Assignment Task:
This problem looks primarily at §6161. §6161(a)(1) allows an extension of up to one year within which to pay tax, while §6161(a)(2) allows an extension of up to ten years. (This extension is purely discretionary on the part of the Service. In practice, such extensions are generally granted for only one year at a time.) The extension is available upon a showing of "reasonable cause". Reg. §20.6161-1(a)(1) provides examples of what constitutes reasonable cause. By and large, they all relate to liquidity. Whether or not an estate will qualify is always a question of fact. For purposes of this problem, you may assume that D made sufficient taxable gifts during his lifetime such that his estate is subject to estate tax at his death.
Discussion Questions:
D's estate consists of the following assets: real estate with a value of $9,660,000, notes receivable totaling $2,800,000, stocks and bonds totaling $400,000, and cash in the amount of $100,000. Debts and expenses total $400,000, and estate taxes total $200,000.
a. Will D's estate qualify for an extension to pay the tax under §6161?
b. Suppose that debts, expenses and taxes totaled $450,000?
c. Suppose that the estate was made up entirely of illiquid assets?
d. Suppose that debts, expenses and taxes total $400,000 and a deficiency of $200,000 is subsequently assessed?
e. What if D's estate also reports a remainder interest in a trust created by D's father in the amount of $1,000,000?