Example. The decedent died on January 1, 1959. The executor elects under section 6166 to pay tax in the amount of $100,000 in 10 installments of $10,000. The first installment is due on April 1, 1960. The estate files its income tax returns on a calendar year basis. For its fifth taxable year (calendar year 1963) it has undistributed net income of $6,000. If the prepayment of $6,000 required by section 6166(h)(2)(A), and due on or before April 15, 1964, is paid before the fifth installment (due April 1, 1964), the $6,000 is apportioned equally among installments 5 through 10, leaving $9,000 as the amount due on each of such installments. However, if the prepayment of $6,000 is paid after the fifth installment, it is apportioned equally among installments 6 through 10, leaving $8,800 as the amount due on each of such installments.
$80,000 (withdrawal) ÷ $200,000 (value of trade or business at time of withdrawal) * 100 percent = 40 percent
Immediately following the October withdrawal the remaining portion of the business represents 60 percent of the value of the trade or business in existence at the time of A's death (100 percent less 40 percent withdrawn). The executor is considered as having withdrawn 7.5 percent of the value of the trade or business on December 1, 1958, and B as having withdrawn 3.75 percent of the value thereof at that time, computed as follows:
Executor's withdrawal-
$20,000 (withdrawal) ÷ $160,000 (value of trade or business at time of withdrawal) * 60 percent = 7.5 percent
B's withdrawal-
$10,000 (withdrawal) ÷ $160,000 (value of trade or business at time of withdrawal) * 60 percent = 3.75 percent
Immediately following the December withdrawal the then remaining portion of the business represented 48.75 percent of the value of the trade or business in existence at the time of A's death (100 percent less 40 percent withdrawn by executor in October, 7.5 percent withdrawn by executor in December, and 3.75 percent withdrawn by B in December). It should be noted that while at this point the total withdrawals by the executor and B from the trade or business exceed 50 percent of the value thereof, the aggregate of the withdrawals by the executor were less than 50 percent of the value of the trade or business. Also it should be noted that while the total withdrawals by the executor exceeded 50 percent of the value of A's interest in the trade or business, they did not exceed 50 percent of the value of the entire trade or business. The executor is considered as having withdrawn 4.875 percent of the value of the trade or business on February 1, 1959, computed as follows:
$15,000 (withdrawal) ÷ $150,000 (value of trade or business at time of withdrawal) * 48.75 percent = 4.875 percent
As of February 1, 1959, the total withdrawals from the trade or business made with respect to A's interest therein was 52.375 percent of the value of the trade or business.
1,000 (shares sold) ÷ 8,000 (shares owned) * $400,000 (value of shares owned, as included in gross estate)
Taken together the two sales represented a sale of 50 percent (350,000/700,000) of the interest in the closely held business. Therefore, as of February 1, 1959 (the date of the sale of 1,000 shares of E Corporation), 50 percent or more in value of the interest in the closely held business is considered as distributed, sold, exchanged, or otherwise disposed of.
26 C.F.R. §20.6166A-3