INSTALLMENT PAYMENTS OF ESTATE TAX ATTRIBUTABLE TO INVESTMENTS IN CLOSELY HELD BUSINESS ENTERPRISE

SEC. 206. INSTALLMENT PAYMENTS OF ESTATE TAX ATTRIBUTABLE TO INVESTMENTS IN CLOSELY HELD BUSINESS ENTERPRISE (a) Installment Payments Permitted.—Subchapter B of chapter 62 of the Internal Revenue Code of 1954 (relating to extensions of time for payment) is amended by adding at the end thereof the following new section: “SEC. 6166. EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX WHERE ESTATE CONSISTS LARGELY OF INTEREST IN CLOSELY HELD BUSINESS. “(a) Extension Permitted.— If 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 either— “(1) 35 percent of the value of the gross estate of such decedent, or “(2) 50 percent of the taxable estate of such decedent, the executor may elect to pay part or all of the tax imposed by section 2001 in two or more (but not exceeding 10) equal installments. Any such election shall be made not later than the time prescribed by section 6075 (a) for filing the return of such tax (including extensions thereof), and shall be made in such manner as the Secretary or his delegate shall by regulations prescribe. If an election under this section is made, the provisions of this subtitle shall apply as though the Secretary or his delegate were extending the time for payment of the tax. For purposes of this section, value shall be value determined for Federal estate tax purposes. “(b) Limitation.—The maximum amount of tax which may be paid in installments as provided in this section shall be an amount which bears the same ratio to the tax imposed by section 2001 (reduced by the credits against such tax) as the value of the interest in a closely held business which qualifies under subsection (a) bears to the value of the gross estate. “(c) Closely Held Business.— For purposes of this section, the term ‘interest in a closely held business’ means— “(1) an interest as a proprietor in a trade or business carried on as a proprietorship. “(2) an interest as a partner in a partnership carrying on a trade or business, if— “(A) 20 percent or more of the total capital interest in such partnership is included in determining the gross estate of the decedent, or “(B) such partnership had 10 or less partners, “(3) stock in a corporation carrying on a trade or business, if— “(A) 20 percent or more in value of the voting stock of such corporation is included in determining the gross estate of the decedent, or “(B) such corporation had 10 or less shareholders. For purposes of this subsection, determinations shall be made as of the time immediately before the decedent’s death. “(d) Special Rule for Interests in Two or More Closely Held Businesses.—For purposes of subsections (a), (b), and (h) (1), interests in two or more closely held businesses, with respect to each of which there is included in determining the value of the decedent’s gross estate more than 50 percent of the total value of each such business, shall be treated as an interest in a single closely held business. For purposes of the 50 percent requirement of the preceding sentence, an interest in a closely held business which represents the surviving 72 Stat. 1682 spouse’s interest in property held by the decedent and the surviving spouse as community property shall be treated as having been included in determining the value of the decedent’s gross estate. “(e) Date for Payment of Installments.—If an election is made under subsection (a), the first installment shall be paid on or before 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 one year after the date prescribed by this subsection for payment of the preceding installment. “(f) Proration of Deficiency to Installments.—If an election is made under subsection (a) to pay any part of the tax imposed by section 2001 in installments and a deficiency has been assessed, the deficiency shall (subject to the limitation provided by subsection (b)) be prorated to such installments. The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary or his delegate. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. “(g) Time for Payment of Interest.—If the time for payment of any amount of tax has been extended under this section, interest payable under section 6601 on any unpaid portion of such amount shall be paid annually at the same time as, and as a part of, each installment payment of the tax. Interest, on that part of a deficiency prorated under this section to any installment the date for payment of which has not arrived, for the period before the date fixed for the last installment preceding the assessment of the deficiency, shall be paid upon notice and demand from the Secretary or his delegate. In applying section 6601 (b) (relating to the application of the 4-percent rate of interest in the case of certain extensions of time to pay estate tax) in the case of a deficiency, the entire amount which is prorated to installments under this section shall be treated as an amount of tax the payment of which is extended under this section. “(h) Acceleration of Payment.— “(1) Withdrawal of funds from business; disposition of interest.— “(A) If— “(i) aggregate withdrawals of money and other property from the trade or business, an interest in which qualifies under subsection (a), made with respect to such interest, equal or exceed 50 percent of the value of such trade or business, or “(ii) 50 percent or more in value of an interest in a closely held business which qualifies under subsection (a) is distributed, sold, exchanged, or otherwise disposed of, then the extension of time for payment of tax provided in this section shall cease to apply, and any unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary or his delegate. “(B) In the case of a distribution in redemption of stock to which section 303 (or so much of section 304 as relates to section 303) applies— “(i) subparagraph (A) (i) does not apply with respect to withdrawals of money and other property distributed; and for purposes of such subparagraph the value of the trade or business shall be considered to be such value reduced by the amount of money and other property distributed, and 72 Stat. 1683 “(ii) subparagraph (A) (ii) does not apply with respect to the stock redeemed; and for purposes of such subparagraph the interest in the closely held business shall be considered to be such interest reduced by the value of the stock redeemed. This subparagraph shall apply only if, on or before the date prescribed by subsection (e) for payment of the first installment which becomes due after the date of the distribution, there is paid an amount of the tax imposed by section 2001 not less than the amount of money and other property distributed. “(C) Subparagraph (A) (ii) does not apply to an exchange of stock pursuant to a plan of reorganization described in subparagraph (D), (E), or (F) of section 368 (a) (1) nor to an exchange to which section 355 (or so much of section 356 as relates to section 355) applies; but any stock received in such an exchange shall be treated for purposes of such subparagraph as an interest qualifying under subsection (a). “(D) Subparagraph (A) (ii) does not apply to a transfer of property of the decedent by the executor to a person entitled to receive such property under the decedent’s will or under the applicable law of descent and distribution. “(2) Undistributed income of estate.— “(A) If an election is made under this section and the estate has undistributed net income for any taxable year after its fourth taxable year, the executor shall, on or before the date prescribed by law for filing the income tax return for such taxable year (including extensions thereof), pay an amount equal to such undistributed net income in liquidation of the unpaid portion of the tax payable in installments. “(B) For purposes of subparagraph (A), the undistributed net income of the estate for any taxable year is the amount by which the distributable net income of the estate for such taxable year (as defined in section 643) exceeds the sum of— “(i) the amounts for such taxable year specified in paragraphs (1) and (2) of section 661 (a) (relating to deduction for distributions, etc.); “(ii) the amount of tax imposed for the taxable year on the estate under chapter 1; and “(iii) the amount of the Federal estate tax (including interest) paid by the executor during the taxable year (other than any amount paid pursuant to this paragraph). “(3) Failure to pay installment.—If any installment under this section is not paid on or before the date fixed for its payment by this section (including any extension of time for the payment of such installment), the unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary or his delegate. “(i) Transitional Rules.— “(1) In general.— If— “(A) a deficiency in the tax imposed by section 2001 is assessed after the date of the enactment of this section, and “(B) the estate qualifies under paragraph (1) or (2) of subsection (a), the executor may elect to pay the deficiency in installments. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. 72 Stat. 1684 “(2) Time of election.—An election under this subsection shall be made not later than 60 days after issuance of notice and demand by the Secretary or his delegate for the payment of the deficiency, and shall be made in such manner as the Secretary or his delegate shall by regulations prescribe. “(3) Effect of election on payment.—If an election is made under this subsection, the deficiency shall (subject to the limitation provided by subsection (b)) be prorated to the installments which would have been due if an election had been timely made under this section at the time the estate tax return was filed. The part of the deficiency so prorated to any installment the date for payment of which would have arrived shall be paid at the time of the making of the election under this subsection. The portion of the deficiency so prorated to installments the date for payment of which would not have so arrived shall be paid at the time such installments would have been due if such an election had been made. “(4) Application of subsection (h) (2).—In the case of an election under this subsection, subsection (h) (2) shall not apply with respect to undistributed net income for any taxable year ending before January 1, 1960. “(j) Regulations.—The Secretary or his delegate shall prescribe such regulations as may be necessary to the application of this section. “(k) Cross References.— “(1) Interest.— “For provisions requiring the payment of interest at the rate of 4 percent per annum for the period of an extension, see section 6601 (b). “(2) Security.— “For authority of the Secretary or his delegate to require security in the case of an extension under this section, see section 6165. “(3) Period of limitation.— “For extension of the period of limitation in the case of an extension under this section, see section 6503 (d).” (b) Clerical Amendment.—The table of sections for subchapter B of chapter 62 of the Internal Revenue Code of 1954 is amended by adding at the end thereof the following: “Sec. 6166. Extension of time for payment of estate tax where estate consists largely of interest in closely held business.” (c) Hardship Extension.—Section 6161 (a) (2) of such Code (relating to extension of time for paying estate tax in the case of undue hardship) is amended to read as follows: “(2) Estate tax.— If the Secretary or his delegate finds— “(A) that the payment, on the due date, of any part of the amount determined by the executor as the tax imposed by chapter 11, “(B) that the payment, on the date fixed for the payment of any installment under section 6166, of any part of such installment (including any part of a deficiency prorated to an installment the date for payment of which had not arrived), or “(C) that the payment upon notice and demand of any part of a deficiency prorated under the provisions of section 6166 to installments the date for payment of which had arrived, would result in undue hardship to the estate, he may extend the time for payment for a reasonable period not in excess of 10 years from the date prescribed by section 6151 (a) for payment of the tax.” 72 Stat. 1685 (d) Period of Limitation for Collection of Tax.—Section 6503 (d) of the Internal Revenue Code of 1954 (relating to suspension of running of period of limitations when there is an extension of time for payment of estate tax) is amended by striking out “assessment or” and by adding before the period at the end thereof the following: “or under the provisions of section 6166”. (e) Interest.—Section 6601 (b) of the Internal Revenue Code of 1954 (relating to interest at the rate of 4 percent per annum in the case of extension of time for payment of estate tax) is amended by striking out “section 6161 (a) (2)” and inserting in lieu thereof “section 6161 (a) (2) or 6166,”. (f) Effective Date.—The amendments made by this section shall apply to estates of decedents with respect to which the date for the filing of the estate tax return (including extensions thereof) prescribed by section 6075 (a) of the Internal Revenue Code of 1954 is after the date of the enactment of this Act; except that (1) section 6166 (i) of such Code as added by this section shall apply to estates of decedents dying after August 16, 1954, but only if the date for the filing of the estate tax return (including extensions thereof) expired on or before the date of the enactment of this Act, and (2) notwithstanding section 6166 (a) of such Code, if an election under such section is required to be made before the sixtieth day after the date of the enactment of this Act such an election shall be considered timely if made on or before such sixtieth day.