax when otherwise due. The liquid assets, however, are located in several jurisdictions and are not immediately subject to the control of the executor. Consequently, such assets cannot readily be collected by the executor even with reasonable effort.

    • An estate is comprised, in substantial part, of assets consisting of rights to receive payments in the future (for example, annuities, copyright royalties, contingent fees, or accounts receivable). These assets provide insufficient present cash with which to pay the estate (and GST) when otherwise due and the estate cannot borrow against these assets except upon terms that would cause a loss to the estate.

    • An estate includes a claim to substantial assets which cannot be collected without litigation. Consequently, the size of the gross estate is unascertainable at the time the tax is otherwise due.

    • An estate does not have sufficient funds (without borrowing at a rate of interest higher than that generally available) with which to pay the entire estate (and GST) tax when otherwise due, to provide a reasonable allowance during the remaining period of administration of the estate for the decedent’s surviving spouse and dependent children, and to satisfy claims against the estate that are due and payable. In addition, the executor has made a reasonable effort to convert assets in the executor’s possession (other than an interest in a closely held business to which IRC section 6166 applies) into cash.

  11. Estates which submit extensions of time to pay requests that lack a reasonable cause statement will be allowed an additional fifteen (15) days to perfect the reasonable cause statement. A letter must be sent to the executor requesting additional information and will document the extended time allowed in the case history. If a timely response is not provided by the estate, the request will be denied.

  12. Approval actions for extensions of time to pay:

    1. Form 4768 must be input via IDRS.

    2. Initiate research, using local procedures (BMFOL, INOLE) to see if an account has been established for the SSN on the BMF for MFT 52. The date of death must be present to prevent an unpostable.

    3. If the account cannot be found through research, establish the entity and MFT 52.

    4. If the extension is approved, use command code REQ 77 and input a TC 468 and the extension approved to date.

    5. Send the second page of Form 4768 and Publication 1 to inform the taxpayer of the approval.

  13. For denied actions on extensions of time to pay follow the above procedures. Exception - input TC 468 using the due date of the return (to indicate extension was denied) and the correct closing code, if the extension to pay request is the initial request. If the extension to pay is denied on subsequent requests input the TC 468 using the previous approved extension to pay date and the correct closing code. Send the second page of Form 4768 and Publication 1 to inform the taxpayer of the denial. It should provide the reason for the denial and the return address to send a written appeal.

    Note:

    See Document 6209 for the appropriate closing codes.

    1. CC01 = denied extension on TC 150 assessment

    2. CC02 = extension on TC 300 assessment

    3. CC03 = denied extension on TC 300 assessment

    4. CC04 = appeals case

  14. If the initial extension to file date and the extension to pay date are the same, IDRS will process the account without manually monitoring.

  15. If the extension to pay date is different from the extension to file date, a case file must be set up and should be manually maintained, for any future actions such as interest or penalty adjustments and manual billing.

    Transaction Code (TC 468):TRANSACTION CODE FOR EXTENSION OF TIME TO PAY ON ESTATE TAX FORM 706 MFT TAX PERIOD 000000

    1. TC 468 will reflect similar information as the TC 460 allowing the computer to recognize the extension to pay date as it does the extension to file date.

      Note:

      The TC 468 and TC 469 (See below – Reversal transaction code for TC 468) are valid only for MFT 52 and MFT 53 (NMF).

      • The TC 468 will carry an extension date and may post before or after the TC 150 posts. This extension gives the taxpayer relief from the Failure to Pay Penalty (but not from interest) from the return due date until the approved extended payment date. The computer will allow more than one TC 468, and will recognize the last one input to the module. The CSED will be extended by the amount of the extension to pay time.

      • If the extension to pay date (TC 468) is the same as the unextended return due date, this would indicate the extension to pay was denied and the computer will generate appropriate penalties, interest and notices.

      • If the extension to file date (TC 460) and the extension to pay date (TC 468) are the same, the computer will generate any necessary penalties, interest and notices. The computer will not put the account in IDRS status 14 (STAT 14).

      • If the extension to file date (TC 460) and the extension to pay date (TC 468) are different, with a tax balance due, the account will go into STAT 14 and will be maintained manually for interest and/or penalty adjustments and manual billing. This is also true if there is not an extension to file (TC 460), but there is an extension to pay (TC 468).

      • If the extension to file date (TC 460) and the extension to pay date (TC 468) differ, and posting of the return produces a balance due of penalty and/or interest only, (tax paid) the computer will assess any penalties and interest due and generate a notice, without restricting the module.

        Note:

        If the only tax balance due is the result of a math error, the computer will generate the appropriate penalties, interest, and notices. The account will not go into STAT 14 for a math error only.

    2. Monitoring the extension to pay manual filing system will be required to follow up with required billings or to purge full paid accounts.

    3. Use CC REQ77 or REQ77A for input of the TC 468 including the extension to pay date.

    4. Additional TC 468’s may be input if the module is already in STAT 14. For example: Subsequent extensions on IRC section 6161 cases or extension to pay requests on IRC section 6166 cases. The TC 468 should be input as appropriate on IRC section 6166 cases requesting extensions to pay. This will provide clear IDRS documentation of approved or denied extensions to pay on IRC section 6166 extension cases and IRC section 6166 installment cases. If the TC 468 is input after the TC 150, with a different date than the TC 460, the computer will put the account into STAT 14. An example of this would be when the extensions to file and pay are approved and the TC 460 is input but the TC 468 is inadvertently NOT input to the account. The computer will not reverse penalties due to the STAT 14. If a module contains a TC 468, is in STAT 14 and the extension date is past, the computer WILL NOT acknowledge, assess penalties or interest, or generate a notice. All STAT 14 modules must be manually maintained and billed. If the taxpayer defaults, appropriate penalties and interest must be computed and assessed at the same time the module is removed from STAT 14. TC 489 must be input to remove the module from STAT 14.


    Transaction Code (TC) 469: REVERSAL TRANSACTION CODE FOR TC 468

    1. TC 469 should only be used to reverse erroneous TC 468s, such as TC 468 input on the incorrect account. The TC 469 will reverse only the last TC 468 input.

  16. If Form 4768 has been approved and there is no TC 150 on the Master File, suspend the Form 4768 from further processing. Monitor Form 4768 until a TC 150 posts or until the form can be associated with the generated CP 191 Notice.

  17. If a TC 150 posts with no tax liability due on the account, no further action is necessary to process the CP 191 or Form 4768. Close the case file.

  18. If a TC 150 posts with a balance due on the account, and a CP 191 is not generated, input TC 488 to establish installment Status 14. Review IDRS and adjust penalty and interest if applicable.

  19. If a TC 150 posts with a balance due on the account and the date to pay has expired, follow procedures in IRM 4.25.2.1.3(26) .

  20. Hold Form 4768 (Extension to pay requests) for at least one year past the approved extension date. If Master File indicates there is no liability on the account or the account is in TDI or TDA Status, no further action is necessary. Close the case file according to the Records Control Schedule included in IRM 1.15.29.

  21. If extension requests for time to pay under IRC section 6161 have been denied, retain the closed case file. Send the second page of Form 4768 and Publication 1 to inform the taxpayer of the denial. Instructions for Form 4768 outline that a written appeal may be made by registered or certified mail to the IRS official shown on the second page of Form 4768 within 10 days after denial is mailed to the executor. See Treas. Reg. section 20.6161–1(b).

  22. When an Estate Tax Return is filed, it is processed and posted to the Business Master File (BMF). During the process the return is marked with certain identifiable codes called Payment Indicators. When these indicator codes are identified in the system, CP 191 notices are issued. The codes and indicator explanations are as follows:

    CODE PAYMENT INDICATOR
    0 No Installment Privileges, payment indicator will follow normal BMF settlement procedures and will not generate a CP 191.
    1 Installment privilege requests under IRC section 6166 .

  23. It may be necessary to cross-reference extended payment dates for billing purposes when the approved Form 4768 is received. Annotate the new extended payment date shown in Part III of Form 4768. Establish a filing system for the extension to pay cases in chronological order according to the approved extension date. Management will conduct periodic reviews of the filing system to ensure that employees are using the filing and cross-reference system for monitoring estates, making assessments, and sending billings.

  24. Review the above referenced file routinely to manually bill all accounts whose extended payment dates are four (4) weeks after the day the review is performed. The manual billing process is initiated four (4) weeks in advance of the extended payment date.

    1. Compute interest at the existing rate from the return due date to the extended date, applying payments as necessary.

    2. Input TC 340 on IDRS to assess interest. Prepare and mail Letter 6335, Estate Installment Program or Letter 2568C, Follow-up Letter for Installment Billing and Section 6161 Balance Due Billing: Form 706.

  25. When a payment is received and posted to the account on BMF, a CP 191 notice will generate.

    1. The payment should include the tax amount in full and interest accrued from the due date of the return.

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    4. Input TC 340 on IDRS to assess additional interest, if applicable. Enter a hold code zero (0), when removing from deferred status 14.

  26. If CP 191 indicates the account is not paid in full or does not issue within 45 days of the extended date, research IDRS or NMF sources for potential misapplied payments and/or additional extensions of time to pay. If none are found, then:

    1. Compute interest from return due date to the 23c date, taking into consideration any payments made on the account. Input TC 340 for any interest that has not yet been assessed. Enter a hold code of zero (0) with TC 340.

    2. Compute failure to pay penalty from the extended date of payment to the date of 23c date. Input TC 270 on IDRS to assess the penalty. Enter a hold code of zero (0) with TC 270.

    3. Terminate deferred status with TC 489. When the transaction posts on the BMF, a computer generated notice will be issued to notify the taxpayer of the balance due.

  27. When CP 191 is received showing that the transaction codes 270, 340, and 489 have posted, associate with the original Form 4768 case file and close the case.

  28. If an additional extension of time in which to pay is granted, change the extended payment date on the 4768 case file accordingly. Attach a copy of the document authorizing the additional extension and refile the case according to the new extended payment date.

  29. Correspondence from the taxpayer may be received indicating that an extension under IRC section 6161 was requested but IDRS notices are still being received. When this occurs, forward the taxpayer's letter to Cincinnati Campus, Estate and Gift Operation, for determination of the extension request, and input a STAUP.

    1. If the extension is allowed, input TC 488 on IDRS. When CP 191 is received showing the posted TC 488, enter the extended date of payment on CP 191. Follow the procedures in sub-sections (2) through (7) above.

    2. If the extension is not allowed release STAUP and allow IDRS notices to generate.

  30. If the taxpayer requests an extension and the request is denied do the following:

    1. Compute interest from the due date of the return to the 23c date. Input TC 340 for the interest on IDRS. Enter a Hold Code zero (0) when removing from deferred status 14.

    2. Input TC 489 on IDRS to terminate the deferred status.

  31. If the extension is denied because it was not timely requested, include FTP Penalty from the due date of the return or the previous extension date, to the 23c date. Input TC 270 for the penalty on IDRS.

4.25.2.1.4  (09-11-2009)
Transfer of Extension Requests to Advisory

  1. The following requests for extensions of time to pay estate tax will be transferred to the Advisory Estate Tax Group.

    1. All requests for extension to file and pay involving unfiled tax returns in which the estate anticipates a cash shortage to pay taxes that will become due of $25,000 or more will be sent to Advisory for approval consideration.

    2. Extension requests on unfiled returns where the estate sends payment of the estimated liability with the request (payment and estimated tax are equal) will not be sent to Advisory; however, requests where the estimated tax is not paid will be sent to Advisory if the estimated tax is $25,000 or more.

    3. All requests for extensions to pay on accounts in which the tax return has been filed and reflect a balance of $50,000.

    4. All extensions to pay where it is a third request, regardless of dollar amount.

    5. All requests for extension of time to pay annual installments that are deferred under IRC section 6166.

4.25.2.1.5  (09-11-2009)
Estate Tax Extension of Time to Pay Under IRC section 6163

  1. IRC section 6163(a) permits an extension for paying estate tax on the value of reversionary or remainder interest in the property included in the gross estate. The time for payment will be postponed for 6 months after the termination of the preceding interest in the property.

  2. IRC section 6163(b) permits the extension of time for paying the estate tax that was granted under IRC section 6163(a) if the estate can show reasonable cause for the additional extension. The extension will be for an additional 3 years from the expiration date of the postponement provided for in IRC section 6163(a).

  3. Neither tax nor accrued interest is due and payable until 6 months after the precedent interest terminates.

  4. An estate that elected to postpone that part of the estate tax attributable to a reversionary or remainder interest may prepay a portion of the outstanding liability without payment of accrued interest or acceleration of the remaining tax. See Rev. Rul. 83–103.

  5. Prepare folder captioned with the name of the estate and the date on which the return was received; place in temporary suspense in front of other extensions granted under IRC section 6163. Then do the suspension following:

    1. Ensure that collateral equal to twice the amount of tax deferred under IRC section 6163 is on deposit with the Advisory Office.

    2. Notify the Advisory Office Special Procedures Function of the election under IRC section 6163 by the Estate.

    3. Approximately 90 days after the received date of the return, verify receipt of Form 2276,Collateral Deposit Record.

    4. If Form 2276 has not been received, contact the responsible Advisory Advisor to determine status of the required collateral.

    5. If the required collateral was not received by E&G Exam, advise the Revenue Officer and the taxpayer that the election (under IRC section 6163) of an extension of time to pay is not valid.

    6. Terminate the extension, Input TC 489 to remove the account from Deferred status on the BMF and resume collection efforts.

    7. Annotate CP–191, "Form 2276 received,_____" (on the blank line write in amount, and file by received date in a separate IRC section 6163 file).

  6. Pending termination of the precedent interests at a future unknown date, no further collection of follow-up action is required. The file thus becomes essentially informational.

  7. A subsequent additional extension of time in which to pay may be granted for reasonable cause. The extension should be to a stated date and should be noted in the file. The file should be transferred to the IRC section 6161 file and filed chronologically by the new date. Attach a copy of the document granting the additional extension.

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  9. Failure to Pay Penalty accrues from the date of termination of the deferred status but the computation of penalty depends on notification of such termination by the Advisory Advisor controlling the case. When notification is received, compute penalty from the payment due date to the date of payment or to the date of Notice and Demand. Input TC 270 on IDRS.

  10. If extension is terminated, input TC 489 to remove the account from the deferred status on the BMF. See IRM 4.25.2.1.3(27) .

4.25.2.1.6  (09-11-2009)
Estate Installment Privileges under IRC Section 6166

  1. The maximum amount of tax that can be deferred under IRC section 6166 is determined by the following formula:

    Value of closely held business X Tax Due = Amount Deferrable
    Amount of Adjusted Gross Estate    

  2. The criteria for qualifying for installment payments are:

    1. Decedent was a citizen or resident of the United States on the date of death.

    2. The Value of interest in closely held business must exceed 35% of the adjusted gross estate.

    3. A timely filed return including a timely IRC section 6166 election request was filed.

  3. An interest in closely held business is defined as:

    1. A proprietorship that carries on a trade or business.

    2. An interest in a partnership that carries on a trade or business. Deceased partner's interest must be 20% or more of the total capital interest in the partnership or the partnership has 45 or fewer partners.

    3. Stock in a corporation carrying on a trade or business if 20% or more of the value of voting stock of the corporation is included in the gross estate, or the corporation has 45 or fewer shareholders.

      Note:

      Indirect Ownership: Ownership of stock by the spouse or family members may be considered to meet the required percentage. IRC section 6166(b)(2)(B)(i) and (ii) provide the attribution rules for the spouse and IRC section 6166(b)(2)(D) provides the attribution rules for family members.

  4. If the decedent owns two businesses that independently qualify for the IRC section 6166 election, the estate may elect to bifurcate the installment payments. Bifurcation allows the taxpayer to pay taxes attributable to each closely held business over the longest installment period available for that particular business. To receive this treatment, the executor must make a separate election for each business.

  5. IRC section 6166(c) applies if the decedent owns two or more businesses that do not independently qualify to make a section 6166 election. Section 6166(c) provides that interest in two or more closely held businesses shall be treated as an interest in a single closely held business.

  6. Deferral is not available for passive assets. See IRC section 6166(b)(9). IRC section 6166 was intended to apply only with respect to a business such as a manufacturing, mercantile or service enterprise, as distinguished from management of investment assets. See Rev. Rul. 2006-34; 2006 IRB LEXIS 379; 2006-26 I.R.B. 1171 (2006) concerning the ownership of rental property and the level of owner's activity. See PLR 200518047, PLR 200521014, PLR 200842012 and PLR 200845023 regarding the Service's more recent view of the level of activity needed to make rental property an active trade or business.

  7. In order for stock in a holding company to qualify for installments the security cannot be traded on a stock exchange or over-the counter market. The corporation owned by the holding company must carry on a trade or business. Generally only five (5) installments of tax, rather than the usual ten (10), will be allowed. See IRC section 6166(b)(8)(B)

  8. IRC section 6166(b)(8)(A) provides that holding company stock will qualify to the extent it owns a subsidiary that carries on trade or business.

    1. Under IRC section 6166(b)(8)(A)(ii), there is no 5 year deferral of principal and the first payment is due when the return is filed.

    2. Under IRC section 6166(b)(8)(A)(iii) interest should be computed at 45% of the Federal Underpayment Rate (and not at the special 2% rate) or at the Federal Underpayment Rate if date of death is prior to 1–1–98. See also IRM 4.25.2.1.24(2) - (6).

  9. IRC section 6166(b)(6) provides that the adjusted gross estate is equal to the value of the gross estate less debts allowable. The value of the adjusted gross estate is based on the facts and circumstances in existence on the date for filing return including extensions.

    1. Administrative expenses claimed on Form 1041 can be used to compute debts.

    2. Installment interest deductions not in existence at date of filing are not entered into the computation of adjusted gross estate. Note that for decedents dying after 12–31–1997 no deduction is allowed for interest accruing during the IRC section 6166 extension. Federal and state interest accrued after an estate tax return is filed are not to be considered debts when figuring the adjusted gross estate.

  10. IRC section 6166(b)(10), provides that an estate may elect to treat all the assets used in a "qualifying lending and finance business" as assets used in carrying on a trade or business. Thus, none of the assets in a "qualifying lending and finance business" will be considered passive assets under IRC section 6166(b)(9). An estate that makes the section IRC section 6166(b)(10) election is required to make its first installment of tax and interest thereon on the date prescribed by IRC section 6151(a) for payment of the tax; the first installment cannot be deferred. In addition, estates that elect IRC section 6166(b)(10) are allowed a maximum of 5 installments of tax, rather than the usual 10.

  11. IRC section 6166(a) election must be made with a timely filed return and include the following information:

    1. The executor must attach a statement to the Form 706 with computations showing the deferred, non-deferred tax and closely held business amount. The statement should include the following information:

    2. The decedent's name and taxpayer identification number.

    3. The amount of tax that is to be paid in installments.

    4. The date selected for payment of the first installment.

    5. The number of annual installments including the first installment, in which the tax is to be paid.

    6. The properties shown on the estate tax return which constitute the closely held business interest (identified by schedule and item number).

    7. The facts that formed the basis for the executor's conclusion that the estate qualifies for payment of the estate tax installment.

    Note:

    See Treas. Reg. section 20.6166–1(b) which provides information necessary for the Notice of Election.

  12. Non-deferred tax must be paid by the return due date, unless the estate has an extension of time to pay under IRC section 6161 .

  13. If property qualifies for installments, generally only interest on the unpaid balance is due on the first four anniversary dates after the due date of the return. The first tax payment along with interest payment is due on the 5th anniversary of the due date of the return. Generally the maximum amount of time for payment of deferred tax is 10 years. The executor may select a shorter period, in which case the deferment will be the period selected.

  14. IRC section 6403 provides that no refund on an overpayment of an installment is allowed until total payments exceed the total estate tax liability.

  15. IRC section 6166(g)(1) provides for acceleration of installments. The balance of installments are accelerated upon notice and demand if any portion of an interest in the qualifying business is distributed, sold, exchanged or otherwise disposed of, or money or property attributable to the interest is withdrawn from the business and the aggregate of such distributions, etc. equals or exceeds 50% of the value of the entire interest, measured at the value reported on the Form 706. Dispositions are cumulative, so a record should be kept of dispositions.

  16. The following will not accelerate payments if:

    1. Transfers to heirs pursuant to a will, trust instrument or statute of descent and distribution. See IRC section 6166(g)(1)(D).

    2. Redemptions of stock, to which IRC section 303 applies (or so much of IRC section 304 as it relates to IRC section 303), where proceeds are used to pay IRC section 6166 installments of tax .

  17. IRC section 6166(g)(3) provides if installment of tax and/or interest is not paid timely, the entire balance of installments due accelerates upon notice and demand.

    Note:

    IRC section 6166(g)(3)(B) states if the balance due is paid within 6 months of the due date, the installment privilege can be reinstated if the estate pays a 5% per month penalty on the unpaid installment plus statutory interest from the installment due date to the payment date. Failure to pay penalties will apply on the unpaid installment that relates to principal.

  18. IRC section 6166(h) provides for the election to defer the deficiency tax, if the estate is not already making payments under IRC section 6166:

    1. IRC section 6166(h)(2) election must be made within 60 days of the issuance of the notice and demand.

    2. The deficiency is prorated per formula in IRC section 6166(a)(1). The estate cannot defer more than the deficiency. See Rev. Rul. 81–294, 1981–2 CB 237

    3. The deficiency may not be due to negligence, intentional disregard or fraud.

  19. IRC section 6166(e) provides for the proration of deficiency installments if the estate is paying in installments under IRC section 6166 when the assessment is made. The part of the deficiency attributable to the closely-held business shall be prorated to the installments. A part of the deficiency's prorated installments that are due and payable shall be paid upon notice and demand.

4.25.2.1.7  (09-11-2009)
E & G Campus Procedures Establishing the IRC Section 6166 Installment Election Account and Determining Initial Qualification for Installment Election

  1. When coding estate tax returns with an IRC section 6166 Installment Election, Document Analysis will input payment indicator 1 which will generate an installment indicator on a CP-191.

  2. Document Analysis will forward the return to Cincinnati Campus Estate and Gift Tax Operations (E&G Campus) for preparation of the Form 4349, Computation of Estate Tax Due with Return and Annual Installments. E&G Campus shall complete its review of the IRC section 6166 election and preparation of Form 4349 within 10 days of receipt. E&G Campus shall copy all necessary information to set-up the IRC section 6166 case file. This information includes pages 1, 2, and 3 of the Form 706 return along with all schedules that contain information regarding the closely held business which qualifies for the IRC section 6166 election. A copy of the Notice of Election will also be retained for the IRC § 6166 case file. A copy of any additional information obtained from the estate will be placed in the original IRC section 6166 case file and a copy shall also be associated with the original Form 706 The folder is filed chronologically by the original due date as Installment Pending. If the installment date is other than the due date, cross references will be needed. A copy of the Form 4349 is attached to the back of the first page of the Form 706. The return is transferred to Document Analysis to complete the processing.

  3. E&G Campus will make a preliminary determination if the estate qualifies for the installment payment privilege. The estate qualifies if the election was made on a timely filed return, including extensions of time to file the return; the value of the decedent’s interest in the closely held business exceeds 35 percent of the adjusted gross estate; and the decedent was a United States citizen or resident. E&G Campus also reviews the taxpayer’s election to determine the deferred tax, the tax due with the return, the number of years over which the estate tax will be deferred, and the installment due date. E&G Campus will establish the account on the IRC section 6166 installment database.

  4. If the estate’s election made with the return differs from the amount on the Form 4349 (line 8b), E&G Campus will contact the taxpayer to explain the adjustments to the deferred tax and to verify the information on the Form 4349. If the estate agrees to the changes to the deferred tax, the E&G Campus will establish the account on the IRC section 6166 installment database according to the recalculated figures. If taxpayer does not agree with the adjusted deferral period and installment amount, document the installment file and forward a copy for association with the Form 706. If the estate disagrees, interest will be computed using the estate’s deferral period and installment amount until a final determination is made by Estate and Gift Tax field group (E&G Exam), Appeals, or a court. E&G Campus shall assure that a copy of the correspondence is associated with the estate tax return prior to classification and recommend that the return is selected for examination. If, after examination, E&G Exam changes either the deferral period or installment amount, it will be necessary to recompute the IRC section 6166 interest for each installment.

  5. If the estate elects a 14-year deferral period but (b)(7),(b)(8), or (b)(10) applies to the closely held business, then the deferral period on the account must be adjusted accordingly. E&G Campus will prepare Letter 2568C selecting the appropriate paragraphs regarding the preliminary determination adjusting the account; informing the estate which subsection of IRC section 6166 applies, for example, (b)(7), (b)(8), or (b)(10); and informing the estate of its appeal rights.

  6. When the return has posted, a CP-191 will generate. E&G Campus reviews the CP-191 and Form 4349 for the correct assessment of tax. If the estate qualifies for the installment election, E&G Campus will prepare and issue Letter 2568C, Follow-up Letter for Installment Billing: Form 706, indicating the total tax, deferred tax, non-deferred tax and the annual principal installment amounts. The Letter 2568C notifies the estate that the election has been received, but that it is subject to review by E&G Exam for qualification under IRC section 6166, and by Advisory for a case-by-case determination of whether a bond or an IRC section 6324A lien will be required as security for the deferred estate tax.

  7. Normal installment billing procedures shall occur annually on all estates, including those in litigation. The figures for the billing shall be from the original return or the agreed examination report.

  8. The account will not be placed in accelerated status if the delinquent amount (principal or interest) is paid within six months after the installment due date. However, the special interest rate on the installments will not be allowed on the defaulted payments after the due date of the installment. Interest is computed on these installments at the current rate, and Late Installment (LI) Penalty of 5 percent per month (or fraction thereof) applied from the due date of the installment, including any extension of time, to date of payment.

  9. A CP-191, will generate prior to yearly installment due date (each anniversary of return due date). The CP-191 is to assist in the review of the account that has an installment due during the fourth week following the review.

4.25.2.1.8  (09-11-2009)
E&G Campus Determines Estate Does Not Qualify for the IRC Section 6166 Election

  1. If E&G Campus determines that the estate does not qualify to make the election for any reason, the estate is not entitled to the installment payment privilege. The E&G Campus shall process the election as follows:

    1. Complete Form 4349 indicating why the estate does not qualify for the installment election privilege. The estate has the ability to appeal the E&G Campus’ denial of the IRC section 6166 election. Attach a copy of Form 4349 to the back of page 1 of the Form 706.

    2. If the Form 706 has not yet been transferred back to Document Analysis, attach a memo to the Form 706 requesting that the PIC be changed to zero (0). This will keep the account from being restricted. Enter the account on the IRC section 6166 installment database indicating that the election has been denied. Maintain the case file, indicating all actions. Monitor the account for the TC 150 to post.

    3. If the account initially goes into Status 21 issue Letter 950-H – Preliminary Internal Revenue Code Section 6166 Determination Letter and select the appropriate options. The Letter 950-H shall be issued certified mail, return receipt requested. Monitor the account for a reply. Suspend for 45 days.

      1. Input a STAUP on IDRS for fifteen cycles to take account from notice Status 21 to Status 58.

      2. The Estate has 30 days to respond to the Letter 950-H.

      3. The Team Manager may grant an extension of time to respond to the Letter 950-H for up to 30 days. In unusual cases if circumstances warrant, the Team Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the case history.

      4. If the estate fails to appeal the preliminary determination within the 30-day period allowed in Letter 950-H, or as extended, or if the estate sends an untimely post-marked protest, the Letter 950-H, Preliminary Section 6166 Determination Letter, becomes a final determination letter. Prepare and issue Letter 6335-F, Notice and Demand for Payment of Entire Estate Tax Liability. Letter 6335-F shall be mailed certified mail, return receipt requested. The Letter 6335-F shall reflect the account balance plus any additional penalties and interest as of the 23c date. Compute and assess additional statutory interest from the last interest to date, to the 23c date. Compute and assess FTP penalties, as applicable, on the unpaid tax to the 23c date. Input a TC 270 for the calculated amount of the FTP penalty. Input the TC 270 and TC 340 using a Hold Code 0. Monitor the account for the adjustments to post. The Letter 6335-F shall be dated and mailed on the 23c date. When the account goes to Status 58, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case.

      5. If the estate provides a written protest in response to the Letter 950-H, review the estate’s protest. If the Service agrees with the estate, complete the set-up procedures for the installment election.

      6. If after reviewing the protest letter, E&G Campus still believes that the estate does not qualify for the election. E&G Campus shall prepare and send to Appeals within 30 days from the postmark date of the protest letter an auxiliary file containing the following:

        • Copy of Pages 1, 2, and 3 of the Forms 706 and the schedules relating to the closely held business in the E&G Campus Installment File,

        • Notice of IRC section 6166 election and attachments,

        • Form 4349,

        • Any Forms 4768,

        • All correspondence between the Service and the taxpayer,

        • Case history,

        • Letter 950-H,

        • Protest from taxpayer,

        • Power of Attorney information.

      7. Transfer the auxiliary file for review to the Office of Appeals for the state of the decedent’s last domicile using the case routing list on the Appeal’s website, http://appeals.web.irs.gov/APS/bystate2.htm, with the understanding the case may be transferred to another Appeals Office based on inventory needs. Prepare Form 3210 forwarding case to Office of Appeals notating Type of Case IRC section 6166 – Qualification – This is an emerging issue. Please check the Appeals Technical Guidance issue locator on the Appeals webpage for further information. Input history item on IDRS that indicates the protest has been sent to Appeals.

      8. Input a STAUP on the account to hold notices awaiting Appeals’ decision and monitor the account awaiting Appeals’ decision.

      9. The Appeals Office will send the case file and a copy of the Appeals Case Memorandum to E&G Campus once a decision is final, so that E&G Campus can proceed with billing. If no response, the E&G Campus will follow-up with Appeals in 90 days. E&G Campus may contact the Appeals’ Account Resolution Specialist to locate case or update status.

      10. Upon receipt of Letter 3570 or Letter 3571 from Appeals’ indicating that the election is denied, E&G Campus must prepare to terminate the election. Prepare and issue Letter 6335-F, and send certified mail, return receipt requested. E&G Campus will compute statutory interest on any underpaid amount to the 23c date. Compute and assess FTP penalties, as applicable on the unpaid tax. Input the TC 270 and TC 340. The Letter 6335-F shall be mailed on the 23c date. Suspend the case for 105 days from the date of the Letter 3570 or Letter 3571. Contact Appeals to determine if a petition with the Tax Court has been filed. If Appeals verifies that a petition has not been filed, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case. If a petition has been filed, periodically monitor account for resolution. Inform the auditing attorney of transpiring actions within the case. Associate a copy of any pertinent information with the original return.

    4. If the account is in Status 14:

      1. Compute Failure to File, if applicable, and Failure to Pay Penalties (per IRM 20.1) if applicable, from the due date of the return, or extended date, to the 23c date of the TC150.

      2. Compute interest as required (per IRM 20.2). Interest from the due date of the return (disregarding extensions of time to file the return) to the 23c date of the TC150. Input on IDRS, TC 160 and TC 270 for the penalty amounts and TC 340 for the interest amounts. (HOLD CODE 3)

      3. Issue Letter 950-H, – Preliminary Section 6166 Determination and select the appropriate options. The Letter 950-H shall be issued certified mail, return receipt requested. Monitor the account for a reply. Suspend for 45 days.

      4. The Estate has 30 days to respond to the Letter 950-H.

      5. The Team Manager may grant an extension of time to respond to the Letter 950-H for up to 30 days. In unusual cases if circumstances warrant, the Team Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the case history.

      6. If the estate fails to appeal the preliminary determination within the 30-day period allowed in Letter 950-H or as extended, or if the estate sends an untimely post-marked protest, the Letter 950-H, Preliminary Section 6166 Determination Letter, becomes a final determination letter. Prepare and issue Letter 6335-F, Notice and Demand for Payment of Entire Estate Tax Liability. Letter 6335-F shall be mailed certified mail, return receipt requested. The Letter 6335-F shall reflect the account balance plus any additional penalties and interest as of the 23c date. Compute and assess additional statutory interest from the last interest to date, to the 23c date. Compute and assess FTP penalties, as applicable, on the unpaid tax to the 23c date. Input a TC 270 for the calculated amount of the FTP penalty. Input a TC 489 at the same time as the TC 270 and TC 340 using a Hold Code 0, to terminate the deferred status. Monitor the account for the adjustments to post and Status 21. The Letter 6335-F shall be dated and mailed on the 23c date. When the account goes to Status 21, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case.

      7. If the estate provides a written protest in response to the Letter 950-H review the estate’s protest. If the Service agrees with the estate, complete the set-up procedures for the installment election.

      8. If after reviewing the protest letter, E&G Campus still believes that the estate does not qualify for the election. E&G Campus shall prepare and send to Appeals within 30 days from the postmark date of the protest letter an auxiliary file containing the following:

        • Copy of Pages 1, 2, and 3 of the Form 706 and the schedules relating to the closely held business in the E&G Campus Installment File,

        • Notice of IRC section 6166 election and attachments,

        • Form 4349,

        • Any Forms 4768,

        • All correspondence between the Service and the taxpayer,

        • Case history,

        • Letter 950-H,

        • Protest from taxpayer,

        • Power of Attorney information.

      9. Transfer the auxiliary file for review to the Office of Appeals for the state of the decedent’s last domicile using the case routing list on the Appeal’s website, http://appeals.web.irs.gov/APS/bystate2.htm,, with the understanding the case may be transferred to another Appeals Office based on inventory needs. Prepare Form 3210 forwarding case to Office of Appeals notating Type of Case IRC section 6166 – Qualification. – This is an emerging issue. Please check the Appeals Technical Guidance issue locator on the Appeals webpage for further information. Input history item on IDRS that indicates the protest has been sent to Appeals.

      10. The Appeals Office will send the case file and a copy of the Appeals Case Memorandum to E&G Campus once a decision is final, so that E&G Campus can proceed with billing. If no response, the E&G Campus will follow-up with Appeals in 90 days. E&G Campus may contact the Appeals’ Account Resolution Specialist to locate case or update status.

      11. Upon receipt of Letter 3570 or Letter 3571 from Appeals’ indicating that the election is denied, E&G Campus must prepare to terminate the election. Prepare and issue Letter 6335-F, and send certified mail, return receipt requested. E&G Campus will compute statutory interest on any underpaid amount to the 23c date. Compute and assess FTP penalties, as applicable on the unpaid tax. The Letter 6335-F shall be mailed on the 23c date. Suspend the case for 105 days from the date of the Letter 3570 or Letter 3571 Contact Appeals to determine if a petition with the Tax Court has been filed. If Appeals verifies that a petition has not been filed, input a TC 489 and accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case. If a petition has been filed, periodically monitor account for resolution. Do not remove account from Status 14 until there is resolution of the Tax Court case. Inform the auditing attorney of transpiring actions within the case. Associate a copy of any pertinent information with the original return.

4.25.2.1.9  (09-11-2009)
Estate Qualifies for IRC Section 6166 Election and Fails to Pay or Underpays the Non-Deferred Tax

  1. If the taxpayer qualifies for the installment payment privilege, but fails to pay the entire non-deferred tax amount due with the return and does not have an extension of time to pay such amount under IRC section 6161 (line 8b of Form 4349), E&G Campus shall:

    1. Compute Failure to Pay (FTP) Penalty on the non-deferred tax from the due date to the date of payment (or Notice and Demand Date, if the payment has not been received). Input TC 270 for the FTP Penalty on IDRS.

    2. Compute interest (at the prevailing rate) on the non-deferred tax from the due date to the date of payment and/or Notice and Demand date. Input TC 340 for the interest on IDRS.

    3. Prepare and issue Letter 2568C, Follow-up Letter for Installment Billing: Form 706, for any unpaid tax, penalty and interest. Suspense case for 45 days.

    4. If payment is timely, (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), E&G Campus shall refile the case in the Installment Pending file.

    5. If payment of non-deferred tax is not received, within 45 days E&G Campus shall:

      1. Compute Failure to Pay (FTP) Penalty on the unpaid nondeferred tax from the due date for payment (including extensions) to the payment due date listed in Letter 6335. Input TC 270 for the additional calculated amount of the FTP Penalty on IDRS.

      2. Compute interest (at the prevailing rate) on the amount due from the payment due date of the Letter 2568C to the payment due date of the Letter 6335 Input TC 340 for the interest on IDRS.

      3. Prepare and issue Letter 6335, by certified mail, return receipt requested. Suspense case for 45 days.

      4. If after 45 days payment has not been received, follow the procedures in paragraph G below.

    6. If payment is late, after the Letter 2568C was issued, proceed as follows:

      1. Compute Failure to Pay (FTP) Penalty on the non-deferred tax from the due date for payment (including extensions) to the date non-deferred tax is received. Input TC 270 for the additional calculated amount of the FTP Penalty on IDRS.

      2. Compute interest (at the prevailing rate) on the amount due from the date of the Letter 2568C, to the date of payment, plus accrued interest on interest to the payment due date of the Letter 6335. Input TC 340 for the interest on IDRS.

      3. Prepare and issue Letter 6335, by certified mail, return receipt requested. Suspend case for 45 days.

      4. If after 45 days payment has not been received, follow the procedures in paragraph G below.

    7. If the taxpayer fails to make the payment after issuance of the Letter 6335, E&G Campus shall:

      1. Make copies of Letter 6335,

      2. Compute Failure to Pay (FTP) Penalty on the non-deferred tax from the payment due date (including extensions) to 60 days past the date forwarded to the appropriate Advisory office. Input TC 270 for the additional calculated amount of the FTP Penalty on IDRS.

      3. Compute interest (at the prevailing rate) on the amount due from the payment due date of Letter 6335, to 60 days past the date forwarded to the appropriate Advisory office. Input TC 340 for the interest on IDRS.

      4. Prepare Form 2209 annotating that non-deferred tax needs to be collected and attach copies of Letter 6335. Forward to the Group Manager of the Estate Tax Lien Advisory Group utilizing a Form 3210 Annotate accrued penalty and interest on the Form 3210.

      5. If no response is received from Advisory within 90 days, E&G Campus shall contact Advisory to determine status.

  2. If taxpayer’s election made with the return differs from the amount on the Form 4349 (line 8b), and the taxpayer has not yet been sent Letter 2568C, additional tax is due:

    1. Compute interest (at the prevailing rate) on the unpaid tax from the due date to the payment due date of Letter 2568C. Input TC 340 for the interest on IDRS.

    2. Prepare and issue Letter 2568C for the unpaid tax and interest. E&G Campus will prepare Letter 2568C selecting the appropriate paragraphs regarding the preliminary determination adjusting the account.

    3. If the estate’s election made with the return differs from the amount on the Form 4349 (line 8b), E&G Campus will contact the taxpayer to explain the adjustments to the deferred tax and to verify the information on the Form 4349. If the estate agrees to the changes to the deferred tax, the E&G Campus will establish the account on the IRC section 6166 installment database according to the recalculated figures. If taxpayer does not agree with the adjusted deferral period and installment amount, document the installment file and forward a copy for association with the Form 706. If the estate disagrees, interest will be computed using the estate’s deferral period and installment amount until a final determination is made by E&G Exam, Appeals, or a court. E&G Campus shall assure that a copy of the correspondence is associated with the estate tax return prior to classification and recommend that the return is selected for examination. If, after examination, E&G Exam changes either the deferral period or installment amount, it will be necessary to recompute the IRC section 6166 interest for each installment.

4.25.2.1.10  (09-11-2009)
IRC Section 6166 Interest-Only Installment Payment Period - General Process

  1. Generally when an estate elects to pay the estate tax in installments under IRC section 6166, the estate will pay only interest on the deferred estate tax amount for the first four years of the deferral period. Estates, however, that make an election under IRC section 6166(b)(7) or own an interest in the types of businesses described under IRC section 6166(b)(8) or (b)(10) do not qualify for this interest only deferral period and must begin paying installments of tax in the first year of the election. Verify that the business is not the type of business described in either IRC section 6166(b)(7), (b)(8) or (b)(10).

  2. Provided the business is not the type described in IRC section 6166(b)(8) or (b)(10) and the estate did not make the election under IRC section 6166(b)(7), the estate shall be billed for interest only during this four year deferral period.

  3. Considering the data on IDRS, the Form 4349, and the installment billing file E&G Campus shall compute interest on the entire deferred balance due from the prior installment date to the pending installment date, considering any interim payment..

  4. E&G Campus shall prepare and issue Letter 249C, Installment or Interest Due: Form 706 (revised November 2007) with the interest amount, approximately 30 days prior to the anniversary date and input TC 340 for interest on IDRS using Hold Code 3.

  5. E&G Campus shall enclose copy of Letter 249C in folder and file in separate Payment Pending file. Suspense for 45 days from the installment date.

  6. Upon receipt of CP-191 indicating payment of installment, E&G Campus shall ensure that the payment was made timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), and in the amount billed. E&G Campus will review the returned Letter 249C for proper signature of executor on the affidavit and any indication of an address change. If the estate has executed a IRC section 6324A lien agreement ( Form 13925), the designated agent on the lien agreement must sign Letter 249C. Check the file to determine if the estate has submitted a lien agreement or Form 13925. If change is indicated, E&G Campus shall input the new address on IDRS and the installment database. If the executor or personal representative has changed, verify that letter of testamentary or relevant court document is included. If the state has closed the probate proceeding and discharged the executor, any person in possession of the property of the estate may sign the certification. The returned Letter 249C will be enclosed in the case folder. A copy of CP-191 shall be analyzed and compared to the IRC section 6166 case file worksheet for accuracy prior to being enclosed in the case folder and refiled in the Installment Pending file.

  7. If the estate fails to return the Letter 249C refer to IRM 4.25.2.1.17(11) - (12).

4.25.2.1.11  (09-11-2009)
IRC Section 6166 Interest-Only Installment Payment - Paid Late

  1. If the CP-191 indicates that the payment was late, E&G Campus shall proceed as follows:

    1. Compute Late Installment (LI) Penalty on the late payment from the installment due date (considering any extension of time to pay) to the date of payment. Input TC 240 and LI Penalty on IDRS.

    2. Compute interest (at the prevailing rate) from the installment due date to the payment date, plus accrued interest on the additional interest to the payment due date. Input TC 340 for interest on IDRS.

    3. Prepare and issue Letter 6335 for the LI Penalty and interest. Send by certified mail, return receipt requested. Suspense for 45 days.

  2. If payment is received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), refile the case in the Installment Pending file.

  3. If taxpayer fails to pay LI Penalty and delinquent interest, within 45 days of the date the first Letter 6335 was issued, E&G Campus shall:

    1. Compute interest (at the prevailing rate) on the total amount due from the payment due date of the first notice (Letter 6335) to the payment due date of the second notice ( Letter 6335). Input TC 340 for interest on IDRS.

    2. Prepare and issue Letter 6335 as the second notice. Send by certified mail, return receipt requested. Suspense for 45 days.

  4. If taxpayer fails to pay LI Penalty and delinquent interest, within 45 days of the date the second Letter 6335 was issued, E&G Campus shall:

    1. Prepare a Form 3210 annotating the issues including a delinquent payment on IRC section 6166 election and attach copies of all prior billings. Forward to the appropriate Advisory Office. This Form 3210 is for informational purposes only. Place copy of the Form 3210 in the case folder. (For Illinois Decedents only, see 4.25.2.1.17(24).

    2. Compute interest (at the prevailing rate) on the total amount due from the payment due date of the second notice ( Letter 6335) to the payment due date of the third notice ( Letter 6335). Input TC 340 for interest on IDRS.

    3. Prepare and issue Letter 6335 as the third notice. Send by certified mail, return receipt requested. Suspense for 45 days.

    4. Continue to issue the Letter 6335 until the LI Penalty and delinquent interest is paid in full.

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4.25.2.1.12  (09-11-2009)
IRC Section 6166 Interest-Only Installment Payments – Failure to Pay Interest

  1. If the taxpayer fails to make the interest payment, CP-191 will not generate. A manual review of the payment pending file will be necessary 45 days after the installment due date. If the review shows any unpaid installment, research IDRS for any misapplied payments. Research for a request of an extension of time to pay the installment ( Form 4768). If no payment or extension is located, E&G Campus shall:

    1. Compute Late Installment Penalty (LI Penalty) on the unpaid interest installment at 5 percent per month (or fraction thereof) from the installment due date (considering any extension of time to pay) to the payment due date on the first notice ( Letter 6335). Input TC 240 for LI Penalty on IDRS.

    2. Compute interest (at the prevailing rate) on the unpaid interest installment from the installment due date to the payment due date on the first notice ( Letter 6335). Input TC 340 for interest on IDRS.

    3. Prepare and issue Letter 6335 for the past due interest installment, LI Penalty, and accrued interest. Send by certified mail, return receipt requested, for the unpaid interest. Suspense for 45 days.

  2. If payment is not received, within 45 days of first notice ( Letter 6335), E&G Campus shall:

    1. Compute LI Penalty on the portion of the unpaid installment at 5 percent per month (or fraction thereof) from the installment due date (considering any extensions of time to pay) to the payment due date of the second notice ( Letter 6335). Input TC 240 for the additional calculated amount of the LI Penalty on IDRS.

    2. Compute interest at the prevailing rate, on the total amount due on the first notice, from the payment due date of the first notice to the payment due date of the second notice ( Letter 6335). Input TC 340 for interest on IDRS.

    3. Prepare and issue Letter 6335 for the amounts on the previous Letter 6335 plus accrued penalty and interest as the second notice. Send by certified mail, return receipt requested. Suspend for 45 days.

  3. If payment is not received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), within 45 days of second notice ( Letter 6335), E&G Campus shall:

    1. Compute LI Penalty on the portion of the unpaid installment at 5 percent per month (or fraction thereof) from the installment due date (considering any extension of time to pay) to the payment due date of the third notice ( Letter 6335-T, Final Notice and Demand for Estate Tax Installment Payment). Input TC 240 for the additional calculated amount of the LI Penalty on IDRS.

    2. Compute interest at the prevailing rate, on the total amount due on the second notice, from the payment due date of the second notice (Letter 6335) to the payment due date of the third notice ( Letter 6335-T). Input TC 340 for interest on IDRS.

    3. Prepare and issue Letter 6335-T for the amounts on the previous Letter 6335plus, accrued penalty and interest as the third notice. Send by certified mail, return receipt requested. Suspense for 45 days.

  4. Prepare a Form 3210 informing Advisory that the Letter 6335 or Letter 6335-T has been sent and attach copies. Forward to the appropriate Advisory office.

  5. If payment is received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), refile the case in the Installment Pending file.

    Note:

    The Late Installment Penalty is limited to a maximum of 30 percent.

    Note:

    The account should not be accelerated until six months after the due date of the Installment and notice and demand has been sent ( Letter 6335-F).

  6. If payment is not received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), within 45 days of the third notice ( Letter 6335-T ), E&G Campus shall:

    1. If the decedent died before August 6, 1997, the estate should not be sent Letter 950-H because the estate does not have the right to appeal or go to Tax Court. Prepare and issue Letter 6335-F,Notice and Demand for Payment of Entire Estate Tax Liability. Instead of selecting either optional paragraph on Letter 6335-F insert the paragraph below, and send certified mail, return receipt requested. The Letter 6335-F shall reflect the account balance (after the TC 241 and TC 341) plus additional interest as of the 23c date and any applicable FTP penalties.

      The above estate defaulted on the IRC section 6166 election because it did not make installment payments as required under the statute. IRC section 6166(g)(3) provides that we may terminate the election and collect the entire amount of estate tax liability if any payment of principal or interest is not made within 6 months of the due date for the payment (plus any extension of time granted). An installment payment was due more than 6 months ago. Notice and Demand for payment of the installment was sent to you and no payment was received within 6 months of the date the payment was due..

      Please pay the Amount Now Due as listed above. Failure to pay the amount will result in the imposition of additional interest and penalties.

      We may file a Notice of Federal Tax lien pursuant to IRC section 6321 if we have not already done so. We may also pursue collection action against the transferees of the assets of the gross estate.

      If you have already paid this installment, please call us immediately at the telephone number shown above. This is a toll free call.

      1. Abate the LI Penalty (TC 241) that is associated with this delinquent period. (Late installment penalty is not applicable for accounts that are accelerated.) Input TC 241 to IDRS using a Hold Code 3. Do not abate TC 240 with reference codes. These have been input by other functions.

      2. Abate the delinquent interest (TC 341) that is associated with this delinquent period. Input TC 341 to IDRS using a Hold Code 3.

      3. Recompute the interest (at the prevailing rate) on the past due installment from the last installment due date, adding any applicable FTP penalties as they were assessed to determine the correct interest now due, to the 23c date. (The 23c date will be extended due to the PDC1). Compute IRC section 6166 interest on the deferred tax from the previous installment due date to the termination date (the 23c date). Combine the statutory interest and the IRC section 6166 interest amounts together. Input TC 340 for the combined amounts with a posting delay code 1 and a Hold Code 0. Input a TC 489 at the same time as the TC 340 to terminate the deferred status.

      4. Prepare a Form 3210 informing Advisory that the Letter 6335-F has been issued notifying the estate of the termination and attach copies of the Letter 6335-F Forward to the appropriate Advisory Office.

      5. Monitor the account for the adjustments to post and Status 21. The Letter 6335-F shall be dated and mailed on the 23c date. When the account goes to Status 21, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case.

    2. If the decedent died on or after August 6, 1997 prepare and issue Letter 950-H – Preliminary Internal Revenue Code Section 6166 Determination Letter, which gives the estate the right to appeal the termination. Letter 950-H shall be mailed certified, return receipt requested.

      1. The Letter 950-H shall be dated and mailed to the estate 45 days after the date of the Letter 6335-T. Monitor the account for a reply. Suspend for 45 days.

      2. Prepare a Form 3210 informing Advisory that the Letter 950-H has been issued notifying the estate of potential termination within 30 days and attach copies of Letter 950-H and all related billings. Forward to the appropriate Advisory Office. This Form 3210 is for informational purposes only. Place copy of the Form 3210 in the case folder. {For Illinois Decedents only, see IRM 4.25.2.1.17(24)}.

      3. The Estate has 30 days to respond to the Letter 950-H.

      4. The Team Manager may grant an extension of time to respond to the Letter 950-H for up to 30 days. In unusual cases if circumstances warrant, the Team Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the case history.

  7. If the estate fails to appeal the preliminary determination within the 30-day period allowed in Letter 950-H, or as extended, or if the estate sends an untimely post-marked protest, the Letter 950-H – Preliminary Section 6166 Determination Letter, becomes a final determination letter. Prepare and issue Letter 6335-F, Notice and Demand for Payment of Entire Estate Tax Liability. Letter 6335-F shall be mailed certified mail, return receipt requested. The Letter 6335-F shall reflect the account balance less the LI penalty, including the revised delinquent interest, plus any additional interest as of the 23c date.

    1. Abate the LI penalty (TC 241) that is associated with this delinquent period (LI penalty is not applicable for accounts that are accelerated). Do not abate TC 240 with reference code. These have been input by other functions.

    2. Recompute the statutory interest on the past due installment from the last installment due date, adding any applicable FTP penalties as they were assessed to determine the correct interest now due, to the 23C date. (The previously assessed delinquent interest amount associated with this delinquent period will need to be subtracted from the recomputed amount.) Compute additional IRC section 6166 interest up to the termination date (the 23c date). Combine the IRC section 6166 interest and statutory interest amount together and assess. Input TC 340 for the combined amount and TC 241 using a Hold Code of 0. Input TC 489 at the same time as the TC 241 and TC 340 to terminate deferred status.

    3. Monitor the account for adjustments to post and Status 21. The Letter 6335-F shall be dated and mailed on the 23c date. When the account goes to Status 21, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case.

  8. If the estate pays the delinquent amount in full, including applicable penalties and interest, before the Letter 6335-F is mailed, the account will remain in status 14. Allow the estate to remain under IRC section 6166 status and bill for any accrued interest.

  9. If the estate provides a written protest in response to the Letter 950-H, review the estate’s protest. If the Service agrees with the estate and the entire installment payment has been received, continue the IRC section 6166 election.

  10. If after reviewing the protest letter, E&G Campus still believes that the estate’s election should be terminated, E&G Campus shall prepare and send to Appeals within 30 days from the postmark date of the protest letter an auxiliary file containing the following::

    • Copy of Pages 1, 2, and 3 of the Form 706 and the schedules related to the closely-held business in the E&G Campus Installment File,

    • Notice of IRC section 6166 election and attachments,

    • Form 4349,

    • Copy of Letter 2568C, Follow-up Letter for Installment Billing: Form 706,

    • Any Forms 4768

    • All correspondence between the Service and the Taxpayer related to the last year,

    • Case history,

    • Certification of Unchanged Status for previous year,

    • Letter 950-H ,

    • All prior bills related to this year,

    • Protest from taxpayer,

    • Power of Attorney Information.

  11. Transfer the auxiliary file for review to the Office of Appeals for the state of the decedent’s last domicile using the case routing list on the Appeal’s website, http://appeals.web.irs.gov/APS/bystate2.htm, with the understanding the case may be transferred to another Appeals Office based on inventory needs. Prepare Form 3210 forwarding case to Office of Appeals notating "Type of Case IRC section 6166 – Termination for Failure to Pay. " – "This is an emerging issue. Please check the Appeals Technical Guidance issue locator on the Appeals webpage for further information."

  12. Input history item on IDRS that indicates the protest has been sent to Appeals.

  13. Prepare a Form 3210 to Advisory notating that the case is being sent to Appeals and attach a copy of the protest. Forward to the appropriate Advisory Office. This Form 3210 is for informational purposes only. Place copy of the Form 3210in the case folder. {For Illinois Decedents only, see IRM 4.25.2.1.17(24)}

  14. The Appeals Office will send the case file and the Appeals Case Memorandum to E&G Campus once a decision is final, so that E&G Campus can proceed with billing. If no response, E&G Campus will follow-up with Appeals in 90 days. E&G Campus may contact the Appeals’ Account Resolution Specialist to locate case or update status.

  15. Upon receipt of Letter 3570 or Letter 3571 from Appeals’ indicating that the election is terminated, E&G Campus must prepare to terminate the election. Prepare and issue Letter 6335-F, and send certified mail, return receipt requested. E&G Campus will compute statutory interest on any underpaid amount, additional IRC section 6166 interest up to the 23c date. Combine IRC section 6166 interest and statutory interest amounts together. Input TC 340 for the combined amount. Compute and assess FTP penalties, as applicable on the unpaid tax. Abate the LI penalty (TC 241). The Letter 6335-F shall be mailed on the 23c date. Prepare a Form 3210 informing Advisory that the Letter 6335-F has been issued notifying the estate of the termination and attach copies of the Letter 6335-F. Suspend the case for 105 days from the date of the Letter 3570 or Letter 3571 . Contact Appeals to determine if a petition with the Tax Court has been filed. If Appeals verifies that a petition has not been filed, input a TC 489 and accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case. If a petition has been filed, periodically monitor account for resolution. Do not remove account from Status 14 until there is resolution of the Tax Court case. If the audit is still open, inform the auditing attorney of transpiring actions within the case. Send a secure email informing Advisory that the case is in litigation. Associate a copy of any pertinent information with the original return.

  16. If Appeals allows the account to remain under IRC section 6166, make sure the account reflects the correct penalties and interest to bring the account current.

4.25.2.1.13  (09-11-2009)
IRC Section 6166 Principal Installment Period – General Process

  1. After the four year interest deferral period, or immediately if the business is the type identified in IRC section 6166 (b)(7), (b)(8), or (b)(10), the estate is billed for installment of principal and interest.

  2. Considering the data on IDRS, the Form 4349, and the installment billing file E&G Campus shall compute interest on the entire deferred balance due from the prior installment date to the pending installment date considering any interim payments.

  3. E&G Campus shall prepare and issue Letter 249C, Installment or Interest Due: Form 706. Include the interest and principal installment amount applicable to this particular tax (could be 10 percent or 20 percent of the deferred tax depending on whether IRC section 6166 (b)(7), (b)(8), or (b)(10) is applicable, or less if the taxpayer elected). Letter 249C shall be issued approximately 30 days prior to the anniversary date.

  4. Input TC 340 for interest on IDRS using Hold Code 3. Enclose copy of Letter 249C in folder and file in separate Payment Pending. Suspense for 45 days from the installment date.

  5. If CP-191 is received indicating payment of installment, E&G Campus shall:

    1. Assure the payment was timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), and in the amount billed.

    2. Review the returned Letter 249C for proper signature of executor on the affidavit and any indication of an address change. If the estate has executed a IRC section 6324A lien agreement ( Form 13925), the designated agent on the lien agreement must sign Letter 249C. Check the file to determine if the estate has submitted a lien agreement or Form 13925 If the executor or personal representative has changed verify that letter of testamentary or relevant court document is included. If the state has closed the probate proceeding and discharged the executor, any person in possession of the property of the estate may sign the certification. See IRC section 2203 and regulation IRC section 20.2203-1 . If change is indicated, input the new address on IDRS and the installment database. The returned Letter 249C will be enclosed in the case folder.

    3. Analyze and compare the CP-191 with the case file worksheet for accuracy prior to enclosing the CP-191 in case folder and refile in Installment Pending File..

  6. If the estate fails to return the Letter 249C , refer to IRM 4.25.2.1.17(11) - (12).

4.25.2.1.14  (09-11-2009)
IRC Section 6166 Principal Installment Period – Paid Late

  1. If the CP-191 indicates the payment is late, E&G Campus shall:

    1. Compute Failure to Pay Penalty (FTP Penalty) on the principal portion of the installment, from the installment due date (considering any extension of time to pay) to the date of the payment. Input TC 270 for the FTP Penalty on IDRS.

    2. Compute Late Installment Penalty (LI Penalty) on the total installment due (principal and interest) from the installment due date (considering any extension of time to pay) to the date of payment. Input TC 240 for the penalty on IDRS.

    3. Compute interest (at the prevailing rate) on the total installment due (principal and interest) from the installment due date to the date of payment, plus accrued interest to the payment due date on the Letter 6335. Input TC 340 for the interest amounts on IDRS.

    4. Prepare and issue Letter 6335 for the LI Penalty, the FTP Penalty and interest. Send by certified mail, return receipt requested. Suspense for 45 days.

  2. If taxpayer fails to pay LI Penalty, FTP penalties, and delinquent interest, within 45 days of the date the first Letter 6335 was issued, E&G Campus shall:

    1. Compute interest (at the prevailing rate) on the total amount due from the payment due date of the first notice ( Letter 6335 ) to the payment due date of the second notice ( Letter 6335). Input TC 340 for the interest on IDRS.

    2. Prepare and issue Letter 6335, as the second notice. Send by certified mail, return receipt requested. Suspense for 45 days.

  3. If taxpayer fails to pay LI Penalty, FTP penalties and delinquent interest, within 45 days of the date the second Letter 6335 was issued, E&G Campus shall:

    1. Prepare a Form 3210 annotating the issues including a delinquent payment of IRC section 6166 election and attach copies of all prior billings. Forward to the appropriate Advisory Office. This Form 3210 is for informational purposes only. Place copy of the Form 3210 in the case folder.

    2. Compute interest (at the prevailing rate) on the total amount due from the payment due date of second notice ( Letter 6335 ) to the payment due date of the third notice ( Letter 6335). Input TC 340 for the interest on IDRS.

    3. Prepare and issue Letter 6335 as the third notice. Send by certified mail, return receipt requested. Suspense for 45 days.

    4. Continue to issue the Letter 6335 until the LI Penalty, FTP penalties and delinquent interest is paid in full.

  4. If payment is received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), refile the case in the Installment Pending file. See IRC section 6601(e)(3).

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4.25.2.1.15  (09-11-2009)
IRC Section 6166 Principal Installment Period – Taxpayer Fails to Make the Installment Payment

  1. If the taxpayer fails to make the installment (principal and interest) payment, CP-191 will not generate. A manual review of the Payment Pending file will be necessary 45 days after the installment date. If the review shows any unpaid installment case, research IDRS for misapplied payment. Research for a request for an extension of time to pay the installment ( Form 4768). If no payment or extension is located, E&G Campus shall:

    1. Compute Late Installment Penalty (LI Penalty) on the unpaid installment (principal and interest) at 5 percent per month (or fraction thereof) from the installment due date (considering any extension of time to pay) to the payment due date on the first notice ( Letter 6335 ). Input TC 240 for LI Penalty on IDRS.

    2. Compute Failure to Pay (FTP) Penalty on the principal portion of the installment, from the installment due date (considering any extension of time to pay) to the payment due date on the first notice ( Letter 6335 ). Input TC 270 for FTP penalty on IDRS.

    3. Compute interest (at the prevailing rate) on the unpaid installment (principal and interest) from the installment due date to the payment due date on the first notice ( Letter 6335). Input TC 340 for interest on IDRS.

    4. Prepare and issue Letter 6335 for the past due principal and interest installment, LI Penalty, FTP Penalty, and accrued interest. Send by certified mail, return receipt requested. Suspense for 45 days.

  2. If payment is not received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), within 45 days of the first Letter 6335, E&G Campus shall:

    1. Compute Late Installment Penalty (LI Penalty) on the unpaid installment (principal and interest) at 5 percent per month (or fraction thereof) from the installment due date (considering any extension of time to pay) to the payment due date of the second notice ( Letter 6335 ). Input TC 240 for the additional calculated amount of the LI Penalty on IDRS.

    2. Compute Failure to Pay (FTP) Penalty on the principal portion of the installment from the installment due date (considering any extension of time to pay) to the payment due date of the second notice ( Letter 6335). Input TC 270 for the additional calculated amount of the FTP penalty on IDRS.

    3. Compute interest (at the prevailing rate) on the total amount due on the first notice ( Letter 6335), from the payment due date of the first notice to the payment due date of the second notice ( Letter 6335). Input TC 340 for interest on IDRS.

    4. Prepare and issue Letter 6335 for the amounts on the previous Letter 6335 plus accrued penalty and interest as the second notice. Send by certified mail, return receipt requested. Suspense for 45 days.

  3. If payment is not received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), within 45 days of the second notice ( Letter 6335), E&G Campus shall:

    1. Compute Late Installment Penalty (LI Penalty) on the unpaid installment (principal and interest) at 5 percent per month (or fraction thereof) from the installment due date (considering any extension of time to pay) to the payment due date of the third notice ( Letter 6335-T , Final Notice and Demand for Estate Tax Installment Payment). Input TC 240 for the additional calculated amount of the LI Penalty on IDRS.

    2. Compute Failure to Pay (FTP) Penalty on the principal portion of the installment from the installment due date (considering any extension of time to pay) to the payment due date of the third notice ( Letter 6335-T ). Input TC 270 for the additional calculated amount of the FTP penalty on IDRS.

    3. Compute interest (at the prevailing rate) on the total amount due on the second notice, from the payment due date of the second notice to the payment due date of the third notice ( Letter 6335-T). Input TC 340 for interest on IDRS.

    4. Prepare and issue Letter 6335-T for the amounts on the previous Letter 6335 plus accrued penalties and interest as the third notice. Send by certified mail, return receipt requested. Suspense for 45 days.

  4. Prepare a Form 3210 informing Advisory that the Letter 6335 or Letter 6335-T has been sent and attach copies. Forward to the appropriate Advisory office.

  5. If payment is received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), refile the case in the Installment Pending file.

    Note:

    The Late Installment Penalty is limited to a maximum of 30 percent.

    Note:

    The account should not be accelerated until six months after the due date of the installment and notice and demand has been sent ( Letter 6335-F).

  6. If the payment is not received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), within 45 days of the Letter 6335-T, E&G Campus shall:

    1. If the decedent died before August 6, 1997, the estate should not be sent Letter 950-H because the estate does not have the right to appeal or go to Tax Court. Prepare and issue Letter 6335-F,Notice and Demand for Payment of Entire Estate Tax Liability. Instead of selecting either of the optional paragraphs on Letter 6335-F insert the paragraph below, and send certified mail, return receipt requested. The Letter 6335-F shall reflect the account balance (after the TC241 and TC341) plus additional interest and FTP penalties as of the 23c date.

      "The above estate defaulted on the IRC section 6166 election because it did not make installment payments as required under the statute. IRC section 6166(g)(3) provides that we may terminate the election and collect the entire amount of estate tax liability if any payment of principal or interest is not made within 6 months of the due date for the payment (plus any extension of time granted). An installment payment was due more than 6 months ago. Notice and Demand for payment of the installment was sent to you and no payment was received within 6 months of the date the payment was due."

      Please pay the Amount Now Due as listed above. Failure to pay the amount will result in the imposition of additional interest and penalties.

      We may file a Notice of Federal Tax lien pursuant to IRC section 6321 if we have not already done so. We may also pursue collection action against the transferees of the assets of the gross estate.

      "If you have already paid this installment, please call us immediately at the telephone number shown above. This is a toll free call."

      1. Abate the LI Penalty (TC 241) that is associated with this delinquent period. (Late installment penalty is not applicable for accounts that are accelerated.) Input TC 241 to IDRS using a Hold Code 3. Do not abate TC 240 with reference codes. These have been input by other functions.

      2. Abate the delinquent interest (TC 341) that is associated with this delinquent period. Input TC 341 to IDRS using a Hold Code 3.

      3. Compute Failure to Pay (FTP) Penalty on the principal portion of the installment from the installment due date to the 23c date. (The 23c date will be extended due to the PDC 1). Input TC 270 for the additional calculated amount of the FTP penalty on IDRS with a posting delay code 1 and a Hold Code 3.

      4. Recompute the interest (at the prevailing rate) on the past due installment from the last installment due date, adding FTP penalties as they were assessed to determine the correct interest now due, to the 23c date. (The 23c date will be extended due to the PDC 1). Compute IRC section 6166 interest on the remaining deferred tax from the previous installment due date to the termination date (the 23c date). Combine the statutory interest and the § 6166 interest amounts together. Input TC 340 for the combined amount with a posting delay code 1 and a Hold Code 3. Input a TC 489 at the same time as the TC 270 and TC 340 to terminate the deferred status.

      5. Prepare a Form 3210 informing Advisory that the Letter 6335-F has been issued notifying the estate of the termination and attach copies of the Letter 6335-F. Forward to the appropriate Advisory Office.

      6. Monitor the account for the adjustments to post and Status 21. The Letter 6335-F shall be dated and mailed on the 23c date. When the account goes to Status 21, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case.

    2. If the decedent died on or after August 6, 1997, prepare and issue Letter 950-H, – Preliminary Internal Revenue Code § 6166 Determination Letter , which gives the estate the right to appeal the termination. Letter 950-H shall be mailed certified mail return receipt requested.

      1. The Letter 950-H shall be dated and mailed to the estate 45 days after the date of the Letter 6335-T Monitor the account for a reply. Suspend for 45 days.

      2. Prepare a Form 3210 informing Advisory that the Letter 950-H has been issued notifying the estate of potential termination within 30 days and attach copies of the Letter 950-H and the related billings. Forward to the appropriate Advisory Office. This Form 3210 is for informational purposes only. Place copy of the Form 3210 in the case folder. {For Illinois Decedents only, see 4.25.2.1.17(24)}

      3. The Estate has 30 days to respond to the Letter 950-H.

      4. The Team Manager may grant an extension of time to respond to the Letter 950-H for up to 30 days. In unusual cases if circumstances warrant, the Team Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the case history.

  7. If the estate fails to appeal the preliminary determination within the 30-day period allowed in Letter 950-H, or as extended, or if the estate sends an untimely post-marked protest, the Letter 950-H– Preliminary Section 6166 Determination Letter, becomes a final determination letter. Prepare and issue Letter 6335-F Notice and Demand for Payment of Entire Estate Tax Liability. Letter 6335-F shall be mailed certified mail, return receipt requested. The Letter 6335-Fshall reflect the account balance, less the LI penalty, plus the revised delinquent interest, plus any additional penalty and interest as of the 23c date.

    1. Abate the LI penalty (TC 241) that is associated with this delinquent period (LI penalty is not applicable for accounts that are accelerated). Do not abate TC 240 with reference code. These have been input by other functions.

    2. Recompute the statutory interest on the past due installment from the last installment due date, adding any applicable FTP penalties as they were assessed to determine the correct interest now due, to the 23C date. (The previously assessed delinquent interest amount associated with this delinquent period will need to be subtracted from the recomputed amount.) Compute additional IRC section 6166 interest up to the termination date (the 23c date). Combine the IRC section 6166interest and statutory interest amounts together and assess. Compute and assess FTP penalties as applicable, on the unpaid tax on the prior delinquent amount. TC 241, TC 270 and TC 340 use a Hold Code 0. Input TC 489 at the same time as the TC 241, TC 270 and TC 340 to terminate deferred status.

    3. Monitor the account for the adjustments to post and Status 21. The Letter 6335-F shall be dated and mailed on the 23c date. When the account goes to Status 21, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case.

  8. If the estate pays the delinquent amount in full, including applicable penalties and interest, before the Letter 6335-F is mailed, the account will remain in status 14. Allow the estate to remain under IRC section 6166 status and bill for any accrued interest.

  9. If the estate provides a written protest in response to the Letter 950-H, review the estate’s protest. If the Service agrees with the estate and payment has been received, continue the IRC section 6166 election.

  10. If after reviewing the protest letter, E&G Campus still believes that the estates’ election should be terminated, E&G Campus shall prepare and send to Appeals within 30 days from the postmark date of the protest letter an auxiliary file containing the following:

    1. Copy of Pages 1, 2, and 3 of the Form 706 and the schedules related to the closely-held business in the E&G Campus Installment File,

    2. Notice of IRC section 6166 election and attachments,

    3. Form 4349,

    4. Copy of Letter 2568C, Follow-up Letter for Installment Billing: Form 706,

    5. Any Form 4768,

    6. All correspondence between the Service and the Taxpayer related to the last year,

    7. Case history,

    8. Certification of Unchanged Status for previous year,

    9. Letter 950-H,

    10. All prior bills related to this year,

    11. Protest from taxpayer,

    12. Power of attorney information.

  11. Transfer the auxiliary file for review to the Office of Appeals for the state of the decedent’s last domicile using the case routing list on the Appeal’s website, http://appeals.web.irs.gov/APS/bystate2.htm, with the understanding the case may be transferred to another Appeals Office based on inventory needs. Prepare Form 3210 forwarding case to Office of Appeals notating "Type of Case IRC section 6166 Termination for Failure to Pay. – This is an emerging issue. Please check the Appeals Technical Guidance issue locator on the Appeals webpage for further information."

  12. Input history item on IDRS that indicates the protest has been sent to Appeals.

  13. Prepare a Form 3210 to Advisory notating that the case is being sent to Appeals and attach a copy of the protest. Forward to the appropriate Advisory Office. This Form 3210 is for informational purposes only. Place copy of the Form 3210 in the case folder. {For Illinois Decedents only, see 4.25.2.1.17(24)}.

  14. The Appeals Office will send the case file and a copy of the Appeals Case Memorandum to E&G Campus once a decision is final, so that E&G Campus can proceed with billing. If no response, E&G Campus will follow up with Appeals in 90 days. E&G Campus may contact the Appeals’ Account Resolution Specialist to locate case or update status.

  15. Upon receipt of Letter 3570 or Letter 3571 from Appeals’ indicating that the election is terminated, E&G Campus must prepare to terminate the election. Prepare and issue Letter 6335-F, and send certified mail, return receipt requested. E&G Campus will compute statutory interest on any underpaid amount, additional IRC section 6166 interest up to the date of termination and statutory interest from the termination date as of the 23c date. Combine IRC section 6166 interest and statutory interest amounts together. Input TC 340 for the combined amount. Compute and assess FTP penalties, as applicable on the unpaid tax. Abate the LI penalty (TC 241). The Letter 6335-F shall be mailed on the 23c date. Prepare a Form 3210 informing Advisory that the Letter 6335-F has been issued notifying the estate of the termination and attach copies of the Letter 6335-F. Suspend the case for 105 days from the date of the Letter 3570 or Letter 3571. Contact Appeals to determine if a petition with the Tax Court has been filed. If Appeals verifies that a petition has not been filed, input a TC 489 and accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case. If a petition has been filed, periodically monitor account for resolution. Do not remove account from Status 14 until there is resolution of the Tax Court case. If the audit is still open, inform the auditing attorney of transpiring actions within the case. Send a secure e-mail informing Advisory that the case is in litigation. Associate a copy of any pertinent information with the original return.

  16. If Appeals allows the account to remain under IRC section 6166, make sure the account reflects the correct penalties and interest to bring the account current.

4.25.2.1.16  (09-11-2009)
Miscellaneous IRC Section 6166 Campus Termination Issues

  1. For various E&G Campus termination issues, reference the following termination flowchart.

    If.. Then...
    If the termination is the result of the sale, disposition of, distribution, or withdrawal of money from the closely-held business that is equal to or exceeds 50% percent of the closely-held business, The termination date is the date of the sale, disposition, distribution, or withdrawal of the interest.
    If the termination is the result of the failure to make installment payments of deferred tax, The termination date is the date the notice and demand for the entire estate tax liability has been sent to the taxpayer, typically the Letter 6335-F.
    If the termination is the result of the failure to provide security when the Service has determined that security is necessary, The termination date is the date 30 days from the date of the issuance of the Letter 950-I,Preliminary Internal Revenue Code Section 6166 Determination Letter.

  2. If the decedent died before August 6, 1997 and the election is terminated for any reason, the estate should not be sent the Letter 950-H because the estate does not have the right to appeal or go to Tax Court. Prepare and issue Letter 6335-F. Instead of selecting the optional paragraphs on Letter 6335-F, add the paragraphs below and select option 1 or 2. Letter 6335-F shall be mailed certified mail, return receipt requested. The Letter 6335-F shall reflect the account balance (after the TC 241 and TC 341) plus any additional FTP penalty and additional interest as of the 23c date. The estate should not be sent the Letter 950-H and does not have the right to Appeal the termination. Prepare a Form 3210 informing Advisory that the Letter 6335-F has been issued notifying the estate of the termination and attach copies of the Letter 6335-F. Forward to the appropriate Advisory Office.

    (1) The above estate defaulted on the IRC section 6166 election because it did not make installment payments as required under the statute. IRC section 6166(g)(3) provides that we may terminate the election and collect the entire amount of estate tax liability if any payment of principal or interest is not made within 6 months of the due date for the payment (plus any extension of time granted). An installment payment was due more than 6 months ago. Notice and Demand for payment of the installment was sent to you and no payment was received within 6 months of the date the payment was due. (2) The above estate defaulted on the IRC section 6166 election because the estate distributed, sold, exchanged, or otherwise disposed of a portion of its interest in the closely held business that originally qualified the estate for the IRC section 6166 election; or withdrew money or other assets attributable to the business, and the total value of the sales, exchanges, distributions, dispositions and withdrawals equals 50% or more of the value of the estate's interest in the closely held business. IRC section 6166(g)(1) allows us to terminate the election and collect the remaining unpaid estate tax.

    Please pay the Amount Now Due as listed above. Failure to pay the amount will result in the imposition of additional interest and penalties.

    We may file a Notice of Federal Tax lien pursuant to IRC section 6321 if we have not already done so. We may also pursue collection action against the transferees of the assets of the gross estate.

    If you have already paid this installment, please call us immediately at the telephone number shown above. This is a toll free call.

  3. If the decedent died on or after August 6, 1997 and the election is terminated for any reason, the estate should be sent the Letter 950-H which gives it the right to Appeal the termination.

  4. In a situation where the closely-held business has been sold, the statutory interest computation date is the date of the sale.

  5. If the estate fails to make the installment payment, the statutory interest computation date is the date Letter 6335-F is sent.

  6. If the estate refuses to provide a lien or bond after a determination that security is required, the statutory interest computation date is 30 days from the date of the Letter 950-H.

  7. If E&G Campus determines that 50 percent or more of the closely held business is sold, disposed of, otherwise distributed, or money is withdrawn from the business, for purposes of accelerating the payments, the statutory interest computation date is the date that 50 percent or more of the closely held business was sold, disposed of, otherwise distributed, or funds withdrawn. If the decedent died before August 6, 1997, see paragraph 2 above.

    1. Prepare and issue Letter 950-H and mail certified, return receipt requested.

    2. The Estate has 30 days to respond to the Letter 950-H.

    3. The Team Manager may grant an extension of time to respond to the Letter 950-H for up to 30 days. In unusual cases if circumstances warrant, the Team Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the case history.

    4. Prepare a Form 3210 informing Advisory that the Letter 950-H has been issued notifying the estate of potential termination within 30 days and attach copies of the Letter 950-H. Forward to the appropriate Advisory Office. Form 3210 is for informational purposes only. Place copy of the Form 3210 in the case folder. {For Illinois Decedents only, see 4.25.2.1.17(24)}

    5. If the estate fails to appeal the preliminary determination within the 30-day period allowed in Letter 950-H, or as extended, or if the estate sends an untimely post-marked protest, within 45 days of the date of the letter, the Letter 950-H– Preliminary Section 6166 Determination Letter becomes a final determination letter. Prepare and issue Letter 6335-F,Notice and Demand for Payment of Entire Estate Tax Liability. Letter 6335-F shall be mailed certified mail, return receipt requested. The Letter 6335-F shall reflect the account balance plus any additional penalty and interest as of the 23c date. E&G Campus shall compute additional IRC section 6166 interest, including any appropriate penalties and statutory interest on underpayments, up to the date of sale. These interest and penalty amounts shall be added to the balance. E&G Campus shall then compute statutory interest on the total balance from the termination date to the 23C date. Combine these two interest amounts and assess a combined TC 340 amount. Assess any appropriate penalties along with the TC 340. Input a TC 489 at the same time as the TC 340 using a Hold Code 0, to terminate the deferred status. Monitor the account for the adjustments to post and Status 21. The Letter 6335-F shall be dated and mailed on the 23c date. When the account goes to Status 21, accelerate the account to status 26 using command code ASGNB with assignment code 6466. Close case.

    6. If the estate provides a written protest in response to the Letter 950-H, review the estate’s protest. If the Service agrees with the estate, continue the IRC section 6166 election.

    7. If after reviewing the protest letter, E&G Campus still believes that the estate’s election should be terminated, E&G Campus shall prepare and. send to Appeals within 30 days from the postmark date of the protest letter an auxiliary file containing the following:

      1. Copy of Pages 1, 2, and 3 of the Form 706 and the schedules related to the closely-held business in the E&G Campus Installment File,

      2. Notice of IRC section 6166 election and attachments,

      3. Form 4349,

      4. Copy of Letter 2568C,

      5. Any Forms 4768,

      6. All correspondence between the Service and the Taxpayer related to the last year,

      7. Case history,

      8. Certification of Unchanged Status for previous year,

      9. Letter 950-H,

      10. Power of Attorney information,

      11. All prior bills related to this year, and

      12. Protest from taxpayer.

    8. Transfer the auxiliary file for review to the Office of Appeals for the state of the decedent’s last domicile using the case routing list on the Appeal’s website http://appeals.web.irs.gov/APS/bystate2.htm with the understanding the case may be transferred to another Appeals Office based on inventory needs. Prepare Form 3210 forwarding case to office of Appeals notating "Type of Case IRC IRC section 6166 – Termination for Failure to Pay. – This is an emerging issue. Please check the Appeals Technical Guidance issue locator on the Appeals webpage for further information."

    9. Input history time on IDRS that indicates the protest has been sent to Appeals.

    10. Prepare a Form 3210 to Advisory notating that the case is being sent to Appeals and attach a copy of the protest. Forward to the appropriate Advisory Office. This Form 3210 is for informational purposes only. Place copy of the Form 3210 in the case folder. {For Illinois Decedents only, see 4.25.2.1.17(24)}.

    11. The Appeals Office will send the case file, a copy of the Appeals Case Memorandum to E&G Campus once a decision is final, so that E&G Campus can proceed with billing. If no response, the E&G Campus will follow-up with Appeals in 90 days. E&G Campus may contact the Appeals’ Account Resolution Specialist to locate case or update status.

    12. Upon receipt of Letter 3570 or Letter 3571 from Appeals indicating that the election is terminated, EG Campus must prepare to terminate the election. Prepare and issue Letter 6335-F, and send certified mail, return receipt requested. E&G Campus will compute statutory interest on any underpaid amount, additional IRC section 6166 interest up to the date of termination and statutory interest from the termination date as of the 23c date. Combine IRC section 6166 interest and statutory interest amounts together. Input TC 340 for the combined amount. Compute and assess FTP penalties, as applicable on the unpaid tax. The Letter 6335-F shall be mailed on the 23c date. Prepare a Form 3210 informing Advisory that the Letter 6335-F has been issued notifying the estate of the termination and attach copies of Letter 6335-F . Suspend the case for 105 days from the date of the Letter 3570 or Letter 3571 . Contact Appeals to determine if a petition with the Tax Court has been filed. If Appeals verifies that a petition has not been filed, input a TC 489 and accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case. If a petition has been filed, periodically monitor account for resolution. Do not remove account from Status 14 until there is resolution of the Tax Court case. If the audit is still open, inform the auditing attorney of transpiring actions within the case. Send a secure email informing Advisory that the case is in litigation. Associate a copy of any pertinent information with the original return.

    13. If Appeals allows the account to remain under IRC section 6166, the interest and penalties will need to be adjusted to reflect the correct balance. Additional interest may be due to bring the account current.

  8. E&G Exam notifies E&G Campus to accelerate the payment. E&G Exam may deny or terminate an election during the examination. After E&G Exam sends Letter 950-J , Preliminary Internal Revenue Code Section 6166 Determination Letter, to the estate, they will send a copy to E&G Campus to associate with the file and will later notify E&G Campus when the Letter 6335-F should be issued.

  9. If less than 6 months remains on the statute, E&G Exam may close out the No Change examination after alerting E&G Campus to the unagreed IRC section 6166 issue and requesting E&G Campus to flag the file and hold the return after it clears the Case Closing Unit, for possible receipt of a protest by E&G Exam. E&G Exam will alert E&G Campus, of the close out of the case. Meanwhile, E&G Exam must set up an auxiliary file for the unagreed IRC section 6166 issue awaiting a response to Letter 950-J. E&G Exam must notify E&G Campus, 45 days after the Letter 950-J, was mailed, if a protest is received, or if the 30-day period has expired without a protest. E&G Campus may need to contact CCP to request expedite processing due to the request of the estate to protest. After E&G Exam procedures have been completed, the auxiliary file will be forwarded to E&G Campus to be associated with the original return file. E&G Campus will forward both files to Appeals, within 30 days of the postmark date of the protest letter, if a protest was received.

  10. If a protest was not received, E&G Campus will prepare and issue Letter 6335-F, and send certified mail, return receipt requested. If the estate does not file a response within the 30-day period allowed in Letter 950-J, or as extended, or if the estate sends an untimely post-marked protest, E&G Exam shall terminate the election 15 days (to allow for mail time) after the expiration of the 30-day period or the extension period. E&G Exam must send to the E&G Campus a narrative indicating the Appeals time has expired and E&G Campus shall terminate the installment payment status and accelerate the tax.

  11. Upon receipt of E&G Exam’s narrative to terminate the election, E&G Campus must prepare to terminate the election. E&G Campus will compute additional IRC section 6166 interest up to the date of termination and compute statutory interest from the termination date as of the 23c date. Combine IRC section 6166 interest and statutory interest together. Input TC 340 for the combined amount. Compute and assess FTP penalties, as applicable on the unpaid tax. TC 489 must be input at the same time. E&G Campus will prepare and issue Letter 6335-F, and send certified mail, return receipt requested when the account goes to Status 21. When the account goes to Status 21, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case.

  12. Upon receipt of Letter 3570 or Letter 3571 from Appeals’ indicating that the election is terminated, E&G Campus must prepare to terminate the election. Prepare and issue Letter 6335-F, and send certified mail, return receipt requested. E&G Campus will compute statutory interest on any underpaid amount, additional IRC section 6166 interest up to the date of termination and statutory interest from the termination date as of the 23c date. Combine IRC section 6166 interest and statutory interest amounts together. Input TC 340 for the combined amount. Compute and assess FTP penalties, as applicable on the unpaid tax. The Letter 6335-F shall be mailed on the 23c date. Suspend the case for 105 days from the date of the Letter 3570 or Letter 3571. Contact Appeals to determine if a petition with the Tax Court has been filed. If Appeals verifies that a petition has not been filed, input a TC 489 and accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case. If a petition has been filed, periodically monitor account for resolution. Do not remove account from Status 14 until there is resolution of the Tax Court case. Associate a copy of any pertinent information with the original return.

  13. If Appeals allows the account to remain under IRC section 6166, the interest and penalties will need to be adjusted to reflect the correct balance. Additional interest may be due to bring the account current.

  14. Advisory notifies E&G Campus to accelerate the payment . Advisory will send a copy of the Letter 950-I , Preliminary Internal Revenue Code Section 6166 Determination Letter, to the estate to terminate the election. Advisory will send a copy of Letter 950-I to E&G Campus to associate with the file.

  15. If the estate does not appeal the preliminary determination within the 30-day period allowed in Letter 950-I, or as extended, or if the estate sends an untimely post-marked protest, Advisory shall terminate the election 15 days (to allow for mail time) after the expiration of the 30-day period or the extension period. Advisory must send to the E&G Campus a narrative indicating the Appeals time has expired and E&G Campus shall terminate the installment payment status and accelerate the tax.

  16. Upon receipt of Advisory’s narrative to terminate the election, E&G Campus must prepare to terminate the election. E&G Campus will compute additional IRC section 6166 interest up to the date of termination and compute statutory interest from the termination date as of the 23c date. Combine IRC section 6166 interest and statutory interest together. Input TC 340 for the combined amount. Compute and assess FTP penalties, as applicable on the unpaid tax. TC 489 must be input at the same time. E&G Campus will prepare and issue Letter 6335-F, and send certified mail, return receipt requested when the account goes to Status 21. When the account goes to Status 21, accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case.

  17. Upon receipt of Letter 3570 or Letter 3571 from Appeals’ indicating that the election is terminated, E&G Campus must prepare to terminate the election. Prepare and issue Letter 6335-F and send certified mail, return receipt requested. E&G Campus will compute statutory interest on any underpaid amount, additional IRC section 6166 interest up to the date of termination and statutory interest from the termination date as of the 23c date. Combine IRC section 6166 interest and statutory interest amounts together. Input TC 340 for the combined amount. Compute and assess FTP penalties, as applicable on the unpaid tax. The Letter 6335-F shall be mailed on the 23c date. Suspend the case for 105 days from the date of the Letter 3570 or Letter 3571. Contact Appeals to determine if a petition with the Tax Court has been filed. If Appeals verifies that a petition has not been filed, input a TC 489 and accelerate the account to Status 26 using command code ASGNB with assignment code 6466. Close case. If a petition has been filed, periodically monitor account for resolution. Do not remove account from Status 14 until there is resolution of the Tax Court case. If the audit is still open, inform the auditing attorney of transpiring actions within the case. Send a secure e-mail informing Advisory that the case is in litigation. Associate a copy of any pertinent information with the original return.

  18. If Appeals allows the account to remain under IRC section 6166, the interest and penalties will need to be adjusted to reflect the correct balance. Additional interest may be due to bring the account current.

4.25.2.1.17  (09-11-2009)
Miscellaneous IRC Section 6166 Campus Procedures

  1. The E&G Exam group will be responsible for sending lien packages to Advisory when the case has been assigned to the group for examination. When returns are accepted as filed or surveyed during classification, E&G Campus will be responsible for preparing and forwarding the lien package to Advisory. E&G Campus will hold the original tax return for 90 days once the lien package is sent to Advisory, in case additional information is needed. The lien package consists of the following documentation from the case file:

    1. Pages 1, 2 and 3 of Form 706 and schedules A, B, F& G and any attachments thereto including other pertinent schedules listing assets.

    2. Form 4349, Computation of Estate Tax Due With Return and Annual Installment.

    3. Form 1273, Report of Estate Tax Examination Changes, and Form 3228, Adjustments to Taxable Estate. (These forms will not be provided if the case is surveyed or accepted as filed.)

    4. Estate tax attorney’s narrative report of examination changes. (e.g. Form 886A, Explanation of Items, or similar documentation.) (This form will not be provided if the case is surveyed or accepted as filed.)

    5. Any Form 2848, Power of Attorney and Declaration of Representative.

    6. IRC section 6166 election and attachments to the election.

    7. Listing of all businesses listed on the Estate tax return including name and EIN. This information may be listed separately or on the related schedule.

  2. If payment is received timely (within 10 business days if the payment equals or exceeds $100,000.00, or within 21 calendar days for lesser amounts), refile the case in the Installment Pending file. See IRC section 6601(e)(3).

  3. When Advisory receives an IRC section 6324A lien agreement, they will send a copy of the agreement to E&G Campus. E&G Campus will flag the agreement and associate it with the IRC section 6166 case file for future reference. If the designated agent indicated in the lien agreement is someone other than the executor and they have not completed Form 8821, first contact the executor to request that he or she complete Form 8821. If the executor refuses to complete Form 8821, request advice from a transfer tax technician. Forward Form 8821 to the CAF unit. Add Form 8821 information to the database.

  4. There is no reasonable cause exception that allows the IRS to abate a late installment penalty IRC section 6166 (g)(3). The estate may not Appeal this penalty.

  5. If E&G Exam notifies E&G Campus of a partial agreement where the IRC section 6166issue is unagreed and other tax issues are agreed or no change, E&G Campus will apply the existing IRC section 6166 ratio to the assessed tax change. Final billing adjustments will occur when the unagreed IRC section 6166 qualification issue is resolved.

  6. If E&G Exam notifies E&G Campus of a partial agreement where the IRC section 6166 issue is denied and other tax issues are unagreed and the estate does not protest, E&G Exam shall deny or terminate the election 15 days after the expiration of the 30 day period or the extension period. E&G Exam must send a narrative to E&G Campus for denial or termination of the election along with a copy of the Letter 950-J. E&G Exam shall instruct E&G Campus to send Letter 6335-F by certified mail, return receipt requested. The Letter 6335-F should be based on the existing IRC section 6166 figures. Since the reason for the termination is determinative of the termination date, the narrative shall set forth the reason for the termination. For example, if the termination is the result of a sale or other disposition that equals or exceeds fifty percent of the closely-held business, the date of the sale or other disposition shall be included in the narrative. When the other unagreed issues are resolved, a final bill will be sent.

  7. Anytime a Letter 6335-F is issued by E&G Campus a copy will be forwarded to the appropriate Advisory office on Form 3210.

  8. When Appeals determines that the estate is entitled to an IRC section 6166 election, E&G Campus will send the entire case file, including the original return to Advisory to copy information necessary for bond or lien determination. Advisory shall copy the necessary information in the file within 30 days and the return shall be sent to E&G Campus to complete the installment account set-up.

  9. Prior to closing Estate tax examinations cases, Appeals will fax a copy of the Appeals Report (and Counsel report if settled by Counsel), including the Appeals Case Memorandum, the corrected Form 4349 , Computation of Estate Tax Due With Return and Annual Installment and Form 1273, Report of Estate Tax Examination Changes to the E&G Campus, so that once the adjustment is input by Appeals, E&G Campus can assess the additional interest. Additionally, E&G Campus will determine the new deferred and non-deferred tax and adjust any billings as necessary.

  10. Once Appeals has made their determination the case will be held for 105 days from the date of the Letter 3570 or Letter 3571, pending possible Tax Court petition. 105 days after the date of the Letter 3570 or Letter 3571 contact Appeals to determine if a petition with the Tax Court has been filed.

  11. When Letter 249C is returned, review for proper signature of the executor on the affidavit.

    Note:

    If there is a change of executors for any reason, it is the responsibility of the new administrator, heir, next of kin, or beneficiary under the Will to provide the Service with the proper court approved declaration of representative {for disclosure of information reference see IRC section 6103(e)(3)}.

    1. If the affidavit is not received or properly completed, send a certified Letter 249C as a follow-up. If Letter 249C is received unsigned or unanswered within 45 days from the date of the letter, send a third request, certified, for signature.

    2. If there is an indication of a change in circumstances concerning the election under IRC section 6166, route a copy of the file and Letter 249C to the estate tax attorney or Transfer Tax Technician for determination as to the continued validity of the installment election. If the attorney indicates acceleration of payment under IRC section 6166(g), process as provided in IRM 4.25.2.1.16.

  12. If the executor voluntarily notifies us before 60 days after the date of the transaction, or the response to Letter 249C is before 60 days after the date of the transaction, that there is a change in status as defined in IRC section 6166(g) which accelerates the payment of tax, send a final determination of tax, following the procedures in IRM 4.25.2.1.16 with the following exceptions:

    1. Prepare the letter stating that this is a final determination of tax as a result of changes as defined in IRC section 6166(g) ; and

    2. Do not assess the FTP Penalty.

      Note:

      If the executor voluntarily notifies us of the change, i.e., the notification is not in the reply to Letter 249C and the notification is more than 60 days from the date of the transaction, judgement should be used in determining whether the FTP Penalty is assessed. Use reasonable cause criteria.

  13. When a payment is received from the taxpayer stating the payment is due to Undistributed Net Income under IRC section 6166(g)(2) , the payment will be applied to the estate tax and divided by the remaining number of installments of principal and applied equally.

  14. When there is an underpayment, see the instructions in paragraph 15 below.

  15. ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡ ≡

    Note:

    Interest is always accruing on any tax, penalties or interest due except when the Form 890 is signed and notice and demand is not issued within the 30 day period.

  16. If the taxpayer overpays a particular installment, apply the overpayment to the amount due on the next principal installment payment, unless otherwise indicated.

  17. If a payment is received after the due date, analyze the account to determine if additional interest and/or penalties are due. Assessment of interest and/or penalties to IDRS is necessary.

  18. If the payment was made in full for the entire deferred balance, compute interest as required and adjust the interest previously input if the payment was made before the installment due date.

  19. If the estate pays the deferred balance in full and was processed under IRC section 6166, if the interest was computed at the reduced rate, be sure the estate qualified for the election.

  20. For additional instruction regarding interest computation on underpaid accounts, see the following instructions in paragraph 21 below.

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  22. If the Campus is contacted by a representative of an estate requesting the pay off amount on an estate tax account as of a certain date, the applicable Tax Technician will promptly make the computation, including any applicable penalty and interest, and notify the representative in writing. If time (payoff date) does not allow for written figures to be mailed, contact the representative of the estate (executor, power of attorney) by telephone with the figures.

    1. When the payment is received, the Tax Technician will monitor for the payment until it is posted and the account is fully satisfied.

    2. Sometimes the request for pay off computations on estate tax cases will come from Revenue Officers in the Area Offices. These computations should be made as required in 19 above and the Revenue Officer notified in writing or by contact memo prepared per phone request. The case will be monitored as in a. above.

  23. Review all CP 191 and CP 186 for TC 570 freezes on credit module balances. Check the account on IDRS for correspondence received date.

    1. If correspondence date is valid, input TC 571 to release credit.

    2. If interest and penalty (if applicable) is due, compute appropriate amounts and input to IDRS. TC 270 for penalty and/or TC 340 for interest. NO HOLD CODE.

  24. An estate tax account with payment extended under IRC section 6166 is defaulted if the taxpayer fails to make timely payment, pays less than the required amount, or makes no payment. The account is then subject to acceleration of payment.

    1. Illinois taxpayers. Forward copies of Illinois taxpayers defaulted payment agreement notices under IRC section 6166 to: Office of Attorney General, Revenue Litigation Division, 100 West Randolph, Chicago, Illinois 60601, Attn: John Flores, Rm 13–213.

    2. "Default" is an act by the taxpayer in which there is a failure to make a timely or proper installment payment with respect to an IRC section 6166 election.

    3. "Acceleration" is the act by the IRS in which immediate payment of the remaining installments is demanded. When an installment payment due under IRC section 6166 is in default and an IRS determination to accelerate is made the account is deemed to be accelerated when a Notice and Demand for the entire deferred portion of the account is mailed.

  25. Even though the taxpayer has defaulted, additional steps to obtain payment of an annual installment or annual interest payment must be taken before acceleration of payment, because the estate may pay a penalty under IRC section 6166(g)(3)(B) and reinstate installment payments.

  26. Once an account has been accelerated, it cannot be reinstated for reasonable cause. An account can be reinstated only if a valid extension of time to pay (under IRC section 6161 or IRC section 6163) has been filed for the amount in question prior to the due date or the account was erroneously accelerated due to a processing error. A processing error is one in which a timely payment was treated as late or posted to the wrong account or type of tax. These errors should be rare and an account should be reinstated only if it meets these guidelines. Neither Examination nor Collection has the authority to request reinstatement of an account other than in the above circumstances.

  27. Instructions on defaulted accounts are applicable to those accounts subject to acceleration of payment . This IRM does not presently provide for reinstatement of the election under IRC section 6161 , IRC section 6163, IRC section 6166 or IRC section 6166A except as allowed by (25) above.

    Note:

    The CSED is suspended while the account is in Status 14.

  28. E&G Exam posting of TC 360 for lien fees will generate a CP 191. When this happens, the estate should be billed for lien fees; however, if the assessment date is within 60 days of annual billing then the estate should be billed upon the next annual billing.

  29. If CP 191 generates with the posting of TC 671 (Payment Check Dishonored) and TC 280 (Bad Check Penalty), a notice will have been sent to the estate. Monitor for payment; this could cause the installment payment to be late.

    1. Review CP 191 for the date the payment, plus the penalty is received.

    2. Compute interest and FTP and/or LI penalties (if applicable). Input on IDRS.

    3. Prepare and issue Letter 6335.

  30. If TC 280 posts with .00, research for reasonable cause. Reversal of the payment may have occurred through no fault of the taxpayer. See IRM 3.17.10.2.17.2.

  31. The Form 668-J lien is recorded to secure estate tax deferred under IRC section 6166.

    1. Upon receipt of full payment of the deferred tax under IRC section 6166, the Cincinnati Campus Estate & Gift Tax Operation will coordinate with the Advisory Estate Tax Group to ensure that the Form 668-J lien is released in a timely manner.

    2. The Cincinnati Campus will notify the Advisory Estate Tax Group within 10 working days after receiving notification of payment.

    3. The Cincinnati Campus will instruct the Advisory Estate Tax Group through secured e-mail to release any Form 668-J lien that may have been recorded.

    4. The Cincinnati Campus will print a copy of the e-mail notification for the accounting file or will update the history sheet as appropriate to reflect that notification has been made.

4.25.2.1.18  (09-11-2009)
IRC Section 6166(b)(8) and Ten (10) year Deferral For Holding Companies

  1. Holding companies follow the same procedures as in 4.25.2.1.7 - 4.25.2.17. The only differences are:

    1. The non-qualifying tax and first installment of principal is due with the return.

    2. Interest on the deferred amount is computed at the statutory rate (no 2% or 4% interest). The rate for estates of decedents dying after 12/31/97 is 45% of the statutory rate.

    Note:

    Effective 1–1–2002, only 5 years of tax installments will be allowed instead of the usual 10 years for holding companies in certain situations. Take the case to your Team Estate Tax Attorney upon case set-up for review.

  2. Document Analysis will forward the Form 706 to Estate & Gift Tax to prepare the Form 4349. Attach a copy of the Form 4349 to the Form 706 and return everything to Document Analysis to complete the Form 706 processing. The Form 4349 should indicate if the taxpayer elected this section.

  3. When the return has posted, a CP 191 will generate. Review the CP 191 and Form 4349 for the correct assessment of tax. Review the taxpayer's election (received from Document Analysis) to determine the tax to be deferred, the tax due with the return, the number of years to be deferred, and the installment due date. The taxpayer may elect a lesser time period in which to pay, and/or fewer than ten (10) installments.

  4. Under Rev. Rul. 76–51, 1976–1 CB 382, an estate is deemed to have filed an extension of time to pay the first installment under IRC section 6166 if the return is timely filed within the time period of an approved extension of time to file the return.

  5. In addition, the estate may not have an extension of time to file the return but may have an extension of time to pay the tax. Be sure to review for that situation.

  6. To qualify for the installment payment privilege, the estate must file a timely election. If research reveals that the election was not timely, including extension of time to file the return, the estate is not entitled to the installment privilege. If not entitled to the installment privilege, process per IRM 4.25.2.1.8.

  7. If the taxpayer qualified but failed to pay (line 8a or line 8g of Form 4349), the tax is not immediately accelerated. Taxpayers with defaulted installments would not be placed in accelerated status if the delinquent amount (principal or interest) is paid within six months after the installment due date. Interest will be computed on these installments at the current rate, and Late Installment (LI) Penalty of 5% per month (or fraction thereof) from the due date of the installment (including any extension of time) to date of payment.

    1. Compute Late Installment (LI) Penalty on the unpaid installment of principal at 5% per month, or fraction thereof) from the installment due date to the date of Notice and Demand. Input TC 240 for LI Penalty on IDRS.

    2. Compute Failure to Pay (FTP) Penalty on the principal installment and the non-qualifying tax from the return due date to the date of Notice and Demand. Input TC 270 for FTP Penalty on IDRS.

    3. Compute interest (at the prevailing rate) on the principal installment and the non-qualifying tax from the return due date to the date of Notice and Demand. Input TC 340 for interest on IDRS.

    4. Prepare and issue certified letter (return receipt requested) for the installment of principal, the non-qualifying tax, LI Penalty, FTP Penalty and interest. Suspend for 45 days.

  8. If the payment is not received by the payment due date, within 45 days of the first notice, follow procedures in IRM 4.25.2.1.9 .

  9. Use Form 4349. Prepare folder captioned with installment due date (month and date) and name of the estate. Enclose CP 191 and other related documentation. File the folder chronologically by the original due date as "Installment Pending " . If the installment date is other than the due date, cross references will be needed. If the estate qualifies, prepare and issue Letter 2568C indicating the total tax, non-qualifying tax and qualifying tax, along with the annual principal installment amounts.

    Note:

    Normal installment billing procedures should occur yearly on all estates, including those in litigation.

  10. A CP 191 will generate prior to the yearly installment due date (each anniversary of return due date). The CP 191 is to generate four weeks prior to the installment due date.

  11. Use data on the CP 191 and Form 4349 to compute interest on the entire deferred balance due from the prior installment date to the pending installment date.

    1. Prepare Letter 249C, include the interest and principal installment amount (the appropriate percentage of the deferred tax, Line 5 of the Form 4349, or less if the taxpayer elected).

    2. Input TC 340 for interest on IDRS.

    3. Enclose copy of Letter 249C in folder and file in separate "Payment Pending" . Suspend for 45 days from the installment date.

  12. Receive CP 191 indicating payment of installment.

    1. Assure the payment was made timely and in the amount billed.

    2. Review the returned Letter 249C for proper signature of executor on the affidavit and any indication of an address change. If an address change is indicated, input new address on IDRS.

    3. Enclose CP 191 in case folder and refile in the Installment Pending File.

  13. If the CP 191 indicates the payment is late, follow procedures in IRM 4.25.2.1.14.

  14. If the CP 191 indicates the taxpayer failed to make the installment (principal and interest) payment, follow procedures in IRM 4.25.2.1.12 and IRM 4.25.2.1.15.

4.25.2.1.19  (09-11-2009)
IRC section 6166(b)(10) Five Year Deferral-Economic Growth and Tax Relief Reconciliation Act of 2001(EGTRRA) — Effective for Decedents Dying after 12–31–2001 for Qualifying Lending and Finance Business

  1. Qualifying Lending and Finance Business follow the same procedures as in IRM 4.25.2.1.7 - IRM 4.25.2.1.17. The only differences are:

    1. The non-qualifying tax and first installment of principal is due with the return.

    2. Interest on the deferred amount is computed at a rate of 2% on the "2% portion" and interest on the amount that exceeds the 2% portion will apply at a rate equal to 45% of the underpayment rate.

    3. Five (5) years of tax installments will be allowed instead of the usual ten (10) years.

4.25.2.1.20  (09-11-2009)
Deficiency assessments—Estate Tax

  1. Deficiency assessments (TC 300) will produce a CP 191 notice if the account on the BMF is in deferred status (14). A revised Form 4349 and a copy of the examination report will be received from E&G Exam.

    1. Associate CP 191 with the new Form 4349 and the Examination report to determine the amount and conditions of deferment.

    2. IRS must assess the deficiency and issue Notice and Demand within 30 days of the date the waiver was signed. If the deficiency assessment is not made timely, interest on the deficiency cannot be assessed for the period of time beginning immediately after the 30 days expires to the date of Notice and Demand. Consequently, in order to prevent loss of interest revenue, it is necessary that action be taken to ensure that notice and demand be issued within the 30 day period.

    3. If the 30 day period has expired prior to the deficiency assessment, the Form 890 waiver date (TC 870 on IDRS) should be taken into consideration whenever revisions are made to payment schedules due to supplemental (amended) returns.

  2. If the original return was granted the installment privilege of payment, you will receive a new Form 4349 from E&G Exam, indicating the amount subject to the installment privilege.

    Note:

    Be sure to compare the revised Form 4349 with the prior Form 4349. If the percentage ratio has increased or decreased, there will be a complete revision to the original assessment.

  3. If the installment privilege was granted under IRC section 6166(a) and a deficiency is assessed after the estate has timely made one or more interest payments, the appropriate interest rate prescribed by IRC section 6601(j) is applied to determine the amount of interest that should have been paid in each annual payment. Interest on any underpayment of interest accrues at the existing rate under IRC section 6601(a) from the date the interest should have been paid under IRC section 6166(f)(1) had the return shown the correct tax liability ( Rev. Rul. 89–32, 1989–1 CB 307).

  4. All deficiency tax can be non-deferred, deferred, or a combination of non-deferred and deferred. When a deficiency is a combination of both non-deferred and deferred, there are two objectives:

    1. Full payment of the non-deferred portion of tax and interest is due. Compute interest at the prevailing rate on the non-deferred portion from the due date of the return to the date of Notice and Demand for payment or 30 days past the TC 870 date.

    2. Full payment of the deferred tax installments and/or interest installments is due up to the last installment anniversary date. To accomplish this, use the appropriate interest rate. Calculate interest on the deferred tax on each past anniversary date. Compound interest on each annual amount due using the prevailing rate of interest from each past anniversary date to the date of notice and demand for payment or 30 days past the 870 date.

    Example 1: Total Deficiency tax on cases prior to date of death December 31, 1997: $100,000.00
      Due date of return: January 01, 1992
      Notice and demand June 01, 1994
    Step 1: Non-deferred portion of the $100,000.00 is $20,000.00. Compute interest using the prevailing rate of interest, from January 01, 1992 to June 01, 1994.
    Step 2: Deferred portion of the $100,000.00 is $80,000.00. Compute interest at the appropriate rate on $80,000.00 from January 01, 1992 to Jan. 01, 1993. Compound on this amount using the prevailing interest rate from January 01, 1993 to June 01, 1994.
      Compute interest at the appropriate rate on $80,000.00 from January 01, 1993 to January 01, 1994. Compound on this amount using the prevailing interest rate from January 01, 1994 to June 01, 1994.

  5. If the Form 890 waiver was secured by E&G Exam and the deficiency tax was not assessed within 30 days from the date the waiver was signed, the interest suspension described in 1–b above applies to all interest on the non-deferred portion and the deferred portion of the deficiency tax. The interest free period should be allowed only to bring the account current. Do not use a waiver date when computing interest on the new deferred tax balance which includes both the original and the deficiency tax.

    Example 2: Total Deficiency tax: $100,000.00
      Return due date: Jan. 01, 1992
      890 waiver date: June 01, 1994
      TC–300 date: July 15, 1994
      Compound interest to: July 01, 1994
      Now follow steps 1 and 2 in Example 1.

  6. If the decedent died before January 1, 1998 and the estate elected to have Section 503(d)(2) of the Taxpayer Relief Act of 1997, Pub. L. No. 105-34, 11 Stat. 788 (see Rev. Proc. 98–15 198–1 CB 347) apply (reduced interest rates), the case is worked using the original 4% and/or statutory interest rates for the years prior to electing 503(d)(2). The 2% and/or 45% of statutory interest rates begin with the section 503(d)(2) election year.

    Example 3: Date of Death: April 01, 1995  
      Due Date of Return January 01, 1996  
    Estate Elects Section 503(d)(2): June 30, 1998  
    Form 890 Waiver Date: September 30, 1998  
      Tax Non-Deferred Deferred
    Per Audit $250,000.00 $70,000.00 $180,000.00
    Per Return $150,000.00 $50,000.00 $100,000.00
    Deficiency $100,000.00 $20,000.00 $80,000.00
    Interest is computed as follows:
    Compute interest on the Non-Deferred tax $20,000.00 at the statutory rate from 01/01/96 to 09/30/98.
    Compute interest on the Deferred tax $80,000.00 from 01/01/96 to 01/01/97 as follows:
      $53,000.00 at 4% rate amount  
      $27,000.00 at statutory rate amount  
    Compute interest on the interest from 01/01/97 to 09/30/98 at the statutory rate.
    Compute interest on the Deferred tax $80,000.00 from 01/01/97 to 01/01/98 as follows:
      $53,000.00 at 4% rate amount  
      $27,000.00 at statutory rate amount  
    Compute interest on the interest from 01/01/98 to 09/30/98 at the statutory rate.
    Note: There will be no allocation of new and old rates for partial years regarding the audit deficiencies.
    Since the estate elected Section 503(d)(2) the next billing should be computed as follows:
    The deferred amount is: $180,000.00  
    The amount qualifying for 2% is: $153,000.00  
    The amount qualifying for the 45% statutory rate amount is: $27,000.00  
    The new rates will apply for the remaining installment periods.

  7. Prepare a Notice and Demand for payment using a Letter 864C, Estate Return Examined: Form 706 and mail to the estate. If a Letter 864C, is mailed, ensure that the payoff amounts are included in the appropriate areas. Associate CP 191 and a copy of the Letter 864C, with the previously established case folder. Suspend the case file for 45 days pending payment and/or Form 4768 (extension of time to pay) {See IRM 4.25.2.1.3(3)}.

  8. If payment is received: Associate new CP 191 with the case file, update case history and refile case folder for next installment anniversary date.

  9. If payment is not received: Consider the account to be in default and process per sub-section on defaulted accounts. (See IRM IRM 4.25.2.1.12 and IRM 4.25.2.1.15 ).

  10. If Form 4768 is received: Route it to the appropriate area for review.

    1. If Form 4768 is approved: Associate it with the case file, update case history and refile case folder for next installment anniversary date.

    2. If Form 4768 is denied: Compound interest at the prevailing rate on the original amount that was due and send second notice ( Letter 6335).

      Note:

      Penalties should not be considered in this billing. Associate copy of Letter 6335 with case file, update history and suspend case folder 45 days pending payment.

  11. If payment is received: Follow procedures in (8) above.

  12. If payment is not received: Follow procedures in (9) above.

    Note:

    Once the deferred deficiency tax and/or interest is paid, DO NOT use the Form 890 waiver date when computing interest on the new deferred tax balance which includes the deferred deficiency amount. Interest will be computed from the last anniversary date to the next anniversary date with no interest-free period.

  13. Although the time for payment of a balance due from the original return may have been extended under IRC section 6161, a deficiency assessment is not automatically covered in the extension but is subject to payment on notice and demand. Conversely, the imposition of additional taxes does not disturb the existing extension.

  14. If a deficiency assessment is made to an account which was granted an extension under IRC section 6161, of time to pay only, follow procedures in IRM 4.25.2.1.3 and use Letter 6335 in billing the estate.

  15. Associate CP 191 and a copy of Letter 6335, with the previous established case folder. Suspend the case file for 45 days pending payment.

  16. If payment is received: Associate the new CP 191 with the case file, update the history and refile case folder pending next billing for the original tax and interest due for which payment had previously been suspended under IRC section 6161.

  17. If payment is not received: Follow procedures in (9) above.

4.25.2.1.21  (09-11-2009)
Revised Form 4349 and Audit Results Received From E&G Exam

  1. If the CP 191 reflects an audit abatement, future installment payments may be reduced. In some cases, the abatement of deferred and non-deferred tax will result in an overpayment which will be applied to the amount due on the next and/or future installment payments under IRC section 6403. E&G Exam will forward Form 4349 indicating the impact the abatement has on the next installment or future installments.

    1. A review of the interest will be necessary. An abatement of tax can cause a reduction of interest.

    2. Input TC 341 decrease or TC 340 increase on IDRS if applicable.

  2. If Form 4349 is received approving taxpayer's installment request, place the approved Form 4349 in the case file.

  3. If Form 4349 is received from E&G Exam and the tax (Line 4) does not agree with the tax assessed:

    1. If E&G Exam has the return open, notify them of the difference in the tax.

    2. If the return is closed and no longer in E&G Exam, request the return.

    3. Review the examination report to determine if the difference in the tax is due to an error in addition or transposed numbers and then make corrections.

    4. If the difference is due to the calculation of tax, call E&G Exam to discuss. If necessary, route the return back to the responsible E&G Exam Office (along with an explanation of why the return is being sent back) under cover of Form 3210.

    5. Hold for revised Form 4349.

  4. If Form 4349 is received rejecting the taxpayer's request for installments follow procedures in IRM 4.25.2.1.8.

4.25.2.1.22  (09-11-2009)
IRC section 6601 Interest on Installment Payment Under IRC section 6166

  1. Taxpayer Relief Act of 1997 made significant changes to the rates of interest for installment payments made under IRC section 6166 of the Code.

  2. For estates of decedents dying after 12/31/97, under IRC section 6601(j)(2):

    1. Interest will be at the 2% rate on the first $1,000,000.00 of taxable value of the closely held business.

    2. Plus the exclusion amount for that year.

    3. Reduced by the unified credit applicable for that year.

    Example: Assume a decedent died in 2001 and a 1% rate of inflation.
      Applicable amount $1,060,000.00
      Exclusion amount $ 675,000.00
      Total amount taxable $1,735,000.00
      Tentative Tax $ 661,550.00
      Less Unified Credit $ 220,550.00
      2% interest is computed on $ 441,000.00

    Note:

    For decedents dying after December 31,1997, the 2% portion is computed as follows:

    • Add $1,000,000 to the applicable exclusion amount to arrive at a total.

    • Add amounts (in $10,000 increments) for indexed inflation as announced.

    • Compute the tentative tax on the sum of the amounts above.

    • Subtract the applicable credit amount.

  3. Interest on amount that exceeds 2% portion is at the rate equal to 45% of statutory rate. The statutory rate may be adjusted quarterly.

  4. In case of decedents dying after 1998, the $1,000,000.00 amount is indexed for inflation. Adjustment must be a multiple of $10,000.00.

  5. Exclusion amount and unified credit for future years are:

    Year of Death Applicable Exclusion Amount Unified Credit or Applicable Credit Amount
    1985 — 1997   $192,800.00
    1998 $625,000.00 $202,050.00
    1999 $650,000.00 $211,300.00
    2000 — 2001 $675,000.00 $220,550.00
    2002 — 2003 $1,000,000.00 $345,800.00
    2004 — 2005 $1,500,000.00 $555,800.00
    2006 – 2008 $2,000,000.00 $780,800.00
    2009 $3,500,000.00 $1,455,800.00
         
    Example: Assume a decedent died in 1999 and a 1% rate of inflation.
      Applicable amount $1,010,000.00
      Exclusion for 1999  $650,000.00
      Total amount taxable $1,660,000.00
      Tentative Tax  $627,800.00
      Less Unified Credit  $211,300.00
      2% Portion is $416,500.00

    TAX TABLES
    Unified Transfer Tax Rate Schedule For Tax Years 1983 through 2001
    If the amount is: The tentative tax is:
    Not over $10,000 18 percent of such amount.
    Over $10,000 but not over $20,000 $1,800, plus 20 percent of the excess of such amount over $10,000.
    Over $20,000 but not over $40,000 $3,800, plus 22 percent of the excess of such amount over $20,000.
    Over $40,000 but not over $60,000 $8,200, plus 24 percent of the excess of such amount over $40,000.
    Over $60,000 but not over $80,000 $13,000, plus 26 percent of the excess of such amount over $60,000.
    Over $80,000 but not over $100,000 $18,200, plus 28 percent of the excess of such amount over $80,000.
    Over $100,000 but not over $150,000 $23,800, plus 30 percent of the excess of such amount over $100,000.
    Over $150,000 but not over $250,000 $38,800, plus 32 percent of the excess of such amount over $150,000.
    Over $250,000 but not over $500,000 $70,800, plus 34 percent of the excess of such amount over $250,000.
    Over $500,000 but not over $750,000 $155,800, plus 37 percent of the excess of such amount over $500,000.
    Over $750,000 but not over $1,000,000 $248,300, plus 39 percent of the excess of such amount over $750,000.
    Over $1,000,000 but not over $1,250,000 $345,800, plus 41 percent of the excess of such amount over $1,000,000.
    Over $1,250,000 but not over $1,500,000 $448,300, plus 43 percent of the excess of such amount over $1,250,000.
    Over $1,500,000 but not over $2,000,000 $555,800, plus 45 percent of the excess of such amount over $1,500,000.
    Over $2,000,000 but not over $2,500,000 $780,800, plus 49 percent of the excess of such amount over $2,000,000.
    Over $2,500,000 but not over $3,000,000 $1,025,800, plus 53 percent of the excess over $2,500,000.
    Over $3,000,000 $1,290,800 plus 55 percent of the excess over $3,000,000.

    Unified Transfer Tax Rate Schedule for Tax Years 2002 through 2009
    Tax Year If the amount is: The tentative tax is:
    2002 Over $2,500,000.00 $1,025,800 plus 50% of the excess over $2,500,000.00
    2003 Over $2,000,000.00 $ 780,800 plus 49% of the excess over $2,000,000.00
    2004 Over $2,000,000.00 $780,800.00 plus 48% of the excess over $2,000,000.00
    2005 Over $2,000,000.00 $780,800.00 plus 47% of the excess over $2,000,000.00
    2006 Over $2,000,000.00 $780,800.00 plus 46% of the excess over $2,000,000.00
    2007 Over $1,500,000.00 $555,800.00 plus 45% of the excess over $1,500,000.00
    2008 Over $1,500,000.00 $555,800.00 plus 45% of the excess over $1,500,000.00
    2009 Over $1,500,000.00 $555,800.00 plus 45% of the excess over $1,500,000.00
    2010 Repealed Repealed

  6. No deduction will be allowed by an estate for income tax purposes for interest payable under IRC section 6601 on tax imposed by IRC section 2001 for the period during which extension of time for payment of tax is in effect under IRC section 6166.

  7. Interest is still due for the first four years after the due date of the return. Tax payments can still be made for a maximum of ten years.

  8. Holding Companies—if qualified for IRC section 6166 installments, the new rates apply. Exception: a holding company does not qualify for the 2% rate.

  9. Qualifying lending and finance business — if qualified for IRC section 6166 installments, the 2% rate and/or the 45% underpayment rate applies.

  10. For the estate of decedents dying before 01/01/98, if the estate made a IRC section 6166 election, the executor of the estate may make an irrevocable election to have amendments made by Section 503 of the Taxpayer Relief Act.

    1. The 2% rate applies to amounts that qualified for 4% under the old law. The amount qualifying for 4% was computed as follows:

      Tax on $1,000,000.00 $345,800.00
      Less Unified Credit  
      (for the year of death) $192,800.00
      Amount qualifying $153,000.00

    2. Refer to the Unified Credit and tax limitation chart included in IRM 4.25.2.1.22.

    3. The new rate will be 45% of statutory rate on amounts over the 2% rate. The new rates apply for the entire installment period. There will be no allocation of new and old rates for partial years.

    4. Rev. Proc. 98–15 provides that election is effective beginning with the first installment if estate tax or interest due on or after date election is filed with the appropriate processing center. See the following information and tables:

  11. "4% portion" and "2% portion" — For decedents dying before January 1,1998, the "4% portion" is defined as $345,800 reduced by any allowable unified credit. Since the unified credit for estates of decedents dying between 1985 and 1997 was $192,800, the "4% portion" for these estates is $153,000.

  12. Table of "2% amounts" — The following table lists the "2% portion" for estates of decedents dying between the years 1998 and 2009. .

    Year of Death Base amount in the year of Death Tentative Tax on base Amount Unified Credit Amount 2% portion
    1998 $1,625,000.00 $612,050.00 $202,050.00 $410,000.00
    1999 $1,660,000.00 $627,800.00 $211,300.00 $416,500.00
    2000 $1,705,000.00 $648,050.00 $220,550.00 $427,500.00
    2001 $1,735,000.00 $661,550.00 $220,550.00 $441,000.00
    2002 $2,100,000.00 $829,800.00 $345,800.00 $484,000.00
    2003 $2,120,000.00 $839,600.00 $345,800.00 $493,800.00
    2004 $2,640,000.00 $1,088,000.00 $555,800.00 $532,200.00
    2005 $2,670,000.00 $1,095,700.00 $555,800.00 $539,900.00
    2006 $3,200,000.00 $1,332,800.00 $780,000.00 $552,000.00
    2007 $3,250,000.00 $1,343,300.00 $780,800.00 $562,500.00
    2008 $3,280,000.00 $1,356,800.00 $780,800.00 $576,000.00
    2009 $4,830,000.00 $2,054,300.00 $1,455,800.00 $598,500.00

    Note:

    The unified credit amount may not be accurate if Qualified Family Owned Business Interest (QFOBI) (Schedule T on Form 706) is claimed. The QFOBI deduction may be claimed for date of death years 1998 through 2003.

  13. The applicable exclusion amount and the unified credit is limited so that the sum of the QFOBI and the applicable exclusion will not exceed $1,300,000.00. See example below:

         
    1998 $1,300,000.00  
    QFOBI $675,000.00  
    1998 Applicable Exclusion $625,000.00 = $202,050.00 Unified Credit
         
    1999 $1,300,000.00  
    QFOBI $675,000.00  
    Limited Exclusion $625,000.00 = $202,050.00 Unified Credit
    Actual 1999 Exclusion $650,000 — Actual Unified Credit for 1999 $211,300
    Note: Because the QFOBI and the applicable exclusion cannot exceed $1,300,000.00 the exclusion is reduced. As a result, the unified credit must coincide with the exclusion. In this example the unified credit would be changed to $202,050.00.
  14. The election is to be made in letter form and must include the following:

    1. Decedent's name.

    2. Estate SSN.

    3. Statement that estate is making the election provided for in IRC section 503(d)(2) of the Taxpayer Relief Act of 1997.

    4. Due date of installment of estate tax or interest for which the election is being made.

    5. Letter must be signed and dated by the executor.

  15. Once the election is made it cannot be modified or revoked. Election must be made before 01/01/99.

  16. If the election is made, the estate must agree to give up future interest deductions on the Form 706 or on the income tax returns of the estate or beneficiaries.

  17. An exception is when interest on non-deferred tax and statutory interest on extensions can be claimed as a deduction during the IRC section 6166 installment period. For decedents dying after December 31, 1997, no interest deduction is allowed for interest payable for the period during which an extension of time to pay under IRC section 6166 is in effect.

  18. There were provisions for retroactive elections. These provisions expired on 04/27/98; however, an estate had the option to opt out by 12/31/98 for future installments.

4.25.2.1.23  (09-30-2003)
Interest Prior to the Taxpayer Relief Act of 1997

  1. If an extension of time in which to pay the tax shown on the return has been granted under IRC section 6161(a)(2) or IRC section 6163, compute interest on the amount from the due date of the return to the date of payment at the rates and periods prescribed in IRM 20.2.10. Compute interest on an extension of time to pay an installment under IRC section 6161(a)(2) at the same rates from the due date of the installment to the date of payment.

  2. If an extension of time to pay under IRC section 6166 involves the 2% or 4% interest criteria of IRC section 6601(j) , compute interest on the 2% or 4% portion as required.

  3. This is limited to the first $345,800.00 in tax (less the Unified Credit). See the Unified Credit Chart below. The amount in excess of the limit is subject to normal interest rates.

  4. Payments received relating to accounts subject to this limit must be apportioned to the amount subject to 2% or 4% interest and the amount above the limit.

    1. Divide the amount subject to 2% or 4% interest (345,800.00 less the Unified Credit) by the total deferred amount.

    2. Take the quotient computed above (computed to 6 decimal places) and multiply it against the payment amount (net of any interest included in the payment).

    3. Apply the amount thus attained against the amount subject to the 2% or 4% limit. The remainder of the payment is to be applied against the amount in excess of the limit.

    4. Installment bills sent to the taxpayer will have to take this computation into account when the bills are prepared.

  5. Unified Credit and tax limitation Chart:

    Date of Death Unified Credit Tax Limitation
    1976 and prior $ –0– $345,800.00
    1977 30,000.00 315,800.00
    1978 34,000.00 311,800.00
    1979 38,000.00 307,800.00
    1980 42,500.00 303,300.00
    1981 47,000.00 298,800.00
    1982 62,800.00 283,000.00
    1983 79,300.00 266,500.00
    1984 96,300.00 249,500.00
    1985 121,800.00 224,000.00
    1986 155,800.00 190,000.00
    After 1986 192,800.00 153,000.00

    Note:

    Interest on any underpayment of interest accrues at the prevailing rate under IRC section 6601(a) from the date the interest should have been paid under IRC section 6166(f)(1) to the date paid.

    Note:

    IRC section 6601(e)(3) provides that if Notice and Demand is made for payment of any amount and this amount is paid within 21 calendar days (10 business days if the amount for which such notice and demand is made equals or exceeds $100,000) after the date of such Notice and Demand, interest on the amount so paid shall not be imposed for the period after the date of such Notice and Demand.

4.25.2.1.24  (09-11-2009)
Supplemental Return for Estates of Decedents Dying Prior to January 1, 1998 the Effective Date of the Taxpayer Relief Act of 1997

  1. The estate may continue to claim interest as an administrative expense of the estate on the Form 706 or as an income tax deduction on Form 1041 as described below. However, an executor may have elected before January 1, 1999, to apply the 2% rate of interest and forgo the deduction. See Rev. Proc. 98–15, 1998-1 CB 374.

  2. In case of the Estate of Bahr v. Commissioner, 68 T.C. 74, (1977), the Tax Court allowed a deduction under IRC section 2053(a)(2) for interest expense incurred on the unpaid balance of Federal Estate Tax liability, deferred under IRC section 6166 .

    1. Rev. Rul. 80–250, 1980–2 CB 278 expanded Bahr to allow as a deduction under IRC section 2053(a)(2) the interest paid on IRC section 6166 installments as they accrue; no deduction is allowed based on estimates of future interest.

  3. The procedure for recomputing installment payments because of the reduction in estate tax is set forth in Rev. Proc. 81–27, 1981–2 CB 547 .

  4. The executor deducts the interest by filing Supplemental Information on Form 706 with the annual installment payment or at a later date or by requesting in writing that the interest be allowed as a debt of the estate.

  5. The procedure described in both Rev. Rul. 80–250, 1980–2 CB 278 and Rev. Proc. 81–27,1981–2 CB 547 is satisfied if, after receiving the annual bill, the executor:

    1. Recomputes the tax and interest based on the anticipated deduction under IRC section 2053(a)(2) for currently accrued interest.

    2. Pays the annual installment as recomputed.

    3. Simultaneously files the supplemental return claiming the interest deduction and mails it in with the installment payment and or signs a Form 890 prepared by E&G Exam and/or Campus allowing interest as a debt as well as mailing payment.

  6. The Supplemental Form 706 can also be filed after the installment interest payment has been made. If this is done, future installments due will be recalculated and any overpayment of an installment of tax or interest will be applied to the next installment in accordance with IRC section 6403.

    Note:

    Cases with date of death after 12/31/97 are not generally eligible for interest deductions. In addition, cases with date of death before 01/01/98 which elected section 503 of the Taxpayer Relief Act of 1997 are not eligible for interest deductions.

  7. When a Supplemental Return is "accepted as filed" , Examination will prepare a revised Form 4349. It will include the new "Net Estate Tax" , Line 4, the Deferred Tax, Line 5, and the Non-Deferred Tax, Line 6. Form 4349 will also show the new installment amount (based on facts and circumstances in existence with the original estate tax return filed). The ratio, Line 3 will not be recalculated with each filing of a Supplemental Return. (E&G Exam may use an automated program which will give the Interrelated Interest Computations Worksheet that can serve as the authority to abate interest accordingly, TC 341). A CP 191 Notice will generate reflecting the tax decrease, TC 301 or TC 291.

  8. If an Interrelated Interest Computation was performed by E&G Exam to show the reduction to the tax, it will also show the allowed interest. A TC 341 may be necessary for the abatement of interest (if it was not input with the TC 301 or TC 291). Review the Interrelated Interest Computation Worksheet from E&G Exam to determine the amount of interest abatement. Input TC 341 on IDRS.

  9. If CP 191 shows posting of TC 301 or TC 291, and you do not receive the Interrelated Interest Computations from the Estate Tax Attorney/Paraprofessional, request the adjustment document showing the tax decrease to determine the correct amount of interest to be adjusted. If the Interrelated Interest Computations were performed by E&G Exam, use the Interrelated Interest Computations Worksheet as the authority to determine the amount of interest to abate. If there is a problem or question regarding this issue, return the file to the Compliance Center Examination function for review and directions in resolving all issues.

  10. Interrelated Interest Computations should be performed by an Estate Tax Attorney or Transfer Tax Technician to determine the amount of interest to be abated. The interest considered as an administrative expense of the estate must be the same as the computed interest on the account.

    Note:

    Installments are due and payable on their anniversary due date. If the estate does not pay the installment due because of the filing of a " Supplemental Return" to reduce the tax (additional administrative interest expense deduction), ensure that a notification is given to the estate immediately. Be very explicit, let the estate know the Supplemental Return does NOT replace the installment due. Inform the estate that if the installment is not paid, the account will be accelerated and that the total tax will be due and payable. Let the estate know it will lose its installment privilege. Once the account is accelerated the installment privilege will NOT be reinstated.

4.25.2.1.25  (09-11-2009)
Mathematical Errors—Estate Tax

  1. To properly analyze for the presence of a math error, it will be necessary to research IDRS for a math error indicator. If one is present, review the return or copy of return for the nature and amount of change.

  2. If change results in an increase in tax, prepare and issue notice to taxpayer using Letter 2568C to show the change in tax liability due to math errors.

  3. Except for extensions of time to pay granted under IRC section 6161, enter as tax due now the entire increase resulting from the math error correction.

  4. If an extension of time to pay is requested under IRC section 6161, verify the entries on Form 4349 with E&G Exam's corrected figures on the tax return.

    1. If there is a discrepancy, determine the nature of the discrepancy, correct Form 4349 and associate a copy with the original 706 return.

    2. If the discrepancy requires an adjustment to the posted tax liability, perform the adjustment and correct Form 4349, if applicable.

    3. If the return relates to IRC section 6166, enter the amount of additional tax that is a result of the math error in the space provided on Letter 2568C. Enter the amount of nondeferred tax as tax currently due. Include in the interest computation on Letter 2568C the amount of interest due on the math error deferred portion.

    4. File a copy of the letter with the case file in the payment pending file.

  5. If CP 191 issues indicating payment of the amount of the notice, refile case in the installment pending drawer.

  6. If the taxpayer takes any action other than making a payment of the amount billed (i.e., protests the correction, requests inclusion of the increase in previously requested deferment, or fails to respond at all) within twelve (12) weeks of the date of notice, refer to E&G Exam for determination of liability and collection activity required, if any.


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