Notice 2007-90

VIII. DRAFTING INFORMATION
The principal author of this notice is
Don M. Parkinson of the Office of Division Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities),
although other Treasury and IRS officials participated in its development. For
further information on the provisions
of this notice addressing the calculation
of the amount includible in income under § 409A, contact Stephen Tackney
at (202) 927–9639; for further information on other provisions of this notice,
including the reporting and withholding
provisions contained in this notice, contact Mr. Parkinson at (202) 622–6040 (not
toll-free numbers).

Security Under Section 6166
Elections
Notice 2007–90
PURPOSE
The purpose of this notice is to alert
taxpayers, tax practitioners, executors and
other persons who represent estates, that,
in light of a recent Tax Court decision,
the Internal Revenue Service is changing
its policy and now will determine on a
case-by-case basis whether security will
be required when a qualifying estate elects
under Internal Revenue Code section 6166
to pay all or a part of the estate tax in installments. This notice invites comments
from the public regarding the relevant factors and appropriate standards for determining whether security is deemed to be
necessary (and thus will be required) to
protect the government’s interest in obtaining full payment of the estate tax and
interest thereon when that liability is deferred under section 6166.
BACKGROUND
Under section 6166, an estate that meets
all of the requirements of the statute may
elect to pay the estate tax attributable to the
decedent’s interest in a closely held business in up to 10 equal, annual installments.
The first of those annual payments must
be made by the 5th anniversary of the due
date (determined without regard to any extension) of the estate tax liability that is

November 13, 2007

not deferred under section 6166. An estate qualifies for a section 6166 election
if the value of the decedent’s interest in
the closely held business exceeds 35 percent of the adjusted gross estate, the decedent was a United States citizen or resident at the time of his or her death, and
the estate made the election by attaching a
full and complete notice of election with a
timely filed federal estate tax return. I.R.C.
§ 6166(a) and (d). If the estate qualifies for
the election, the estate pays a reduced rate
of interest on the portion of estate tax deferred under section 6166; that interest is
payable annually during the entire deferral period, and in most instances, interest
only is paid during the first four years of
the deferral period. I.R.C. §§ 6166(f) and
6601(j). The deferred tax is payable in no
more than ten equal annual installments,
beginning on a date that is not more than
five years after the due date of the Federal estate tax return, which is generally
nine months from the date of death. I.R.C.
§§ 6166(a)(1) and (3).
Under section 6324(a), a general federal estate tax lien arises upon the decedent’s date of death and attaches for ten
years to all assets of the gross estate (except those used to pay certain expenses).
This general federal estate tax lien may
not be extended beyond the ten-year period
following the date of death. As a result,
when an estate qualifies and elects under
section 6166 to pay estate tax over a period
of up to 14 years, the government’s interest in the deferred estate tax is secured by
the general federal estate tax lien for only
the first nine years and three months of the
installment payment period. (Although the
lien runs from the date of death, the installment payment period generally runs from
the normal payment due date, nine months
after the date of death, thus reducing the
time the general lien protects the government to nine years and three months). During the final four years and nine months
of the 14-year installment payment period,
the government’s interest is no longer secured by the general estate tax lien. In
most cases, approximately one-half of the
total deferred estate tax still remains to be
paid during that final, unsecured portion of
the deferral period.
Sections 6166(k)(1) and 6165, however, permit the IRS to require a surety
bond (not exceeding double the amount
with respect to which the extension is

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granted) from an estate to ensure payment
of the deferred estate tax to be paid in
installments under section 6166. In lieu of
the requirement to post a surety bond, the
executor may elect to grant the IRS a special extended estate tax lien (in the amount
of the deferred amount plus any interest,
additional amount, addition to tax, assessable penalty, and costs attributable to the
deferred amount) to secure the government’s interest. I.R.C. §§ 6166(k)(2) and
6324A. This special lien does not expire
until the earlier of the date the estate tax
is paid in full or the tax becomes uncollectible. I.R.C. §§ 6324A(d)(2), 6502, and
6503(d).
In March 2000, the Treasury Inspector General for Tax Administration recommended, in report 2000–30–059 “The Internal Revenue Service Can Improve the
Estate Tax Collection Process,” that the
IRS protect the government’s interest in
estate tax deferred under section 6166. In
2002 in response to that report, the IRS
implemented a policy requiring a surety
bond, or in the alternative, a section 6324A
special lien, as a prerequisite to making the
section 6166 election. On April 12, 2007,
in Estate of Roski v. Commissioner, 128
T.C. 113 (2007), the Tax Court held that the
IRS had abused its discretion by requiring
that all estates electing to pay the estate tax
in installments under section 6166 must
provide a bond (or alternatively a special
lien). The court found that it was Congress’s intent that the IRS determine, on a
case-by-case basis, that the government’s
interest is at risk prior to requiring security
from an estate electing to pay the estate tax
in installments under section 6166.
INTERIM PROVISIONS
The Treasury Department and the IRS
are in the process of establishing standards
to be applied on a case-by-case basis in the
future to identify those estates making an
election under section 6166 in which the
government’s interest in the deferred estate tax and the interest thereon is deemed
to be sufficiently at risk to justify the requirement of a bond or special lien. The
Treasury Department and the IRS intend to
issue regulations implementing those standards and related procedures. Until those
regulations are issued, however, the IRS
will evaluate the factors described below
and all other relevant facts to determine on

2007–46 I.R.B.

a case-by-case basis whether, at any time
and from time to time during the deferral
period, the government’s interest in the estate tax deferred under section 6166 and interest thereon is sufficiently at risk to justify the requirement of a bond or special
lien.
In order to determine whether the government’s interest in the deferred tax is
adequately secured up to the amount allowed under sections 6165 and 6324A, the
IRS will consider information contained in
the estate tax return, attachments to the return, information obtained during examination in audited cases, and any other relevant information described in paragraphs
1 through 3 of the discussion of the factors
to be considered. Estates that have filed
returns that do not contain adequate information to make this determination may
be contacted and required to provide additional financial information to the IRS
for purposes of making this determination.
The IRS may terminate an estate’s election for failure to respond to such requests
within a reasonable timeframe. If, after
this individual evaluation and analysis, the
IRS determines there is a sufficient credit
risk regarding the government’s collection
of the estate tax payments deferred under
section 6166 and the interest thereon, the
IRS will notify the estate that it must provide a bond or elect to provide a section
6324A special lien in lieu of a bond. If
the estate then refuses to provide a bond or
a section 6324A special lien, the IRS will
terminate the estate’s section 6166 election. The estate may then seek reconsideration of the termination by the Office
of Appeals and, if the Office of Appeals
upholds the IRS’s determination, the estate then will have the opportunity to petition the Tax Court under section 7479
for a declaratory judgment with regard to
whether its section 6166 election may be
continued. I.R.C. § 7479; Rev. Proc.
2005–33, 2005–1 C.B. 1231.
The factors the IRS will consider in
determining whether deferred installment
payments of estate tax under section 6166
pose a sufficient credit risk to the government to justify the requirement of a bond or
special lien are described below. In making this determination, the IRS will consider all relevant facts and circumstances,
in addition to the factors identified in the
following, non-exclusive list. No single

2007–46 I.R.B.

factor will be determinative, and not all
factors may be relevant to every estate.
1. Duration and stability of the business. This factor considers the nature of
the closely held business on which the estate tax is deferred under section 6166 and
of the assets of that business, the relevant
market factors that will impact the business’s future success, its recent financial
history, and the experience of its management, in an effort to predict the likelihood
of its success and survival through the deferred payment period. Facts relevant to
this factor are likely to appear primarily in
the appraisal and the financial statements
that accompany the estate tax return. Information regarding any outstanding liens,
judgments, or pending or anticipated lawsuits or other claims against the business,
if any, that are not disclosed in that documentation should be provided by the estate with the election. The estate may be
required to furnish such information in response to an inquiry by the IRS.
2. Ability to pay the installments of tax
and interest timely. This factor considers
how the estate expects to be able to make
the annual payments of tax and interest as
due, and the objective likelihood of realizing that expectation. Facts relevant to
this factor may include the nature of the
business’s significant assets and liabilities,
and the business’s cash flow (both historical and anticipated). If not sufficiently disclosed in the documents attached to the estate tax return, the estate should submit relevant information with the election under
section 6166. The estate may be required
to furnish such information in response to
an inquiry by the IRS.
3. Compliance history. This factor
addresses the business’s history regarding
compliance with all federal tax payment
and tax filing requirements, in an effort
to determine whether the business and its
management respect and comply with all
tax requirements on a regular basis. This
factor also addresses the estate’s compliance history with respect to federal tax
payment and filing requirements. The estate may use a sworn affidavit or other probative documents to provide this information.
This notice is applicable to each estate:
(1) that timely elects to pay the estate tax
in installments under section 6166 and that
timely files a return on or after November
13, 2007; (2) whose return was being clas-

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sified, surveyed or audited by the IRS as of
April 12, 2007; or (3) that is currently in
the deferred payment period but that has
not yet provided a bond or special lien if
(a) the general federal estate tax lien will
expire within two years from November
13, 2007 or (b) the IRS reasonably believes
that the government’s interest in collecting
the deferred estate tax and interest thereon
in full is sufficiently at risk to require a
bond or special lien.
REQUEST FOR COMMENTS
The Treasury Department and the IRS
intend to issue regulations regarding the
appropriate standards to be applied by the
IRS in exercising its discretion with regard
to whether a bond or special lien will be
required in order to avoid an IRS termination of an estate’s election under section 6166, and invite interested persons
to submit comments regarding such standards and possible alternatives to a bond
or special lien for providing security under
section 6166.
In particular, comments are requested
with regard to the following issues:
1. What factors, in addition to or in
place of those stated above, should the IRS
use in determining whether to require security from an estate electing to pay the estate tax in installments under section 6166?
2. How often during the section 6166
installment payment period (or on what
occurrences) should the IRS reevaluate
whether the estate poses a sufficient credit
risk to the government’s collection of the
deferred estate tax and related interest to
justify the requirement of a bond or special
lien?
3. What facts evident from a review of
the estate tax return are likely to be reasonably accurate predictors of either a future
default in or full payment of the deferred
tax payments and related interest?
4. What additional financial information should the IRS require from an estate
to assist in making the determination as to
whether the estate poses a sufficient credit
risk to the government with regard to the
deferred estate tax and interest thereon to
justify requiring a bond or special lien?
5. For purposes of sections 6165 and
6166(k), should the IRS define a surety
bond under section 7101 to also include
other forms of security, and, if so, what
other forms of security, such as certain ir-

November 13, 2007

revocable letters of credit from reputable
financial institutions or United States Treasury Bonds, should be so included?
Comments are encouraged to be submitted by January 14, 2008, to: Internal
Revenue Service, CC:PA:LPD:PR (Notice
2007–90), room 5203, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20224.
Submissions may be hand delivered Monday through Friday between the hours of

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8 a.m. and 4 p.m. to: CC:PA:LPD:PR (Notice 2007–90), Courier’s Desk, Internal
Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively,
taxpayers may submit electronic comments directly to the IRS e-mail address:
[email protected].
Please include “Notice 2007–90” in the
subject line of any electronic communication.

1005

DRAFTING INFORMATION
The principal author of this notice
is Laura Urich Daly of the Office of
Associate Chief Counsel (Procedure
and Administration). For further information regarding this notice, contact
Laura Urich Daly at (202) 622–3600 (not
a toll-free call).

2007–46 I.R.B.