In order to qualify under this favorable 15-year extended payout provision, a number of tests must be met. The closely held business interests must comprise 35 percent of the value of the adjusted gross estate. If the closely held business interests are but part of decedent's estate, as is typically the case, then only a portion of the federal estate tax can be extended. The amount that can be extended is the portion of the tax that reflects the ratio of the value of the closely held business interests to the value of all assets. Also, a number of definitional rules must be met as to what constitutes closely held business interests.
Sole proprietorships qualify.
Partnerships and corporate interests meeting certain ownership requirements also qualify. Passive assets, such as rental real estate, generally do not fall within the definition of closely held business interests. Rental real estate can be considered an active business interest under certain circumstances. The decedent's representative must make an election to have this 15-year installment payout provision apply. The applicable Treasury regulations set forth in some detail what information the election notice must contain.