Lending and Finance Business Active Trade Treatment

§ 6166. Extension of time for payment of estate tax where estate consists largely of interest in closely held business(a) 5-year deferral; 10-year installment payment(1) In generalIf the value of an interest in a closely held business which is included in determining the gross estate of a decedent who was (at the date of his death) a citizen or resident of the United States exceeds 35 percent of the adjusted gross estate, the executor may elect to pay part or all of the tax imposed by section 2001 in 2 or more (but not exceeding 10) equal installments. (2) LimitationThe maximum amount of tax which may be paid in installments under this subsection shall be an amount which bears the same ratio to the tax imposed by section 2001 (reduced by the credits against such tax) as—(A) the closely held business amount, bears to (B) the amount of the adjusted gross estate. (3) Date for payment of installmentsIf an election is made under paragraph (1), the first installment shall be paid on or before the date selected by the executor which is not more than 5 years after the date prescribed by section 6151(a) for payment of the tax, and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment. (b) Definitions and special rules(1) Interest in closely held businessFor purposes of this section, the term “interest in a closely held business” means—(A) an interest as a proprietor in a trade or business carried on as a proprietorship; (B) an interest as a partner in a partnership carrying on a trade or business, if—(i) 20 percent or more of the total capital interest in such partnership is included in determining the gross estate of the decedent, or (ii) such partnership had 45 or fewer partners; or (C) stock in a corporation carrying on a trade or business if—(i) 20 percent or more in value of the voting stock of such corporation is included in determining the gross estate of the decedent, or (ii) such corporation had 45 or fewer shareholders. (2) Rules for applying paragraph (1)For purposes of paragraph (1)—(A) Time for testingDeterminations shall be made as of the time immediately before the decedent’s death. (B) Certain interests held by husband and wifeStock or a partnership interest which—(i) is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, or (ii) is held by a husband and wife as joint tenants, tenants by the entirety, or tenants in common, shall be treated as owned by one shareholder or one partner, as the case may be.