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2. Deduction of Interest Paid on Estate Taxes Deferred
Under Section 6166
A taxpayer may not deduct interest paid or incurred after
entry of a decision, sec. 6512(a), Estate of Bailly v.
Commissioner, 81 T.C. at 954, unless section 7481(d) (discussed
below) applies. The taxpayer in Estate of Bailly v.
Commissioner, supra, elected to pay estate tax in 10 annual
installments under section 6166. We delayed entry of decision in
that case to allow the taxpayer to deduct interest on the tax.
Id. at 958. Section 6512(a) would have prevented the taxpayer
from deducting interest it paid after our decision became final.
In Estate of Bailly v. Commissioner, supra, we said that we were
troubled by the harshness of section 6512(a) with respect to
estate tax cases. We agreed, in the interest of fairness and
justice, to postpone entry of decision until the final
installment of the estate tax liability is due, or paid,
whichever is earlier.
Section 7481(d) was enacted in 1988 in response to Estate of
Bailly v. Commissioner, supra. Technical and Miscellaneous
Revenue Act of 1988, Pub. L. 102-647, sec. 6247, 100 Stat. 3342,
3751-3752. Under section 7481(d), a taxpayer may move to reopen
a case to which an extension of time to pay estate tax under
section 6166 applies to ask the Court to modify the amount of the
estate's deduction for interest. See Rule 262.
B. Contentions of the Parties
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Last modified: May 25, 2011