Inheriting a Business Just Got Harder Business Week (04/28/03) Vol. 17, No. 5 p.108; McNamee, Mike
The Internal Revenue Service (IRS) has become much stricter in its enforcement of payments through Section 6166 plans, which provide financing to heirs of family businesses. The special financing allows heirs of small-business owners to borrow up to 55 percent of the value of the business, pay only 2 percent interest for five years, and in the past never required security, but the IRS says that many heirs were taking advantage of the plan. According to a Treasury Department report, 93 percent of the $1.4 billion in outstanding installment plans under Section 6166 had no security, and 439 estates had defaulted on their loans. As a result, the IRS is now requiring heirs of small businesses to provide security for the loans, a move which not only makes the loans less advantageous for borrowers, but could cause increasing problems for estate planners. In addition to seriously considering who will inherit their business and making an estate inheritance plan, experts advise small-business owners to only consider using Section 6166 financing as a last resort.