Charles Rubin discusses a recent District Court case, Estate of Donald McNeely, (DC MN 06/12/2014), 113 AFTR 2nd ¶ 2014-930.
If an estate files to extend the due date of its Form 706 estate tax return, it can elect to defer part of the estimated estate tax deferred pursuant to its Code §6166 election. It does not make the election itself until it files the Form 706 (prior to the expiration of the extended due date period).
Essentially, the estate is divided into two parts – the deferred portion and the nondeferred portion. Like any estate that is required to pay estimated estate taxes by the original 9 month due date for the Form 706, the taxes attributable to the nondeferred portion are due with the Form 4768 extension and the deferred taxes are not yet due. What happens if the taxes payable with the extension that are estimated and paid for the nondeferred portion are in excess of the taxes actually attributable to the nondeferred portion, as determined later upon the preparation and filing of the Form 706? Can the estate get a refund of that overpayment when it files the Form 706, or will the excess be applied toward the taxes attributable to the deferred portion and thus not be refundable?
This was the issue before the District Court in the recent case of Estate of Donald McNeely.