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Section 6166(a) Underpayment of Non-Deferred Tax on Form 4768
Form 706 Computations on Return As Filed

 

DATA AT TIME OF ESTATE TAX RETURN FILING

Date of death:  February 9, 2018
 
Return filing due date:  November 9, 2018
 
Tax paid with Form 4768 filing: $2,779,220.25
 
Return filing extended due date:  May 9, 2019
 

 

SUMMARY COMPUTATION OF ESTATE TAX ON FORM 706 AS FILED ON MAY 9, 2019
1 44,000,000 Gross estate
2 3,823,087 Schedules J, K, and L §2053 and §2054 deductions (including interest - see Comment 1, below)
3 1,800,000 Charitable deduction
4 5,623,087 Total deductions
5 38,376,913 Taxable estate
6 5,000,000 Adjusted taxable gifts
7 43,376,913 Total amount on which tentative tax is computed
8 17,296,565 Tentative tax and gross estate tax
9 4,417,800 Allowable applicable credit amount
10 12,878,765 Net estate tax

 

Section 6166(a) Underpayment of Non-Deferred Tax on Form 4768, Form 706 Computation, Comment 1:  

 

 

 

COMPUTATION OF TAX NOT DEFERRED UNDER THE SECTION 6166 NOTICE OF ELECTION AS FILED WITH FORM 706
11 44,000,000 Gross estate
12 3,800,000 Schedules J, K, and L §2053 and §2054 deductions (before interest) 
13 23,087.21 §6621 interest accrued on additional non-deferred tax of $803,549.18, computed from the 706 due date of November 9, 2018 through the 706 filing date of May 9, 2019. The estate reported this amount as $23,087 on Schedule J. (IRS will calculate interest in dollars and cents even though the return reports whole dollar amounts only.)
14 40,176,913 §6166(b)(6) adjusted gross estate
15 29,000,000 §6166 closely held business value
16 12,878,765 Total estate tax, from line 10, above
17 0.721808 §6166(a)(2) ratio for the maximum amount of tax which may be paid in installments (line 14 divided by line 13) - carried to 6 decimal places, rounded
18 72.1808% §6166(a)(2) ratio expressed as a percentage, which exceeds 35 percent of the adjusted gross estate
19 9,295,995.69 Maximum amount of tax which may be paid in installments (line 15 times line 16)   NOTE: IRS will calculate the deferred and non-deferred tax amounts (and interest) in dollars and cents even though the return reports whole dollar amounts only
20 3,582,769.43 Tax not deferred under the Section 6166 Notice of Election, due with the filing of Form 4768 on Friday, November 9, 2018 (line 16 less line 19)
21 2,779,220.25 Tax paid with Form 4768 on November 9, 2018
22 803,549.18 Balance of non-deferred tax payable with the filing of Form 706 on May 9, 2019 (line 20 less line 21).
23 23,820.81 §6621 regular rate interest computed from Nov-09-2018 through May-09-2019 on $803,549.18 also paid with the filing of Form 706 (which has been allowed as a Schedule J deduction when computing the interrelated tax and interest).

 

Section 6166(a) Underpayment of Non-Deferred Tax on Form 4768, Form 706 Computation, Comment 2: Most estates will simply pay the balance of non-deferred tax and wait for a bill for the §6621 regular rate interest to come from IRS. Because several weeks will lapse between the filing date and bill payment date, the interest payable will be slightly greater.

The more efficient practice would be to calculate the interest due on the return filing date, allow it as a Schedule J deduction when computing the tax and interest (an interrelated computation), and pay the resulting total.

A supplemental estate tax return could in theory be filed after payment of the greater, non-interrelated, interest bill to claim it as a Schedule J deduction, but IRS will not recompute the tax until the examination of the return is completed, which could take several years. In the meantime, annual section 6166 interest bills would be calculated on the higher amount of tax that was shown on the return (since a deduction for the interest had not been taken).