SECTION 3. BACKGROUND

.01 Pursuant to section 6166(a), an executor may elect to pay part or all of the estate tax in two or more (but not exceeding ten) equal installments if: (1) the decedent was a citizen or resident of the United States at the date of death; and (2) the value included in the decedent’s gross estate for either (i) an interest in a closely held business or (ii) interests in two or more closely held businesses that are treated as an interest in a single closely held business pursuant to section 6166(c), exceeds 35 percent of the adjusted gross estate. Section 6166(b) sets forth definitions and, in paragraphs (7), (8), and (10), special rules that allow an executor to make an election to pay part or all of the estate tax in installments under section 6166(a) in certain circumstances that would not otherwise qualify for the election under section 6166(a). Generally, the executor must make an election under section 6166(a) (and, if applicable, an election under section 6166(b)(7), (8) or (10)) no later than the due date for filing the estate tax return (including any extensions of time to file). See I.R.C. § 6166(d).

.02 Section 6166(e) provides that, if an election was made under section 6166(a) to pay any part of the estate tax in installments and a deficiency is assessed, the deficiency, subject to applicable limitations on the amount of tax deferred, generally will be prorated to the installments already paid or due prior to the date the deficiency

is assessed, as well as to the installments not yet due.

.03 After a valid section 6166 election is made, certain events may trigger the acceleration of the deferred estate tax payments. Section 6166(g) identifies events that terminate the extension of time for payment and require the payment of the unpaid portion of the estate tax upon notice and demand.

.04 Under section 6166(h), the executor of an estate may elect to pay in installments an assessed deficiency of estate tax for an estate that qualifies under section 6166(a), even though the executor did not make an election under section 6166(a). The executor must make the section 6166(h) election with respect to the deficiency no later than 60 calendar days after the Service has issued a notice and demand for the payment of that deficiency.

.05 Section 7479 provides that the Tax Court may issue a declaratory judgment in the case of an actual controversy involving a determination by the Service (or a failure of the Service to make a determination within 180 calendar days) with respect to the initial validity of a section 6166 election, or a determination by the Service with respect to the continuing validity of a section 6166 election. Under section 7479(b)(2), however, the Tax Court may not issue a declaratory judgment unless the applicant has exhausted all administrative remedies within the Service. Section 7479(b)(2) further provides that, with respect to a failure of the Service to make a determination, an applicant shall be deemed to have exhausted the applicant’s administrative remedies upon the expiration of 180 calendar days after the request for such determination was made, provided that the applicant has taken in a timely manner all reasonable steps to secure that determination.

.06 Rule 210(c) of the Tax Court Rules of Practice and Procedure provides that the Tax Court will not have jurisdiction over an action for declaratory judgment unless the Service has issued a determination letter, or the Service has been requested to make a determination and has failed to do so for a period of at least 180 calendar days after the request for such determination was made. For information relating to the filing of a petition with the Tax Court for a declaratory judgment under section 7479, see Tax Court Rule 211(f).

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of the Service to make a determination regarding the section 6166 election within 180 calendar days after the filing of the Form 706, the applicant is deemed to have exhausted all available administrative remedies within the Service.

.03 Example 3 : The executor timely files a Form 706 and makes an election under section 6166(a). After an examination of the Form 706, the Service issues a final determination letter recognizing the validity of the election. Subsequently, the Service determines that more than 50 percent of the interest in the closely held business has been disposed of during the deferral period. Pursuant to section 6166(g), the Service issues a preliminary determination letter proposing to terminate the section 6166 election. Within 30 calendar days after the mailing date of the preliminary determination letter, the applicant submits a written request for an Appeals conference. The applicant timely provides all requested information to Appeals. After considering the information provided, Appeals issues a final determination letter that the extension previously granted has ceased to apply. The applicant has exhausted all available administrative remedies within the Service.