EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX.

SEC. 2004. EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX. (a) General Rule.— Subchapter B of chapter 62 (relating to extensions of time for payment of tax) is amended by redesignating section 6166 as section 6166A and by inserting after section 6165 the following new section: “SEC. 6166. ALTERNATE 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 general.— 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 65 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) Limitation.— The 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 installments.— If 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 90 STAT. 18635 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. “(4) Eligibility for election.— No election may be made under this section by the executor of the estate of any decedent if an election under section 6166A applies with respect to the estate of such decedent, “(b) Definitions and Special Rules.— “(1) Interest in closely help business.— For 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 15 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 15 or fewer shareholder’s. “(2) Rules for applying paragraph (1).— For purposes of paragraph (1)— “(A) Time for testing.— Determinations shall be made as of the time immediately before the decedent’s death. “(B) Certain interests held by husband and wife.— Stock 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. “(C) Indirect ownership.— Property owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. For purposes of the preceding sentence, a person shall be treated as a beneficiary of any trust only if such person has a present interest-in the trust, “(3) Farmhouses and certain other structures taken into account.— For purposes of the 65-percent requirement of subsection (a)(1), an interest in a closely held business which is the business of farming includes an interest in residential buildings and related improvements on the farm which are occupied on a regular basis by the owner or lessee of the farm or by persons employed by such owner or lessee for purposes of operating or maintaining the farm. “(4) Value.— For purposes of this section, value shall be value determined for purposes of chapter 11 (relating to estate tax). “(5) Closely held business amount.— For purposes of this section, the term ‘closely held business amount’ means the value of 90 STAT. 1864the interest in a closely held business which qualifies under subsection (a)(1). “(6) Adjusted gross estate.— For purposes of this section, the term, ‘adjusted gross estate’ means the value of the gross estate reduced by the sum of the amounts allowable as a deduction under section 2053 or 2054. Such sum shall be determined on the basis of the facts and circumstances in existence on the date (including extensions) for filing the return of tax imposed by section 2001 (or, if earlier, the date, on which such return is filed). “(c) Special Rule for Interests in 2 or More Closely Held Businesses.— For purposes of this section, interests in 2 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 20 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 20-percent requirement of the preceding sentence, an interest in a closely held business which represents the surviving spouse’s interest in property held by the decedent and the surviving spouse as community property or as joint tenants, tenants by the entirety, or tenants in common shall be treated as having been included in determining the value of the decedent’s gross estate. “(d) Election.— Any election under subsection (a) shall be made not later than the time prescribed by section 6075(a) for filing the return of tax imposed by section 2001 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe. If an election under subsection (a) is made, the provisions of this subtitle shall apply as though the Secretary were extending the time for payment of the tax. “(e) 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 (a)(2)) be prorated to the installments payable under subsection (a). 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. 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. “(f) Time for Payment of Interest.— If the time for payment of any amount of tax has been extended under this section— “(1) Interest for first 5 years.— Interest payable under section 6601 of any unpaid portion of such amount attributable to the first 5 years after the date prescribed by section 6151(a) for payment of the tax shall be paid annually. “(2) Interest for periods after first a tears.— Interest payable under section 6601 on any unpaid portion of such amount attributable to any period after the 5-year period referred to in paragraph (1) shall be paid annually at the same time as, and as a part of, each installment payment of the tax. “(3) Interest in the case of certain deficiencies.— In the case of a deficiency to which subsection (e) applies which is assessed after the close of the 5-year period referred to in paragraph (1), interest attributable to such 5-year period, and interest 90 STAT. 1865assigned under paragraph (2) to any installment the date for payment of which has arrived on or before the date of the assessment of the deficiency, shall be paid upon notice and demand from the Secretary. “(4) Selection of shorter period.— If the executor has selected a period shorter than 5 years under subsection (a)(3), such shorter period shall be substituted for 5 years in paragraphs (1), (2), and (3) of this subsection. “(g) Acceleration of Payment.— “(1) Disposition of interest; withdrawal of funds from business.— “(A) If— “(i) one-third or more in value of an interest in a closely held business which qualifies under subsection (a)(1) is distributed, sold, exchanged, or otherwise disposed of, or “(ii) aggregate withdrawals of money and other property from the trade or business, an interest in which qualifies under subsection (a)(1), made with respect to such interest, equal or exceed one-third of the value of such trade or business, then the extension of time for payment of tax provided in subsection (a) shall cease to apply, and any unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary. “(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 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, and “(ii) subparagraph (A)(ii) 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. This subparagraph shall apply only if, on or before the date prescribed by subsection (a)(3) for the payment of the first, installment which becomes due after the date of the distribution (or, if earlier, on or before the day which is 1 year 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)(i) 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 subparagraph (A)(i) as an interest qualifying under subsection (a)(1). “(D) Subparagraph (A)(i) does not apply to a transfer of property of the decedent to a person entitled by reason of the decedent’s death to receive such property under 90 STAT. 1866the decedent’s will, the applicable law of descent and distribution, or a trust created by the decedent. “(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 ending on or after the due date for the first installment, 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 deductions 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 tax imposed by section 2001 (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. “(h) Election in Case of Certain Deficiencies.— “(1) In general.— If— “(A) a deficiency in the tax imposed by section 2001 is assessed, “(B) the estate qualifies under subsection (a)(1), and “(C) the executor has not made an election under 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. “(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 for the payment of the deficiency, and shall he made in such manner as the Secretary 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 (a)(2)) be prorated to the installments which would have been due i f an election had been timely made under subsection (a) 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 90 STAT. 1867for 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. “(i) Regulations.— The Secretary shall prescribe such regulations as may be necessary to the application of this section. “(j) Cross References.— “(1) Security.— “For authority of the Secretary to require security in the case of an extension under this section, see section 6165. “(2) Lien.— “For special lien (in lieu of bond) in the case of an extension under this section, see section 6324A. “(3) Period of limitation.— “For extension of the period of limitation in the case of an extension under this section, see section 6503(d). “(4) Interest.— “For provisions relating to interest on tax payable in installments under this section, see subsection (j) of section 6601.” (b) 4-Percent Interest Rate.— Section 6601 (relating to interest on underpayment, nonpayment, or extension of time for payment of tax) is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection: “(j) 4-Percent Rate on Certain Portion of Estate Tax Extended Under Section 6166.— “(1) In general.— If the time for payment of an amount of tax imposed by chapter 11 is extended as provided in section 6166, interest on the 4-percent portion of such amount shall (in lien of the annual rate provided by subsection (a)) be paid at the rate of 4 percent. For purposes or this subsection, the amount of any deficiency which is prorated to installments payable under section 6166 shall be treated as an amount, of tax payable in installments under such section. “(2) 4-percent portion.— For purposes of this subsection, the term ‘4-percent portion’ means the lesser of— “(A) $345.800 reduced by the amount of the credit allowable under section 2010(a); or “(B) the amount of the tax imposed by chapter 11 which is extended as provided in section 6166. “(3) Treatment of payments.— If the amount of tax imposed by chapter 11 which is extended as provided in section 6166 exceeds the 4-percent portion, any payment of a portion of such amount shall, for purposes of computing interest for periods after such payment, be treated as reducing the 4-percent portion by an amount, which bears the same ratio to the amount of such payment as the amount of the 4-percent portion (determined without. regard to this paragraph) bears to the amount of the tax which is extended as provided in section 6166.” (c) Reasonable Cause Substituted for Undue Hardship in Determining Eligibility for Extensions of Payment of Estate Tax.— (1) Paragraph (2) of section 6161(a) (relating to extension of time for paying estate tax) is amended to read as follows: “(2) Estate tax.— The Secretary may, for reasonable cause, extend the time for payment of— “(A) any part of the amount, determined by the executor as the tax imposed by chapter 11, or “(B) any part of any installment, under section 6166 or 6166A (including any part of a deficiency prorated to any installment under such section), 90 STAT. 1868 for a reasonable period not in excess of 10 years from the date prescribed by section 6151(a) for payment of the tax (or, in the case of an amount referred to in subparagraph (R), if later, not beyond the date which is 12 months after the due date for the last installment).” (2) Subsection (b) of section 6161 (relating to extension of time for payment of certain deficiencies) is amended to read as follows: “(b) Amount Determined as Deficiency.— “(1) Income, gift, and certain other taxes.— Under regulations prescribed by the Secretary, the Secretary may extend the time for the payment of the amount determined as a deficiency of a tax imposed by chapter 1,12, 41, 42, 43, or 44 for a period not to exceed 18 months from the date fixed for the payment of the deficiency, and in exceptional cases, for a further period not to exceed 12 months. An extension under this paragraph may be granted only where it is shown to the satisfaction of the Secretary that payment of a deficiency upon the date fixed for the payment thereof will result in undue hardship to the taxpayer in the case of a tax imposed by chapter 1, 41, 42,43, or 44, or to the donor in the case of a tax imposed by chapter 12. “(2) Estate tax.— Under regulations prescribed by the Secretary, the Secretary may, for reasonable cause, extend the time for the payment of any deficiency of a tax imposed by chapter 11 for a reasonable period not to exceed 4 years from the date otherwise fixed for the payment of the deficiency. “(3) No extension for certain deficiencies.— No extension shall be granted under this subsection for any deficiency if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.” (3) Subsection (b) of section 6163 (relating to extension to prevent undue hardship in case of reversionary or remainder interest) is amended to read as follows: “(b) Extension for Reasonable Cause.— At the expiration of the period of postponement provided for in subsection (a), the Secretary may, for reasonable cause, extend the time for payment for a reasonable period or periods not in excess of 3 years from the expiration of the period of postponement provided in subsection (a).” (4) Subsection (d) of section 6503 (relating to extensions of time for payment of estate tax) is amended by striking out “section 6166” and inserting in lieu thereof “section 6163. 6166, or 6166A”. (d) Special Lien for Estate Tax Deferred Under Section 6166.— (1) In general.— Subchapter C of chapter 64 (relating to lien for taxes) is amended by inserting after section 6324 the following new section: “SEC. 6324A. SPECIAL LIEN FOR ESTATE TAX DEFERRED UNDER SECTION 6166 OR 6166A. “(a) General Rule.— In the case of any estate with respect to which an election has been made under section 6166 or 6166A, if the executor makes an election under this section (at such time and in such manner as the Secretary shall by regulations prescribe) and files the agreement referred to in subsection (c), the deferred amount (plus any interest, additional amount, addition to tax, assessable penalty, and costs attributable to the deferred amount) shall be a lien in favor of the United States on the section 6166 lien property. “(b) Section 6166 Lien Property.— 90 STAT. 1869 “(1) In general.— For purposes of this section, the term ‘section 6166 lien property’ means interests in real and other property to the extent such interests— “(A) can be expected to survive the deferral period, and “(B) are designated in the agreement referred to in subsection (c). “(2) Maximum value of required property.— The maximum value of the property which the Secretary may require as section 6166 lien property with respect to any estate shall be a value which is not greater than the sum of— “(A) the deferred amount, and “(B) the aggregate interest amount. For purposes of the preceding sentence, the value of any property shall be determined as of the date prescribed by section 6151 (a) for payment of the tax imposed by chapter 11 and shall be determined by taking into account any encumbrance such as a lien under section 6324B. “(3) Partial substitution of bond for lien.— If the value required as section 6166 lien property pursuant to paragraph (2) exceeds the value of the interests in property covered by t he agreement referred to in subsection (c), the Secretary may accept bond in an amount equal to such excess conditioned on the payment of the amount extended in accordance with the terms of such extension. “(c) Agreement.— The agreement referred to in this subsection is a written agreement signed by each person in being who has an interest (whether or not in possession) in any property designated in such agreement— “(1) consenting to the creation of the lien under this section with respect to such property, and “(2) designating a responsible person who shall be the agent for the beneficiaries of the estate and for the persons who have consented to the creation of the lien in dealings with the Secretary on matters arising tinder section 6166 or 6166A or this section. “(d) Special Rules.— “(1) Requirement that lien be filed.— The lien imposed by this section shall not be valid as against any purchaser, holder of a security interest, mechanic’s lien, or judgment lien creditor until notice thereof which meets the requirements of section 6323 (f) has been filed by the Secretary. Such notice shall not be required to be refiled. “(2) Period of lien.— The lien imposed by this section shall arise at the time the executor is discharged from liability under section 2204 (or, if earlier, at the time notice is filed pursuant to paragraph (1)) and shall continue until the liability for the deferred amount is satisfied or becomes unenforceable by reason of lapse of time. “(3) Priorities.— Even though notice of a lien imposed by this section has been filed as provided iu paragraph (1), such lien shall not be valid— “(A) Real property tax and special assessment liens.— To the extent provided in section 6323(b)(6). “(B) Real property subject to a mechanic’s lien for repairs and improvements.— In the case of any real property subject to a lien for repair or improvement, as against a mechanic’s lienor. 90 STAT. 1870 “(C) Real property construction or improvement financing agreement.— As against any security interest set forth in paragraph (3) of section 6323(c)(whether such security interest came into existence before or after tax lien filing). Subparagraphs (B) and (C) shall not apply to any security interest which came into existence after the date on which the Secretary filed notice (in a manner similar to notice filed under section 6323(f)) that payment of the deferred amount has been accelerated under section 6166(g) or 6166A(h). “(4) Lien to be in lieu of section 6324 lien.— If there is a lien under I his section on any property with respect to any estate, there shall not be any lien under section 6324 on such property with respect to the same estate. “(5) Additional lien property required in certain cases.— If at any time the value of the property covered by the agreement is less than the unpaid portion of the deferred amount and the aggregate interest amount, the Secretary may require the addition of property to the agreement (but be may not require under this paragraph that the value of the property covered by the agreement exceed such unpaid portion). If property having the required value is not added to the property covered by the agreement, (or if other security equal to the required value is not furnished) within 90 days after notice and demand therefor by the Secretary, the failure to comply with the preceding sentence shall be treated as an act accelerating payment of the installments under section 6166(g) or 6166a (h). “(6) Lien to be tn lieu of bond.— The Secretary may not require under section 6165 the furnishing of any bond for the payment of any tax to which an agreement which meets the requirements of subsection (e) applies. “(e) Definitions.— For purposes of this section— “(1) Deferred amount.— The term ‘deferred amount’ means the aggregate amount deferred under section 6166 or 6166A (determined as of the date prescribed by section 6151 (a) for payment of the tax imposed by chapter 11). “(2) Aggregate interest amount.— The term ‘aggregate interest amount’ means the aggregate amount of interest, which will be payable, over the deferral period with respect to the deferred amount (determined as of the date prescribed by section 6151 (a) for payment of the tax imposed by chapter 11). “(3) Deferral period.— The term ‘deferral period’ means the period for which the payment of tax is deferred pursuant to the election under section 6166 or 6166A. “(4) Application of definitions in case of deficiencies.— In the case of a deficiency, a separate deferred amount, aggregate interest amount, and deferral period shall be determined as of the due date of the first installment after the deficiency is prorated to installments under section 6166 or 6166 A.” (2) Discharge of executor from personal liability.— Section 2204 (relating to discharge of fiduciary from personal liability) is amended by adding at the end thereof the following new subsection: “(c) Special Lien Under Section 6324A.— For purposes of the second sentence of subsection (a) and the last sentence of subsection (b), an agreement which meets the requirements of section 6324A (relating to special lien for estate tax deferred under section 6166 or 6166A) shall be treated as the furnishing of bond with respect to the 90 STAT. 1871amount for which the time for payment has been extended under section 6166 or 6166A.” (e) Amendments of Section 303.— (1) Extension of period for Distribution.— Paragraph (1) of section 303(b) (relating to distributions in redemption of stock to pay death taxes) is amended by striking out. “or” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B) and inserting in lieu thereof “, or ”, and by adding at the end thereof the following new subparagraph: “(C) If an election has been made under section 6166 or 6166A and if the time, prescribed by this subparagraph expires at a later date than the time prescribed by subparagraph (B) of this paragraph, within the time determined under section 6166 or 6166A for the payment of the installments.” (2) Relationship of stock to decedent’s estate.— (A) Subparagraph (A) of section 303(b)(2) is amended to read as follows “(A) In general.— Subsection (a) shall apply to a distribution by a corporation only if the value (for Federal estate tax purposes) of all of the stock of such corporation which is included in determining the value of the decedent’s gross estate exceeds 50 percent of the excess of— “(i) the value of the gross estate of such decedent, over “(ii) the sum of the amounts allowable as a deduction under section 2053 or 2054.” : (B) The first, sentence of subparagraph (B) of section 303 (b)(2) is amended by striking out “the 35 percent and 50 percent requirements’-and inserting in lieu thereof “the 50 percent requirement”. (3) Relationship of shareholder to estate tax.— Subsection (b) of section 303 is amended by adding at the end thereof the following new paragraphs: “(3) Relationship of shareholder to estate tax.— Subsection (a) shall apply to a distribution by a corporation only to the extent, that the interest of the shareholder is reduced directly (or through a binding obligation to contribute) by any payment of an amount described in paragraph (1) or (2) of subsection (a). “(4) Additional requirements for distributions made more than 4 years after decedent’s death.— In the case of amounts distributed more than 4 years after the date of the decedent’s death, subsection (a) shall apply to a distribution by a corporation only to t he extent of the lesser of— “(A) the aggregate of the amounts referred to in paragraph (1) or (2) of subsection (a) which remained unpaid immediately before the distribution, or “(B) the aggregate of the amounts referred to in paragraph (1) or (2) of subsection (a) which are paid during the 1 year period beginning on the date of such distribution.” (4) Stock with substituted basis.— Subsection (c) of section 303 (relating to stock with substituted basis) is amended by striking out “limitation specified in subsection (b)(1)” and inserting in lieu thereof “Imitations specified in subsection (b)”. (f) Technical, Clerical, and Conforming Changes.— (1) The table of sections for subchapter C of chapter 64 is amended by inserting after the item relating to section 6324 the following new item: 90 STAT. 1872 “Sec. 6324A. Special lien for estate tax deferred wider section 6166 or 6166A.” (2) Section 7403(a) (relating to action to enforce lien or to subject property to payment of tax) is amended by adding at the end thereof the following new sentence: “For purposes of the preceding sentence, any acceleration of payment under section 6166 (g) or 6166A(h) shall be treated as a neglect to pay tax.” (3) Paragraph (2) of section 2011(c) (relating to credit for State death taxes) is amended by striking out “section 6161” and inserting in lieu thereof “section 6161, 6166 or 6166A”. (4) The last sentence of section 2204(b) is amended by striking out “has not been extended under” and inserting in lieu thereof “has been extended under”. (5) The table of sections for subchapter B of chapter 62 is amended by striking out the item relating to section 6166 and inserting in lieu thereof the following: “Sec. 6166. Alternate extension of time for payment of estate tax where estate consists largely of interest in closely held business. “Sec. 6166A. Extension of time for payment of estate tax where estate tax consists largely of interest in closely held business.”. (6) Subsections (a) and (b) of section 2204 (relating to discharge of fiduciary from personal liability) are as amended by striking out “or 6166” and inserting in lieu thereof “6166 or 6166A” (g) Effective Date.— The amendments made by this section shall apply to the estates of decedents dying after December 31, 1976.