Section 6166 estate tax deferral is a provision that allows the executor of an estate holding a closely held business to elect to pay federal estate tax attributable to that business interest in installments over up to 14 years, rather than all at once. To qualify, the value of the closely held business must exceed a specified percentage of the adjusted gross estate, and the business must meet ownership and active trade or business tests. Section 6166 can significantly ease liquidity pressure on estates that are business-rich but cash-poor, helping avoid forced sales of operating companies at unfavorable times. Interest is charged on deferred tax amounts, and strict compliance with payment schedules is required to maintain the election.

Estate planners discuss Section 6166 estate tax deferral with owners of closely held businesses as part of succession and liquidity planning. They evaluate whether the business is likely to meet qualification tests and how deferral might interact with other liquidity sources, such as life insurance. Advisors recommending life insurance often position it as a way to reduce or eliminate the need for 6166 elections, or as a backup if the business fails to qualify. After a business owner's death, CPAs and attorneys analyze whether to elect 6166, model installment payments and interest, and coordinate with heirs on cash flow planning. Understanding Section 6166 estate tax deferral helps advisors design strategies that protect family businesses while managing long-term tax obligations.