INTERNAL REVENUE CODE SECTION 6166: COMMENTS TO TAX COUNSEL FOR THE SENATE FINANCE COMMITTEE

Editors' Synopsis: This Article contains the written comments made to the Tax Counsel for the United States Senate Finance Committee by a Task Force composed of members of the Business Planning Group of the American Bar Association's Real Property, Probate and Trust Section suggesting how section 6166 of the Internal Revenue Code could be improved. The comments conclude that the language and administration of section 6166 are antiquated and no longer achieve the fundamental purpose of the statute, which is to provide estates holding substantial closely held business interests an opportunity to pay estate taxes on an installment basis. The Article illustrates several specific ways section 6166 could be updated to better conform to the realities of modern-day business structures.

PREFACE

Internal Revenue Code section 6166 allows an estate holding a qualified interest in a closely held business to defer the payment of estate tax so that the estate need not hold a "fire sale" to pay estate taxes on the business interest. When the American Jobs Creation Act of 2004' expanded the number of shareholders permitted for S corporations, Elizabeth Crewson Paris, a tax counsel for the Senate Finance Committee, mentioned that she was considering amendments to section 6166 to conform to the increased number of shareholders. When the chair of the Business Planning Group of the Probate and Trust Division of the Real Property, Probate and Trust Law section of the American Bar Association ("RPPT") mentioned concerns with the way the Internal Revenue Service was administering this provision, Ms. Paris invited comments from the Bar on how useful section 6166 is and how it might be changed to make it more useful, consistent with its original purpose.

Consistent with this request, Steven B. Gorin of St. Louis, Missouri, and Stephen Ernest Martin prepared a survey that RPPT publicized to its members. A link to this survey was also emailed to a number of fellows of the American College of Trust and Estate Counsel. Made available to the public at http://www.abanet.Org/rppt/cmtes/pt/c-group/6166survey.html, the survey accumulated the comments of 157 people.

All who responded to the survey were invited to participate in writing comments. Steven B. Gorin exercised principal responsibility, and the other authors are noted in the author's biographical footnote at the beginning of this Article. In addition, Louis A. Mezzullo and Linda B. Hirschson of the RPPT's Committee on Coordination of Government Submissions reviewed the comments.

The following is a version of the comments that were sent to Ms. Paris on July 11, 2005, edited to conform to this Journal's formatting. The comments, as submitted, together with Mr. Gorin's transmittal letter, are available for viewing online at http://www.abanet.org/rppt/cmtes/pt/cgroup/6166survey.html.

I. COMMENTARY HISTORY

The following comments and recommendations represent the individual views of those members of the Real Property, Probate and Trust Law section of the American Bar Association who prepared them and do not necessarily represent the position of the American Bar Association or the Real Property, Probate and Trust Law Section.

The comments were prepared by members of the Business Planning Group of the Probate and Trust Division of the Real Property, Probate and Trust Law section of the American Bar Association. Principal responsibility was exercised by Steven B. Gorin of Thompson Coburn LLP, St. Louis, Missouri, Chair of the Group. Also participating in the preparation of the comments were Benjamin H. Pruett of King & Spalding LLP, Atlanta, Georgia; E. Burke Hinds, Messerli & Kramer PA, Minneapolis, Minnesota; Michael Patiky Miller of Weinberg, Ziff & Miller, PaIo Alto, California; and Don Kozusko of Kozusko, Harris Vetter Wareh LLP, Washington, DC. The comments were reviewed by Louis A. Mezzullo and Linda B. Hirschson of the Probate and Trust Division's Committee on Coordination of Government Submissions.

Although many members of the Business Planning Group of the Real Property, Probate and Trust Law section of the American Bar Association who participated in preparing these comments and recommendations have clients who would be affected by the federal tax principles addressed, or have advised clients on the application of such principles, no such member (or the firm or organization to which such member belongs) has been engaged by a client to make a governmental submission with respect to, or otherwise influence the development or outcome of, the specific subject matter of these comments.

These comments were influenced by the results of a survey to which 157 people responded. The survey was prepared by Steven B. Gorin and by Stephen Ernest Martin of Martin & Eskelson, P.L.L.C., Idaho Falls, Idaho. The survey was publicized to members of the Real Property, Probate and Trust Law section and the American College of Trust and Estate Counsel and was available to the public at http://www.abanet.org/rppt/cmtes/pt/c-group/6166survey.html. All who responded to the survey, including an investment advisor who found the survey searching the Internet regarding § 6166, were invited to participate in the process. Only those listed above chose to participate actively.