Ohio National Financial Services, Estate Planning

Section 6166 of the tax code provides for a deferral of estate taxes for decedents who owned a closely held business. Its purpose is to avoid the need to liquidate a small business to pay estate taxes. Provided an estate qualifies for the deferral, the tax due is deferred for four years at interest, then followed by a 10-year payout of the tax.

Two-percent interest is imposed on the first $1 million of taxable value (indexed for inflation, this is the value in excess of the applicable exclusion amount) of the closely held business. The rate imposed on the balance of the value of the business is reduced to 45 percent of the rate applicable to underpayments of tax. Interest payable under Section 6166 is not deductible, however.

To qualify for Section 6166 deferral, a closely held business must make up 35 percent or more of the adjusted gross estate. Only active business interests are to be considered for this 35 percent test, and only the amount of tax attributable to the value of the business may be deferred. The rest of the tax is due at the regular time.

Taxes deferred under 6166 will be accelerated and due immediately if the business is sold or liquidated, payments are more than six months late, or the estate has undistributed income.

Ohio National is not affiliated with, nor does it endorse or sponsor, any particular prospecting, marketing or selling system.