Tax Court Holds Failure to Timely Pay Interest on Deferred Estate Tax Terminates Section 6166 Election – Los Angeles Income Tax Planning and Income Tax Litigation Attorney Bruce Givner

by Bruce Givner on November 26, 2013

After Franklin Adell died, his estate filed Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes per IRC Section 6166. The filed Form 4768 stated that the extension was necessary because the estate’s interest in several businesses could not be currently valued and therefore the tax due, as well as the deferred and nondeferred portions of the estate tax, could not be determined. After the estate timely filed its Form 706, the Internal Revenue Service (IRS) sent a letter showing the tax due, the deferred and nondeferred portions, and the annual tax installment pending verification. The estate did not pay the nondeferred estate tax. The estate did make the first two payments of assessed interest on the deferred estate tax. However, when the IRS sent a letter assessing tax on the unpaid nondeferred estate tax, the estate balked. The IRS responded by explaining that though the Section 6166 extension relieved the estate from currently paying the nondeferred estate tax, the extension did not relieve the estate from paying the interest on this tax.

Thus began a series of events where the estate changed executors and filed amended Forms 706 reducing its nondeferred assets and estate tax due, and the IRS accepting the estate’s request to extend time to pay and rejecting the nondeferred asset values listed on the amended Forms 706. When the estate still failed to pay its annual estate tax installment and related interest, the IRS sent a letter demanding payment within 30 days. When it was not made, the IRS terminated the estate’s Section 6166 application for extension under Section 6166(g) and demanded the full estate tax liability. The IRS Appeals Office upheld the termination and assessment and the estate filed a petition with the Tax Court.

The estate did not disagree with the facts, including that it did not pay the assessed interest. The Tax Court then cited Estate of Bell which held that the benefits of Section 6166 “are privileges granted to the taxpayer.” By failing to pay the interest assessed, the estate’s Section 6166 election terminated as a matter of law. The Tax Court upheld the termination. Adelle v Commissioner.

Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Encino, Sherman Oaks, Tarzana, Woodland Hills, Agoura, Westlake Village, Thousand Oaks, Studio City, Burbank, Glendale, Pasadena, Bel Air, Brentwood, Pacific Palisades, Marina Del Rey, Manhattan Beach, Torrance, Irvine, Newport Beach, Las Vegas and adjacent areas. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.

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