Calculate the Interest on a Section 6166 Estate Tax Liability

Section 6166 of the Internal Revenue Code allows estates with significant interests in closely held businesses to defer the payment of estate taxes over a period of up to 15 years.

Section 6166 provides a complex structure for calculating interest on the deferred estate tax. It involves two primary interest rates:

1. 2% Interest Rate
   
   • This favorable rate applies to a portion of the deferred tax, specifically the first $1,750,000 ( as of 2023 indexed for inflation), of the closely held business value exceeding the applicable exclusion amount.
2. 45% of the Regular Rate
   
   • This applies to the remaining portion of the deferred estate tax exceeding the $1,750,000 threshold. The "regular rate" refers to the standard IRS interest rate applied to underpayments of estate tax.

To calculate the interest for your specific situation, you will need:

• Date of Dearth: This determines the applicable exclusion.
• Outstanding Balance of Deferred Tax: This is the remaining amount of tax subject to interest under Section 6166.
• Current IRS Underpayment rate: The IRS publishes this rate quarterly and you need to calculate 45% of each quarterly’s rate for the interest.

TaxInterest handles the IRS’ interest calculations subject to Section 6621. For Form 706, you can have layers of interest calculations. If you use TaxInterest, we have custom interest rate tables that we can send you that will handle the 2% portion and the 45% of the regular underpayment rate. You would have to run each calculation separately but TaxInterest will do the interest calculations you need.

If you have any questions about TaxInterest software, please give our Support Team a call at 800-426-4741 or shoot us an email at support@TimeValue.com