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150-118.010(7)


Published: 2015

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DEPARTMENT OF REVENUE




 




DIVISION 118
INHERITANCE TAX
150-118.NOTE
Natural Resource Property Inheritance
Tax Refund
(1) Application for refund of inheritance
tax authorized by 2010 Oregon Laws, chapter 107 must be made on a form prescribed
by the department.
(2) Refund applications must
be postmarked by the later of the following:
(a) December 31, 2010; or
(b) The expiration of the
statute of limitations period described in ORS 118.227.
Stat. Auth.: ORS 305.100 & 2010
OL Ch.107
Stats. Implemented: 2010
OL Ch. 107
Hist.: REV 6-2010(Temp),
f. & cert. ef. 5-7-10 thru 9-30-10; REV 8-2010, f. 7-23-10, cert. ef. 7-31-10
150-118.005
Definitions
The term "intangible personal property"
includes but is not limited to stocks, bonds, notes, currency, bank deposits, accounts
receivable, patents, trademarks, copyrights, royalties, goodwill, partnership interests,
limited liability interests, life insurance policies, annuity contracts, brokerage
accounts, and other choices in action.
Stat. Auth: ORS 305.100
Stats. Implemented: ORS 118.010–118.300
& 314.364
Hist.: REV 6-2012, f. 7-20-12,
cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.010
Deductions Allowed in Determining
Estate Tax or Fiduciary Income Tax
This rule applies to estates of decedents
who die on or after January 1, 2012.
(1) An estate may claim deductions
allowable under sections 2053 or 2054 of the Internal Revenue Code (IRC) for either
estate tax purposes or fiduciary income tax purposes, but not both. The executor
of an estate may make different elections for federal and Oregon purposes.
(2) If deductions are claimed
against fiduciary income, the executor must include with the return a statement
that the deductions are not being claimed for estate tax purposes.
Example 1: The executor of Estate A
elects to deduct $19,500 of expenses in determining the estate’s federal income
tax. For Oregon, the executor elects to claim the deduction in determining estate
tax. The amount deducted for federal purposes is not allowed for Oregon fiduciary
income tax purposes.
Example 2: The executor
of Estate B elects to deduct $10,000 of expenses in determining the estate’s
federal income tax. The executor elects to claim these deductions in determining
Oregon’s fiduciary income tax. No modification to income is required for Oregon.
A deduction may not be made on the Oregon estate tax return.
Example 3: The executor
of Estate C elects to claim a deduction of $15,000 for federal estate tax purposes.
For Oregon, the executor elects to claim the deduction for fiduciary income tax
purposes. The deduction may not also be made on the Oregon estate tax return if
the election is made by deducting the $15,000 on the Oregon fiduciary income tax
return.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.010
– 118.300 & 314.364
Hist.: REV 6-2012, f. 7-20-12,
cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.010(1)
Imposition of Tax
This rule applies to estates of decedents
who die before January 1, 2012.A tax equal to the state death tax credit allowable
for federal estate tax purposes is imposed. The tax is due in every case even though
the credit may not be claimed on the federal estate tax return, Form 706.
(1) Property within the jurisdiction
of the state includes the following:
(a) Resident Decedent.
(A) Real property situated
in Oregon.
(B) Tangible personal property
situated in Oregon.
(C) Intangible personal property
wheresoever situated.
(b) Nonresident Decedent.
(A) Real property situated
in Oregon.
(B) Tangible personal property
situated in Oregon.
(C) Intangible personal property
situated in Oregon.
NOTE: See ORS 118.010(4)(b) which provides
an exemption as to intangible personal property of nonresident decedents.
(2) The phrase "within the jurisdiction
of the state" connotes extent of power and has a broader meaning than the phrase
"within the state" which denotes locality. Property may be within the jurisdiction
of the state but not physically situated in the state, for example:
(a) Stock of an Oregon corporation
is within the jurisdiction of this state although the certificate may not be within
this state.
(b) A savings account, checking
account, and certificate of deposit in an Oregon bank are within the jurisdiction
of this state although the passbook or certificate may not be within this state.
(c) A promissory note given
by a resident of Oregon is within the jurisdiction of this state although the note
may not be within this state.
(3) The term "intangible
personal property" includes stocks, bonds, notes, currency, bank deposits, accounts
receivable, patents, trademarks, copyrights, royalties, goodwill, partnership interests,
life insurance policies, and other choices in action.
(4) The doctrine of equitable
conversion is recognized in the administration of the Oregon inheritance tax law.
[Publications: Publications referenced
are available from the agency.]
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.010
Hist.: 9-71; 11-73; 9-74;
12-31-77; RD 4-1997, f. 9-12-97 cert. ef. 12-31-97, REV 6-2012, f. 7-20-12, cert.
ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.010(2)
Deductions Allowed on Either the
Inheritance Tax Return or the Fiduciary Income Tax Return
This rule applies to estates of decedents
who die before January 1, 2012. Deductions allowed under sections 2053 or 2054 of
the Internal Revenue Code (IRC) may be claimed on either the Oregon inheritance
tax return (Form IT-1) or the Oregon fiduciary income tax return (Form 41), but
not both. The personal representative of an estate may make different elections
for federal and Oregon returns. If the deductions are claimed on the Oregon Form
41, attach a statement that the deductions are not being claimed on the Oregon Form
IT-1. For federal purposes, those deductions may be taken on either the federal
estate tax return (Form 706) or the federal estate income tax return (Form 1041)
under IRC 642(g).
Example 1: Peter dies in 2004 with
a gross estate of $900,000. The personal representative of the estate elects to
deduct $19,500 of expenses on the federal Form 1041. For Oregon, the personal representative
elects to take the deduction on the Oregon Form IT-1. The amount deducted on the
federal Form 1041 must be added back to income on the Oregon Form 41.
Example 2: Sally dies in
2004 with a gross estate of $950,000. The personal representative of the estate
elects to deduct $10,000 of expenses on the federal Form 1041. The personal representative
does not claim these deductions on the Oregon Form IT-1. The deductions claimed
on the federal Form 1041 flow through to the Oregon Form 41. No modification to
income is required.
Example 3: Mildred dies
in 2004 with a gross estate of $2,000,000. The personal representative of the estate
elects to claim a deduction of $15,000 on the federal Form 706. For Oregon, the
personal representative elects to claim the deduction on the Oregon Form 41. The
election is made by subtracting the deduction from the Oregon return. The deduction
is not allowed on the Oregon Form IT-1 if it was claimed on the Oregon Form 41.
The personal representative must reduce the deductions by $15,000 on the Oregon
Form IT-1.
[ED. NOTE: Forms referenced are available
from the Agency.]
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.010
Hist.: REV 2-2004(Temp),
f. 4-30-04 cert. ef. 5-1-04 thru 9-30-04; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04;
REV 6-2012, f. 7-20-12, cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.010(3)
Apportionment of Tax
This rule applies to estates of decedents
who die before January 1, 2012.
(1) Where property is left in
two or more states by a decedent, the maximum state tax credit allowed against the
federal estate tax is apportioned. The numerator of the apportionment formula is
the value for federal estate tax purposes of the property within the jurisdiction
of this state notwithstanding that some of such property for Oregon inheritance
tax purposes may be exempt, deductible, appraised at different values or considered
in computing a credit. The denominator of the apportionment formula is the value
of the gross estate for federal estate tax purposes.
(2) The executor shall, upon
demand, file a copy of the federal estate tax return and such other information
deemed necessary by the department in the computation of the additional tax. In
case of failure to file such returns as these rules provide, the department shall
compute the tax upon the basis of the best information available.
(3) If the amount of federal
estate tax is increased or decreased subsequently, the pick-up tax imposed upon
such estate shall be changed accordingly. In such case it is the duty of the executor
to notify the department of the changes.
(4) Example of apportionment
of federal credit where decedent leaves property in three states that impose death
taxes: [Example not included. See ED. NOTE.]
[ED. NOTE: Examples referenced are available
from the agency.]
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.010
Hist.: 9-71; 12-19-75, Renumbered;
1-1-77, 12-31-77, Renumbered; TC 19-1979, f. 12-20-79, cert. ef. 12-31-79; TC 8-1980,
f. 11-28-80, cert. ef. 12-31-80; Repealed by RD 4-1997, f. 9-12-97 cert. ef. 12-31-97,
Renumbered from 150-118.100(2); REV 6-2012, f. 7-20-12, cert. ef. 8-1-12; REV 8-2013,
f. & cert. ef. 12-26-13
150-118.010(4)(b)
Reciprocal Exemption of Intangible
Personal Property of Nonresident Decedent
This rule applies to estates of decedents
who die before January 1, 2012. Intangible personal property within the jurisdiction
of the state of Oregon and owned by a nonresident of this state is exempt from inheritance
tax if a like exemption is made by the laws of the state or country of decedent's
residence in favor of residents of this state. There is no such exemption allowed
as to property owned by a deceased resident of a state which does not impose a death
tax. However, if a state has a death tax law which does not impose a tax on intangible
personal property owned by a nonresident of that state, the "like exemption" requirement
of ORS 118.010(4)(b) is satisfied, and Oregon would exempt intangible personal property
owned by a deceased resident of that state. A nonresident is one who at the time
of death had a permanent dwelling place and an official or legal residence outside
the State of Oregon. To have a change of domicile there must be:
(1) Residence in a new place;
(2) Intent to abandon the
old domicile; and
(3) Intent to acquire a new
domicile (196 Or 256).
NOTE: For definition of the term “intangible
personal property,” see OAR 150-118.010(1).
[Publications: Publications referenced
are available from the agency.]
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.010
Hist.: 9-74; 12-19-75; RD
4-1997, f. 9-12-97, cert. ef. 12-31-97, Renumbered from 150-118.060; REV 6-2012,
f. 7-20-12, cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.010(7)

Separate Oregon Elections
This rule applies to estates of decedents
who die before January 1, 2012.
(1) For deaths after December
31, 2001, and before January 1, 2012, the Oregon inheritance tax is computed using
the Internal Revenue Code (IRC) in effect on December 31, 2000. Federal changes
enacted after this date, including the "Economic Growth and Tax Relief Reconciliation
Act of 2001", do not affect the computation of Oregon tax. Oregon allows separate
elections, including but not limited to elections provided by IRC Sections 2031(c),
2032, 2032A, 2033A, 2056 and 2056A that would have been allowed under federal law
in effect as of December 31, 2000, whether or not a federal estate tax return is
filed. The Oregon elections are irrevocable. If a federal estate tax return is not
required with respect to the decedent's death, the Oregon elections must be made
in the same manner as required under the IRC on a return filed with the Oregon Department
of Revenue.
Example 1: The personal representative
may not make a qualified terminal interest property (QTIP) election on the 2004
Oregon Inheritance Tax Return under the following circumstances. Harold dies in
2004 with an estate valued at $950,000. He is survived by his wife, Wanda. They
had provided for a credit shelter trust funded by an amount equal to the unused
federal exclusion amount. The trust is set up to distribute or accumulate income
to someone other than the spouse and allows for discretionary distribution of income
to the surviving spouse. The trust does not qualify for a QTIP election under IRC
2056(b)(7), as in effect as of December 31, 2000.
Example 2: The personal
representative may make a QTIP election on the 2004 Oregon Inheritance Tax Return
under the following circumstances. Winifred dies in 2004 with an estate valued at
$1,500,000. She is survived by her husband, Harvey. They had provided for a credit
shelter trust funded by an amount equal to the unused federal exclusion amount.
The trust provides for all income to be distributed to the surviving spouse and
otherwise qualifies for the federal QTIP election. The personal representative files
a 2004 federal estate tax return without claiming a QTIP election. The personal
representative may file the 2004 Oregon return claiming a QTIP election because
that election would have been allowed under federal law effective on December 31,
2000.
(2) If a QTIP election is taken when
the first spouse dies, the estate of the surviving spouse must include the value
of any property included in the QTIP election provided in IRC 2044. The Oregon and
federal gross estate amount will be different for the surviving spouse's estate
when a separate election is taken for Oregon only.
Example 3: Same situation as example
2. The personal representative claimed an Oregon only QTIP election on Winifred's
Oregon IT-1 return. Harvey dies in 2005. Harvey's estate for Oregon will include
the value of the Oregon only QTIP taken for Winifred per IRC 2044 "Certain property
for which a marital deduction was previously allowed". Harvey's gross estate for
Oregon and for federal will be different because of the Oregon only QTIP election
taken on Winifred's Oregon IT-1 return.
(3) For purposes of the Oregon tax,
the obligations of electing parties, agreements required of persons benefiting from
elections, and the inclusion of property in the gross estate of a surviving beneficiary
are the same as under the IRC.
[Publications: Publications referenced
are available from the agency.]
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.010
Hist.: REV 2-2004(Temp),
f. 4-30-04 cert. ef. 5-1-04 thru 9-30-04; REV 6-2004, f. 7-30-04, cert. ef. 7-31-04;
REV 6-2012, f. 7-20-12, cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.010(8)
Elections
This rule applies to estates of decedents
who die on or after January 1, 2012.
(1) An estate may elect a
larger or smaller amount, percentage or fraction of the qualified terminal interest
property (QTIP) for Oregon tax purposes than was elected for federal estate tax
purposes in order to reduce the Oregon estate tax liability while making full use
of the federal unified credit. In addition to or in lieu of a QTIP the estate may
elect to claim Oregon Special Marital Property (OSMP) to reduce the estate tax liability.
(2) The Oregon and federal
taxable estate amount will be different for the surviving spouse's estate when a
separate QTIP or OSMP election was taken for Oregon. In addition to the value of
property for which a federal QTIP election was made, the value of property for which
an Oregon QTIP or OSMP election was made is includible as part of the Oregon taxable
estate to the extent that the property is subject to Oregon estate tax.
(3) The executor must identify
the assets by schedule, item number, and the fixed amount, percentage or fractional
interest that are included as part of the Oregon QTIP or OSMP election, either on
the return or, if those assets have not been determined when the estate tax return
is filed, on a statement to that effect, prepared when the assets are definitively
identified.
Example 1: W dies in 2012 with a gross
estate of $7,000,000. The decedent established a federal QTIP trust for the benefit
of W’s surviving spouse H, an Oregon resident, in an amount to result in no
federal estate tax. For Oregon, the executor may elect a larger fixed amount, percentage
or fractional interest QTIP or an OSMP. To achieve zero Oregon estate tax, the Oregon
QTIP or OSMP election will be the difference between the federal exemption amount
and the Oregon exemption amount. H was an Oregon resident at the time of H’s
death. Upon H’s death, the assets remaining in the Oregon QTIP or OSMP trust
must be included in H’s gross estate.
(4) The amount to be included in the
estate on the death of a surviving spouse is limited to trust property that is subject
to Oregon estate tax. If a QTIP or OSMP election was taken when the first spouse
dies, the property that is required to be included in the estate of the surviving
spouse is dependent upon the residency status of the surviving spouse. If a resident
decedent, the gross estate of a surviving spouse must include the value of any property
included in the QTIP or OSMP election. If a nonresident decedent, the gross estate
of a surviving spouse must include the value of any property included in the QTIP
or OSMP election to the extent that the property consists of real property located
in Oregon or tangible personal property located in Oregon.
Example 2: Same facts as Example 1,
except H was not an Oregon resident at the time of H’s death. The Oregon estate
must include the value of any real property located in Oregon and any tangible personal
property located in Oregon remaining in the trust; intangible property is excluded
from the estate.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.010–118.300
& 314.364
Hist.: REV 6-2012, f. 7-20-12,
cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.100(1)
Due Dates and Extensions of Time
to File
This rule applies to estates of decedents
who die on or after January 1, 2012.
(1) An estate return shall
be filed and the tax shall be paid to the Department of Revenue on the date the
federal estate tax is payable or, if no federal estate tax return is required, no
later than nine months following the date of death of the decedent. An estate tax
return is due the day of the ninth calendar month after the decedent's death numerically
corresponding to the day of the calendar month on which death occurred, except that,
if there is no numerically corresponding day in such ninth month, the last day of
the ninth month is the due date. For example, if the decedent dies on July 31, the
estate tax return and tax payment must be made on or before April 30 of the next
year.
(2) When the due date falls
on a Saturday, Sunday, or a legal holiday, the due date for filing the return is
the next succeeding day that is not Saturday, Sunday or a legal holiday. For this
purpose, “legal holiday” means a holiday recognized statewide in Oregon
or a holiday recognized in the District of Columbia.
(3) The department may grant
an extension of time to file an estate tax return, generally not to exceed six months.
If an estate has been granted an extension of time to file a federal estate tax
return, the department will accept that as an approved extension to file the Oregon
estate tax return. The executor must submit a copy of the federal extension request
with the Oregon return when filed. If the estate does not need a federal extension,
the executor may request an extension for Oregon only by submitting a federal extension
form to the department on or before the due date of the Oregon estate tax return
and writing “Oregon Only” on the top of the federal form.
(4) If the Internal Revenue
Service denies the extension request, but grants a period of time from the date
of denial in which to file the federal return without imposition of delinquency
charges, the department will not impose penalties for late filing if the Oregon
return is received by the department within one month from the Internal Revenue
Service’s date by which the federal return must be filed with no imposition
of delinquency charges. The executor must submit a copy of the federal extension
request denial with the Oregon return when filed.
(5) An extension of time
to file, without an approved extension of time to pay, does not relieve the estate
from the five percent penalty for failure to pay the tax on or before the original
due date and interest accrues during the extension period. See OAR 150-118.260 for
information regarding interest and penalty.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.100
Hist.: 12-19-75; 12-31-77,
Renumbered; TC 9-1978, f. 12-5-78, cert. ef. 12-31-78; RD 4-1997, f. 9-12-97 cert.
ef. 12-31-97, Renumbered from 150-118.110(3); REV 6-2012, f. 7-20-12, cert. ef.
8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.100(6)
Property Values and Appraisals
This rule applies to estates of decedents
who die on or after January 1, 2012.
(1) The fair market value
of an estate’s property must be determined as of the date of death or six
months following the date of death if the alternate valuation method is elected.
The property value reported on the estate tax return must be substantiated. The
executor is required to explain how the value was determined and must attach copies
of any appraisals used to value property included on the return. If there was no
appraisal, the executor must attach a statement to the return explaining how the
value was determined. If the determination of value is based on a county property
tax statement, the determination of value must be supported by other evidence of
value.
(2) A fee appraisal represents
both common and best practice for determination of the value for most real and personal
property but may not always be necessary. For example, where an Oregon Special Marital
Property election has been made, the value of the asset(s) included within the election
may not have an impact upon the estate tax.
Stat. Auth.: ORS 305.100 & 118.140
Stats. Implemented: ORS 118.140
Hist.: REV 6-2012, f. 7-20-12,
cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.140
Estate Tax Credit for Natural Resource
Property
Part I of this rule applies to estates
of decedents who die on or after January 1, 2012. For the user’s convenience,
Part II of the rule contains provisions applicable to estates of decedents who die
before January 1, 2012.
Part I (applies to estates
of decedents who die on or after January 1, 2012)
(1) Definitions. The following definitions
apply for purposes of ORS 118.140 and Part I of this rule:
(a) “Active Management”
is defined by Internal Revenue Code (IRC) Section 2032A(e)(12) to mean the making
of the management decisions of a business (other than the daily operating decisions).
(b) “Ancestor”
means a person from whom the decedent is directly descended, such as a parent, grandparent,
or great-grandparent. The term does not include aunts, uncles, or cousins.
(c) “Cash equivalents”
means accounts receivable, inventory, marketable securities, capital or sinking
funds, prepaid expenses and other assets that are spent, maintained, used or available
for use, in the operation of a farm business, forestry business, or fishing business.
(d) “Disposition”
means to sell, exchange, transfer, convey, or otherwise dispose of natural resource
property that was used to compute the natural resource property credit, if such
disposition results in the property no longer qualifying for the credit.
(e) “Domestic partner”
means an individual who has entered into a domestic partnership as defined in ORS
106.310. Per the general applicability provision of ORS 106.340 “spouse”
as used in these rules includes domestic partner.
(f) ”Family member”
means a member of the family as defined in IRC section 2032A, and for purposes of
ORS 118.140 includes:
(A) An ancestor of the decedent;
(B) The spouse of the decedent;
(C) A lineal descendant of
the decedent or of the decedent’s spouse;
(D) A lineal descendant of
a parent of the decedent; or
(E) The spouse of any lineal
descendant described in paragraph (C) or (D). For purposes of the preceding sentence,
a legally adopted child of an individual is a lineal descendant of the adoptive
parent(s).
(g) “Lineal descendant”
means a person in a direct line of descent from the decedent, such as a child, grandchild
or great-grandchild.
(h) “Lineal descendant
of a parent of the decedent” means a decedent’s siblings, children and
grandchildren of those siblings, and any other person in a direct line of descent
from the decedent’s siblings.
(2) Material participation
by a Family Member. In order to qualify under ORS 118.140(8), at least one family
member must materially participate in the business after the transfer.
(a) Material participation
is a factual determination, and the types of activities which will support such
a finding will vary. No single factor is determinative.
(b) Actual employment of
the family member on a substantially full-time basis (35 hours a week or more) or
to any lesser extent necessary personally to manage fully the farm or business in
which the real property to be valued under section 2032A is used constitutes material
participation.
(c) Payment of self-employment
tax for employment with respect to the farm business, forestry business or fishing
business is not conclusive as to the presence of material participation, and the
requirement can be met even though no self-employment tax is payable by the family
member with respect to income derived from the business.
(d) As provided by section
2032A of the Internal Revenue Code, active management shall be treated as material
participation.
(e) The rules for determining
material participation are illustrated by the examples found in CFR 20.2032A-3(g).
(f) Examples of active management
decisions that can be used to demonstrate material participation include the following:
inspecting growing crops, animals, forests, or equipment; reviewing and approving
annual crop plans in advance of planting; making a substantial number of the management
decisions of the business operation; approving expenditures for other than nominal
operating expenses in advance of the time the amounts are expended; deciding what
crops to plant or how many cattle to raise; determining what fields to leave fallow;
determining where and when to market crops and other business products; determining
how to finance business operations; and determining what capital expenditures the
trade or business should make.
(3) If a transferee disposes
of property resulting in additional tax as described in ORS 118.140(9)(a), the transferee
must file a report with the department and pay the additional tax. The report may
be made by filing a copy of the form described in ORS 118.140(10), identifying the
asset or assets that no longer qualify for the credit, and including a calculation
of the additional tax as described in ORS 118.140(9)(e). The report and payment
of the tax are due within six months of the disposition. Interest and penalties
under ORS 118.260 apply if the report is not filed and tax is not paid on or before
the due date prescribed in ORS 118.140(9)(e).
Part II (applies to estates of decedents
who die before January 1, 2012) Inheritance Tax Credit for Natural Resource or Commercial
Fishing Property
(4) Definitions. The following definitions
apply for purposes of ORS 118.140 and this rule:
(a) “Active Management”
is defined by Internal Revenue Code (IRC) Section 2032A(e)(12) and means the making
of the management decisions of a business (other than the daily operating decisions).
Treasury Regulations 20.2032A-3(e) through (g) provide additional examples of active
management.
(b) “Adjusted gross
estate” means the value of the gross estate reduced by the sum of the amounts
allowable as a deduction under either IRC sections 2053 or 2054, or both. The amount
is determined on the basis of the facts and circumstances in existence on the date
(including extensions) for filing the return of tax imposed by chapter 118 (or,
if earlier, the date on which the return is filed).
(c) “Cessation of qualified
use” means the natural resource property or fishing business property use
has changed and the property no longer qualifies as natural resource property or
fishing business property.
(d) “Current assets”
means the sum of cash and cash equivalents, accounts receivable, inventory, marketable
securities, prepaid expenses and other assets of the qualified natural resource
business that can be converted to cash within one year. Current assets do not include
assets not used in the qualified natural resource business, long-term assets such
as capital or sinking funds, or personal assets.
(e) “Current liabilities”
means the sum of all money owed to the qualified natural resource business that
is required to be paid within one year.
(f) “Disposition of
property” means to sell, exchange, or otherwise dispose of natural resource
property or fishing business property that was used to compute the natural resource
credit, if such disposition results in the property no longer qualifying for the
credit.
(g) “Domestic partner”
means an individual who has entered into a domestic partnership as defined in the
Oregon Family Fairness Act, ORS 106.300 to 106.340.
(h) “Member of family”
means, with respect to a decedent:
(A) An ancestor of the decedent;
(B) The spouse or domestic
partner of the decedent;
(C) A lineal descendant of
the decedent, of the decedent’s spouse or domestic partner, or of a parent
of the decedent, or
(D) The spouse or domestic
partner of any lineal descendant described in paragraph (C). For purposes of the
preceding sentence, a legally adopted child of an individual is treated as the child
of such individual by blood.
(i) “Working capital”
means current assets less current liabilities.
(j) “Working capital
of a farm, natural resource-based business or fishing business” means working
capital in an amount that represents the funds needed to operate the business annually.
(5) Federal Elections Binding
for Oregon. Because ORS 118.007 ties Oregon inheritance tax law to the Internal
Revenue Code (IRC) as it existed on December 31, 2000, elections that were available
on December 31, 2000, and that are made for federal estate tax purposes are binding
for Oregon inheritance tax purposes unless specifically provided otherwise by statute
or rule. Property that is excluded from the estate due to claiming a marital deduction
under IRC §2056 cannot be included in the Oregon estate in order to claim a tax
credit under this section.
Example 1: Edwina passed away on July
1, 2007; her husband survives her. The value of her gross estate is $8,000,000,
made up entirely of natural resource property. For federal estate tax purposes,
the estate elects a marital deduction of $6,000,000. The unified credit offsets
tax otherwise due on the balance of the estate, $2,000,000, and there is no federal
tax due. For Oregon purposes, the $6,000,000 marital deduction election applies.
In addition, the estate may elect to establish a Special Oregon Marital property
trust as provided in ORS 118.016 to shelter $1,000,000 of the value of the estate
(the difference between the $1,000,000 Oregon taxable estate and the $2,000,000
federal taxable estate). Alternatively, the estate may use any portion of the $2,000,000
in value to claim a natural resource credit against tax imposed on the estate.
(6) Active Management by a Member of
Family. If natural resource property or a commercial fishing business is owned indirectly
by the decedent or a member of the family, the following requirements must be met
to qualify for a credit under ORS 118.140:
(a) At least one member of
the family must engage in active management of the natural resource property or
commercial fishing business after the transfer.
(A) The determination of
whether active management occurs is factual, and the requirement can be met even
though no self-employment tax is payable by the member of the family with respect
to income derived from the farm or other trade or business operation.
(B) Among the farming activities,
various combinations of which constitute active management, are inspecting growing
crops, reviewing and approving annual crop plans in advance of planting, making
a substantial number of the management decisions of the business operation, and
approving expenditures for other than nominal operating expenses in advance of the
time the amounts are expended.
(C) Examples of active management
decisions are what crops to plant or how many cattle to raise, what fields to leave
fallow, where and when to market crops and other business products, how to finance
business operations, and what capital expenditures the trade or business should
make.
(b) An otherwise qualifying
natural resource property or commercial fishing business qualifies for the credit
without active management if it is the subject of a net cash lease or percentage
lease from the decedent or a member of the decedent’s family.
(c) The property also qualifies
for the credit if it is held in trust for a member of the family or if the property
is transferred directly to a member of the family.
(d) If an indirect interest
is held in trust for a member of the family, it qualifies as long as a member of
the family is engaged in the active management of the business.
(e) The trustee does not
have to be engaged in active management if these requirements are met.
(7) Prior Use Requirement.
(a) An estate that otherwise
qualifies for the commercial fishing business property credit is not required to
meet the aggregate use period of five out of eight years ending on the date of the
decedent’s death.
(b) Active management of
the natural resource property is not a requirement prior to death.
Example 2: Kelly died on April 3, 2007.
Kelly owned and operated Kelly’s Fishing Boat business starting in February
2005. The estate files the tax return with the department on June 17, 2008, claiming
the commercial fishing business credit, and pays the inheritance tax due. The estate
may claim the commercial fishing business credit providing all other requirements
to qualify for the credit are met.
(8) Future Use Requirement. In order
for the estate to meet the requirements of ORS 118.140(7)(a) the following apply.
(a) Cash and like cash assets
that are included in the credit calculation as working capital must be spent on
the operation of the business either during the year of death or any of the eight
calendar years following the decedent’s death. Current assets remaining unspent
on January 1 of the ninth calendar year following the decedent’s death are
subject to recapture of tax under ORS 118.140(7)(a).
(b) Payment of federal estate
taxes or state inheritance taxes is not considered to be an expense incurred in
operation of the natural resource business. Thus, use of cash or other assets to
pay those taxes results in recapture of the credit to the extent the cash or asset
was used as the basis for the credit.
Example 3: The Smith estate claimed
a credit in 2007 based on farming assets worth $1,000,000. In 2009, the estate sold
a combine for $100,000 to pay additional federal estate tax resulting from an audit.
Sale of the combine results in recapture of the tax credit because the combine was
not used in the farming business for 5 of the 8 years following the decedent’s
death.
(9) Claiming a Partial Credit. In determining
whether the value of the credit property is at least 50 percent of the total estate,
all of the eligible property must be considered, regardless of an election to claim
only a partial credit under ORS 118.140(2)(b)(C).
(10) Working Capital. The
determination of whether an amount qualifies as “working capital of a farm,
natural resource-based business or fishing business” is based on the facts
and circumstances existing at the decedent’s death. However, the department
will presume that working capital that does not exceed the highest amount of working
capital present at any time during the five years prior to the year of the date
of death qualifies as “working capital of a farm, natural resource-based business
or fishing business.” This presumption may be overcome by the facts in a particular
case, including, but not limited to, the growth rate of the business, the length
of the business cycle or the proximity of the date of death to the harvest date.
(11) Interest and Penalty.
The department will not charge penalty or interest if an estate claims a natural
resource property or commercial fishing business property credit or if the estate
is directly affected by the changes made to ORS 118.140 by chapter 28, Oregon Laws
2008 and the return is filed and tax is paid before September 1, 2008. This provision
applies to estates of decedents dying on or after January 1, 2007, and before December
1, 2007.
Example 4: John died on June 23, 2007.
The regular due date of the inheritance tax return is March 23, 2008. The estate
files the return with the department on August 29, 2008, claiming the natural resource
credit, and pays the inheritance tax due. Because the return is filed and the tax
is paid before September 1, 2008, the interest and penalty which would otherwise
result from late filing and late payment is cancelled.
(12) Disposition or Disqualified Property.
Upon the disposition or cessation of use of natural resource property or fishing
business property for which the estate claimed a natural resource credit, additional
inheritance tax becomes due. The additional inheritance tax is due and payable within
six months after the date of the disposition or cessation of use occurs and must
be reported on a form prescribed by the department.
(13) Interest and penalties
under ORS 118.260 apply for a failure to file the return or failure to pay the tax
on or before the due date prescribed in section (9).
Stat. Auth.: ORS 305.100 & 118.140
Stats. Implemented: ORS 118.140
Hist.: REV 4-2008(Temp),
f. & cert. ef. 5-23-08 thru 11-17-08; REV 13-2008, f. & cert. ef. 11-3-08;
REV 8-2010, f. 7-23-10, cert. ef. 7-31-10; REV 6-2012, f. 7-20-12, cert. ef. 8-1-12;
REV 8-2013, f. & cert. ef. 12-26-13
150-118.160
Filing Requirements for Estate Tax
Returns
(1) If the estate is required to file
a federal estate tax return, the executor must include a complete copy of the federal
return, schedules, and supporting documents with the Oregon estate tax return.
(2) If the estate is not
required to file a federal estate tax return, the executor must prepare and include
with the Oregon estate tax return the federal schedules and supporting documents
that would have been required to be filed if the estate had been required to file
a federal estate tax return.
Stat. Auth.: ORS 305.100 & 118.140
Stats. Implemented: ORS 118.140
Hist.: REV 6-2012, f. 7-20-12,
cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.160-(B)
Inheritance Tax Return; Extension
of Time to File
(1) This rule applies to estates of
decedents who die on or after January 1, 2003 and before January 1, 2012.
(2) The executor shall, not
more than nine months after the date of the decedent's death, file with the department
an inheritance tax return, Form IT-1. A complete copy of the federal estate tax
return and schedules must be filed with the Oregon Form IT-1. If the estate is not
required to file a federal estate tax return, the executor must prepare a federal
estate tax return and schedules reflecting federal estate tax law in effect December
31, 2000 and file that return and schedules with the Oregon inheritance tax return.
(3) If the executor cannot
file a return within nine months, the department may allow additional time, usually
not to exceed six months, to file the return. A copy of the federal extension request
must be attached to the front of the Oregon return when filed and will serve as
evidence of a granted extension by the department.
(4) If the Internal Revenue
Service denies the extension request, but grants a period of time from the date
of denial in which to file the federal return without imposition of delinquency
charges, the department will not impose delinquency charges if the Oregon return
is received by the department within one month from the last date on which the Internal
Revenue Service would accept the federal return without imposition of delinquency
charges. A copy of the denied extension request must be attached to the front of
the Oregon return at the time of filing.
(5) An extension of time
to file does not relieve the estate from the five percent penalty for failure to
pay the tax on or before the original due date. Interest accrues during the extension
period.
[Publications: Publications referenced
are available from the agency.]
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.160
Hist.: TC 9-1978, f. 12-5-78,
cert. ef. 12-31-78, Renumbered from 150-188.160(2); RD 15-1987, f. 12-10-87 cert.
ef. 12-31-87; RD 4-1997, f. 9-12-97, cert. ef. 12-31-97; REV 1-2010(Temp), f. &
cert. ef. 2-19-10 thru 7-31-10; REV 8-2010, f. 7-23-10, cert. ef. 7-31-10; REV 6-2012,
f. 7-20-12, cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.171
Procedure for Determination
(1) The following sections of ORS Chapter
305 relate to determination of taxes and appeals under Chapter 118, except where
the context requires otherwise.
(a) Penalty and interest
waivers, 305.145
(b) Audit of returns, 305.265;
(c) Determination of deficiencies,
305.265;
(d) Assessments, 305.265;
(e) Claims for refund, 305.270;
(f) Conferences, 305.265
and 305.270;
(g) Appeals to Director,
305.275 and 305.280;
(h) Appeals to Tax Court,
305.515 and 305.560.
(2) A claim for refund shall
be by letter or an amended return; however, the department may require an amended
return. A tax paid before the due date is considered as having been paid on the
due date for purposes of determining whether the claim for refund was filed within
three years from the payment of the tax.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.171
Hist.: 12-31-77; REV 6-2012,
f. 7-20-12, cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.225
Extension of Time to Pay Tax
(1) An executor may request an extension
of time to pay the estate tax. The extension request must be in writing and submitted
to the department by the date the estate return is due, including extensions of
time to file, or 30 days from the date shown on a notice of deficiency. Collateral
determined acceptable by the department must be secured for payment of the estate
tax. An extension to pay tax does not eliminate penalties for late filing of a return,
and interest continues to accrue on unpaid tax at the rate provided in OAR 150-305.220(1).
See OAR 150-118.260.
(a) If a federal extension
of time to pay has been obtained and acceptable collateral is secured for payment
of the Oregon estate tax, the department will grant an extension to pay the Oregon
estate tax for the same period of time as an approved federal extension. The executor
must submit the Oregon extension request in writing and the estate must secure acceptable
collateral for payment of the Oregon estate tax. A copy of the accepted federal
extension must be submitted with the Oregon return.
(b) If reasonable cause exists
and acceptable collateral is provided to the department, the department may grant
an extension of time for payment of estate tax for up to 14 years, or, in the case
of an estate tax deficiency, for a period of up to four years. If a federal extension
of time to pay federal estate tax has been granted, the department may extend additional
time for the payment of Oregon estate tax for up to 14 years if reasonable cause
exists and collateral acceptable to the department is provided.
(2) In general, reasonable
cause exists if:
(a) The estate can pay the
tax only by disposing of property for less than market value or by borrowing money
at a rate in excess of the mortgage money market (on terms that would inflict loss
on the estate), or
(b) The gross taxable estate
includes a beneficial interest in one or more closely held businesses whose value
exceeds either 35 percent of the gross taxable estate or 50 percent of the net taxable
estate. For purposes of this rule:
(A) “Interest in a
closely held business” means, as determined immediately before the decedent’s
death, an interest that was:
(i) An interest as a proprietor
in a trade or business carried on as a proprietorship;
(ii) An interest as a partner
in a partnership carrying on a trade or business, if the gross taxable estate includes
20 percent or more of the total capital interest in that partnership, or the partnership
had 15 or fewer partners;
(iii) Stock in a corporation
carrying on a trade or business, if 20 percent or more of the voting stock of such
corporation is included in the gross taxable estate, or such corporation had 15
or fewer shareholders. Stock, or a partnership interest, that is held by a husband
and wife as community property or as joint tenants, tenants by the entirety, or
tenants in common, is treated as owned by one shareholder or one partner, whichever
is applicable.
(B) “Trade or business”
does not include an investment or holding company;
(C) An extension only applies
to the portion of tax attributable to the closely held business. To determine the
portion of tax attributable to the closely held business, divide the value of the
interest in the closely held business by the taxable estate amount, and multiply
that ratio by the computed net tax.
Example 1: A’s estate assets
included a retail store valued at $900,000 that had been operated by the decedent.
Listed securities, cash, a family residence and miscellaneous personal effects made
up the balance. The taxable estate was $1,300,000. The department may grant an extension
for the payment of tax on the portion attributable to the value of the store; i.e.
$900,000 divided by $1,300,000 multiplied by tax owed.
Example 2: B’s taxable
estate of $1,400,000 included $950,000 of stock in a closely held corporation. The
balance of the property was listed securities and personal effects. The corporation
was a holding company with the majority of corporate assets invested in real estate.
The estate could not show that money could only be borrowed on terms that would
inflict loss upon the estate. The department will not grant an extension of time
to pay the tax.
Example 3: C’s taxable
estate of $2,100,000 included farm land valued at $1,050,000. The balance of the
estate was real property, listed securities, cash and personal effects. The estate
leased the farm land for cash rent, which is considered an investment in real property
and not a trade or business; the department will not grant an extension for payment
of tax.
Example 4: D’s taxable
estate of $1,200,000 included a tree farm valued at $800,000. The farm consisted
of all pre-merchantable timber. The estate demonstrated that the farm could only
be sold at a sacrifice price in a depressed market and that money could only be
borrowed on terms that would inflict loss upon the estate. The department may grant
an extension for payment of the tax that is attributable to the tree farm’s
value of $800,000.
(3) The department generally will accept
the following as collateral for purposes of extending the date for payment of tax:
(a) A first mortgage or trust
deed on real property with a value at least double the amount of the tax paid on
extension;
(b) A surety bond executed
by a corporation licensed to do business in the State of Oregon. The bond must be
at least double the amount of the tax paid on extension and must be renewed every
five years.
(4) Collateral must be received
within 60 days from the date the estate return is due, including extensions of time
to file, or within 60 days from the date the estate return is filed, whichever is
earlier.
(5) The executor must make
payments in at least equal annual installments for the tax paid on extension, plus
accrued interest. The department may cancel an extension of time to pay and collect
the tax plus interest if any installment is not paid on or before its due date.
(6) The department may cancel
an extension of time to pay and collect the tax plus interest if the value of the
interest in a closely held business is reduced by one-third or more through sale,
exchange or other disposition, or through aggregate withdrawals of money or other
property.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.225
Hist.: 12-31-77; TC 9-1978,
f. 12-5-78, cert. ef. 12-31-78; TC 19-1979, f. 12-20-79, cert. ef. 12-31-79; RD
4-1997, f. 9-12-97, cert. ef. 12-31-97; REV 10-2009, f. 12-21-09, cert. ef. 1-1-10;
REV 6-2012, f. 7-20-12, cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.250
Estate Tax Receipt
A receipt issued by the department as
required by ORS 118.250 to an executor, trustee or other payor is not a final determination
of the estate tax liability; the department may determine that an estate owes additional
tax under ORS 118.010.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.250
Hist.: 9-74; 12-31-77; RD
15-1987, f. 12-10-87, cert. ef. 12-31-87; RD 4-1997, f. 9-12-97, cert. ef. 12-31-97;
Renumbered from 150-118.250(1) by REV 6-2012, f. 7-20-12, cert. ef. 8-1-12; Renumbered
from 150-118.250(1), REV 8-2013, f. & cert. ef. 12-26-13
150-118.250(1) [Renumbered to 150-118.250]
150-118.260
Penalties and Interest
(1) Penalties
(a) For purposes of determining
the five percent penalty under ORS 118.260(1) or the 20 percent penalty under ORS
118.260(2), the tax required to be shown on the return is reduced by the amount
of any tax that is paid on or before the due date of the return, excluding extensions.
(b) If an estate fails to
file a return by the due date, including extensions, and also fails to pay the tax
by the due date, only one five percent delinquency penalty will be added.
(c) ORS 305.145 and the rules
implementing that statute apply to penalties imposed under ORS 118.260 and requests
for waiver of penalty. The one-time penalty waiver provision provided by OAR 150-305.145(4)
does not apply to penalties imposed under chapter 118.
(2) Interest on Refunds and
Deficiencies
(a) A refund of an overpayment
of estate tax accrues interest at the rates provided in OAR 150-305.220(2).
(b) A deficiency in tax accrues
interest at the rates provided in OAR 150-305.220(1).
(c) For the estates of decedents
who die on or after January 1, 2012, if an estate has been granted an extension
to pay tax under ORS 118.225, or if a beneficiary has elected to defer payment of
tax under ORS 118.300, interest accrues at the rates provided in OAR 150-305.220(1).
(d) Except as provided in
(2)(c), if the estate tax is not paid within 60 days of assessment, the annual interest
rates provided in OAR 150-305.220(1) are increased by four percentage points pursuant
to ORS 305.222.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.250
Hist.: REV 6-2012, f. 7-20-12,
cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.260(6)
Refund of Excess Payment
This rule applies to estates of decedents
who die before January 1, 2012. Where payment exceeds the amount of tax shown by
the return or as determined by audit of the return, the excess shall be refunded
without application from the taxpayer. The department does not have authority to
pay interest on the refund for interest periods beginning prior to May 31, 1982.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.260(6)
Hist.: TC 10-1978, f. 12-5-78,
cert. ef. 12-31-78; REV 6-2012, f. 7-20-12, cert. ef. 8-1-12; REV 8-2013, f. &
cert. ef. 12-26-13
150-118.265
Application for Determination of
Estate Tax and Discharge from Personal Liability
(1) The executor may apply to the department
for a determination of tax due and discharge from personal liability of estate tax.
(2) The written application
must include the following information:
(a) The name and date of
death of the decedent;
(b) The decedent's Social
Security Number;
(c) If the executor applies
before filing the estate tax return, a copy of the decedent’s will, the decedent’s
trust, or other document indicating the person is authorized to act on behalf of
the estate.
(3) The discharge does not
apply to tax liability resulting from assets of the decedent's estate that are still
in the possession or control of the executor.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.260(6)
Hist.: REV 6-2012, f. 7-20-12,
cert. ef. 8-1-12; REV 8-2013, f. & cert. ef. 12-26-13
150-118.300
Bond for Deferment of Tax
(1) A beneficiary electing to defer
payment of the tax under ORS 118.300 must, within nine months of the decedent’s
death, file with the Director a signed statement indicating that the person has
not come into actual possession or enjoyment of the property.
(a) A beneficiary of real
property, as defined in ORS 111.005(28), is not required to provide a bond.
(b) A beneficiary of personal
property, as defined in ORS 111.005(25), must give a bond to the State of Oregon
in double the amount of the tax, with such sureties as the Director may approve,
conditioned for the payment of the tax and accrued interest at such time and period
as the beneficiary comes into actual possession or enjoyment of the property.
(2) The department will accept
a bond:
(a) In a form approved by
the Director and executed by a company licensed to issue surety insurance by the
Oregon Department of Consumer and Business Services, Insurance Division;
(b) Executed by a corporate
surety, other than a surety company, provided such corporate surety establishes
that it is within its corporate powers to act as surety for another individual,
partnership, association, or corporation; or
(c) Executed by two or more
individual sureties meeting the requirements of subsection (2)(d) that is secured
by a:
(A) A mortgage on real or
personal property;
(B) A certified, cashier's
or treasurer's check drawn on any bank authorized by the State Division of Finance
and Corporate Securities to do business in the State of Oregon;
(C) A United States postal,
bank, or express money order;
(D) Corporate bonds or stocks,
or by bonds issued by the State of Oregon, or by a political subdivision of this
state; or
(E) Any other collateral
acceptable to the Director.
(d) Each surety that executes
a bond under subsection (2)(c) must:
(A) Have property, including
Oregon real property, that is subject to execution and with a current market value
net of all encumbrances that is at least equal to the penalty of the bond;
(B) Agree to not encumber
the secured property while the bond continues in effect;
(C) Annually file an affidavit
with the department as to the adequacy of the security.
(3) A beneficiary must file
a return with the Director within six months of the date the person comes into actual
possession or enjoyment of the property in question.
Stat. Auth.: ORS 305.100
Stats. Implemented: ORS 118.300
Hist.: Eff. 9/71, Amended
12/19/75, 12/31/77; REV 6-2012, f. 7-20-12, cert. ef. 8-1-12; REV 8-2013, f. &
cert. ef. 12-26-13

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