Rental activity as a closely held business.

• Author: Hudson, Boyd D.

Under Sec. 2033, the value of a decedents gross estate includes Lithe value of all property, to the extent of the decedents interest in the property at die time of death. Generally, any estate tax imposed on the value of the decedents estate is due nine months after the date of death.

If one or more of the assets includible in a decedents estate is an interest in a closely held business, the estate may elect to defer payment of the estate tax attributable to the closely held business interest for five years, with only interest being due and payable, the estate would thereafter pay the allocable tax in two or more (but not exceeding 10) equal annual installments. To qualify for such an election, the value of the interest in the closely held business must exceed 35% of the adjusted gross estate under Sec. 6166(a)(1).

Generally, under Sec. 6166 (b)(1), the term "interest in a closely held business" means: [] A proprietorship interest in a trade or business; [] A partnership interest in a trade or business if (a) 20% or more of the total capital interest is includible in determining the gross estate of the decedent, or (b) the partnership had 15 or fewer partners; or [] Stock in a corporation carrying on a trade or business, if 20% of value of stock is includible in the decedent's estate or the corporation had 15 or fewer shareholders.

An interest in a closely held business does not include the value of an interest attributable to passive assets held by the business. A passive asset,, means any asset other than an asset used in carrying on a trade or business under Sec. 6166(b)(9).

The IRS recently ruled in Letter Ruling 9621007 on whether a taxpayer's rental properties were an interest in a closely held business. The decedent actively managed three separate real estate interests. His activities...