Can I defer estate tax payments if my estate includes a family business?

What the Law Says

While 26 U.S.C. § 2001 imposes the federal estate tax and sets its rates, it does not address deferral. Deferral for family businesses is authorized under a separate provision: Internal Revenue Code § 6166. This section allows qualified estates to pay estate tax in installments over up to 15 years if the decedent owned a closely held business that comprises at least 35% of the adjusted gross estate.

To qualify, the business must be an interest in a trade or business carried on as a sole proprietorship or through a partnership, corporation, or other entity — and the decedent must have owned at least 20% of the business (by value or voting power) and materially participated in it for at least 5 of the 8 years before death.

The estate must file Form 706 and elect § 6166 within 2 years after the due date of the return (including extensions). Once approved, the first 5 years require only interest payments; principal payments begin in year 6 and continue annually through year 15.

Importantly, § 2001 itself only establishes the tax: 'A tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.' It does not provide relief mechanisms like deferral.

Statutory Text

A tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.

— 26 U.S.C. § 2001 — Imposition and rate of tax

What to Do

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