Recent Developments

Deferring Estate Tax:

If more than 35% of your
estate consists of interests in closely held businesses your estate may qualify
to defer the payment of estate taxes. To qualify the businesses must be active
trades or businesses. The business interest must also be closely held, which
means for a corporation that either 20%+ of the value of the corporation’s
voting stock is in your estate, or the corporation has 45 or fewer
shareholders. If you own interests in two or more closely held businesses, and 20%+
of the total value of each business is included in your estate, these will be
aggregated as an interest in a single closely held business for purposes of
qualifying for this benefit. This deferral enables your executor to pay estate
tax in 10 annual installments beginning 5 years after the regular payment of
estate tax would be due. IRC Sec. 6166. This can be a valuable option for estates that largely consist of
family business or real estate holdings.A special low 2%
interest rate may apply to the first $1.25 million of deferred taxes. IRC Sec.
6601(j); Rev. Proc. 2006-53.Interest paid
on deferred tax is not deductible. IRC Sec. 2053(c) (1) (D). The IRS had
determined that a significant number of estates electing to defer estate tax
never paid the tax. Since the tax law permits the IRS to secure the payment of
the tax, it did so, rather aggressively. Code Section 6165 provides that if the
IRS grants an extension of time within which to pay tax it may require the
taxpayer to furnish a bond in such amount conditioned upon the payment of the
amount extended in accordance with the terms of such extension. The Tax Court
recently held, Estate of Roski, (2007) 128 TC 113, that IRS cannot require a bond or lien from every
taxpayer that defers tax under 6166. Those liens or bonds could disrupt
business practices and deterred some taxpayers from taking advantage of the
deferral. The IRS has now announced a change in policy so that the necessity of
a bond or lien will be determined on a case-by-case basis. Notice 2007-90,
2007-46 IRB.