Iowa Administrative Code › Agency 701 - Revenue Department › Title X - Inheritance Tax › Chapter 902 - Generation Skipping Transfer Tax › Rule 701-902.3 - Tax Imposed, Tax Due and Tax Returns

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Tax imposed-general
				rule.
Iowa Code section
				450A.2 imposes tax equal to the
				maximum federal credit allowable (5 percent) under
				26 U.S.C. Section
				2604 of the Internal Revenue Code for state
				generation skipping transfer taxes paid on property included in certain
				generation skipping transfers. The tax imposed by Iowa Code section
				450A.2 qualifies as a generation
				skipping transfer tax specified in the federal credit statute. The federal
				credit is not available for every generation skipping transfer taxable under
				26 U.S.C. Section
				2601 of the Internal Revenue Code. The credit
				is available only on those generation skipping transfers occurring at the same
				time as, and as the result of, the death of an individual.
Therefore, a federal generation skipping transfer occurring
				  at the time of a gift of property which is unrelated to the death of an
				  individual is not eligible for the federal credit allowed by Section 2604 of
				  the Internal Revenue Code.
(2)
Tax imposed-limitation.
Iowa Code section 450A.14 imposes a limitation on
				the amount of tax imposed under Iowa Code section
				450A.2. The taxpayer's total
				federal and state generation skipping tax liability cannot be greater than the
				tax payable had chapter 450A not been enacted.
(3)
Tax due-no credit for inheritance
				tax paid.
Any inheritance tax paid on property included in the estate
				of the individual whose death is the event imposing the federal tax is not a
				credit against the generation skipping transfer tax imposed by Iowa Code
				section 450A.2, although the inheritance
				tax is a credit against the Iowa estate tax imposed by Iowa Code chapter 451 on
				this property.
Nor is the inheritance tax paid on the property in a prior
				  estate which is now included in a taxable generation skipping transfer a credit
				  against the tax imposed by Iowa Code section
				  450A.2. Therefore, the tax due
				  is the maximum credit allowable under
				  26 U.S.C. Section
				  2604 of the Internal Revenue Code, subject to
				  the limitation in subrule 88.3(2).
(4)
Duty of the taxpayer.
It
				is the duty of the taxpayer to file the return prescribed by subrule 88.3(5)
				and pay the tax due within the time prescribed by law (taking into
				consideration any extension of time to file and pay). A copy of the federal
				generation skipping transfer tax return must be submitted to the department at
				the time the Iowa return is filed. The taxpayer shall keep books, records and
				accounts as are reasonably necessary to substantiate the amount of the federal
				tax and value of the property included in a generation skipping transfer
				subject to tax, and upon request the taxpayer shall furnish information to the
				department as may be reasonably necessary to enable the department to determine
				the correct tax due. It is the duty of the taxpayer to claim the maximum amount
				of the federal credit allowable on the federal generation skipping transfer tax
				return, subject to the limitation in subrule 88.3(2).
If there is a change in the amount of the maximum federal
				  credit allowable, or the amount allowable under subrule 88.3(2), against the
				  federal tax on a generation skipping transfer (such as a result of a federal
				  audit or in the amount and value of the property included in a generation
				  skipping transfer), the taxpayer has the duty to promptly report the change to
				  the department on an amended return, and pay the tax, or additional tax due,
				  together with any penalty and interest. See Iowa Code section
				  450A.11.
Effective July 1, 1998, there is no longer a requirement for
				  safe deposit boxes to be inventoried and reported to the department prior to
				  the delivery of the assets to the personal representative, transferee, joint
				  owner or beneficiary.
(5)
Form and due date of the return.
The form of the return for
				reporting the generation skipping tax to the department shall be in such form
				as may be prescribed by the director. It shall provide for such schedules of
				property subject to tax, deductible expenses, losses, and tax computation
				tables to conform as nearly as possible to the form of the federal generation
				skipping transfer tax return. The return must be filed with the department and
				the tax due paid on or before the last day of the ninth month following the
				death of the individual whose death is the event causing the imposition of the
				federal generation skipping transfer tax. If an extension of time has been
				granted, the return must be filed and any tax, penalty, and interest due must
				be paid on or before the expiration of the extension of time.
(6)
Liability for the tax.
The transferee of property in a generation skipping transfer subject to tax is
				personally liable for the tax to the extent of the value of the property
				received determined under 26
				U.S.C. Section 2624. In addition, the trustee
				and transferee of property in a taxable termination are personally liable for
				the tax attributable to such termination to the extent of the value of the
				property under their control. Value for the purpose of determining the extent
				of the liability of a transferee or trustee is determined at the time of the
				distribution or termination. Neither the individual's estate whose death is the
				event imposing the tax, nor its personal representative, is liable for the tax
				imposed (unless the personal representative is also the transferee or trustee
				of the property subject to tax).
(7)
Situs of property.
For
				the purpose of the tax imposed by Iowa Code chapter 450A, the situs of
				intangible personal property included in a generation skipping transfer subject
				to tax is the state in which the transferor was a resident at the time of death
				or in the case the transferor is a trustee, the residence of the trustee at the
				time of the imposition of the federal generation skipping transfer tax. The
				situs of real and tangible personal property included in a transfer subject to
				tax is the state in which the property is located, regardless of the
				transferor's or trustee's place of residence.
(8)
No reciprocity.
Iowa
				Code chapter 450A makes no provision for reciprocity to prevent taxation by
				more than one state of intangible personal property included in a taxable
				generation skipping transfer. Therefore, intangible personal property
				attributable to an Iowa transferor or trustee which may have acquired a
				business situs and may be subject to tax in another state (due to the location
				of bank accounts, stock certificates and like instruments) is not exempt from
				the Iowa tax simply for the reason it is subject to tax in another
				jurisdiction. See
Curry v. McCanless,
307 U.S.
				357,
				83 L.Ed. 1339, 59 S.Ct. 900
				(1939);
State Tax Commission of Utah v. Aldrich,
316 U.S.
				174,
				86 L.Ed. 1358, 62 S.Ct. 1008
				(1942).
(9)
Tangible and
				intangible property-time of classification.
The classification of
				property as tangible or intangible is determined by the law of the state of the
				transferor's or trustee's residence. For the purpose of determining whether an
				Iowa generation skipping transfer tax is due, the classification of the
				property as tangible or intangible shall be made at the time of the death of
				the individual causing the generation skipping transfer. The classification of
				the property in a taxable transfer at the time of the original grantor's death
				is not determinative of whether the transferred property will be subject to tax
				upon the individual's death which caused the imposition of the tax. This rule
				is illustrated by the following two examples:
EXAMPLE 1. A executed a will in 1996 devising an Iowa farm in
				  trust to pay the income to his son, B, for life, and upon B's death the trust
				  is to terminate and the corpus paid to B's children, C and D, in equal shares.
				  If upon B's death the Iowa farm is still part of the trust assets, the value of
				  the farm is subject to the Iowa generation skipping transfer tax regardless of
				  the state of residence of the transferor. However, if during B's lifetime the
				  farm is sold and the proceeds placed in the trust, the trust assets are subject
				  to the Iowa generation skipping transfer tax only if the property had a situs
				  in Iowa at the time of death, because at B's death the trust assets are
				  classified as intangible personal property.
EXAMPLE 2. A, a resident of Chicago, Illinois, by will
				  devised $500,000 in trust to pay the income to his son B, a resident of New
				  York, for life and upon B's death the trust is to terminate and the corpus paid
				  to B's children, C and D, in equal shares. If during B's lifetime the trust
				  purchases an Iowa farm and it is part of the trust assets when B dies, the
				  value of the farm is subject to the Iowa generation skipping transfer tax.
				  Also, if at the time of B's death the trust assets are still classified as
				  intangible, the trust assets would be subject to the Iowa tax if the trustee
				  was an Iowa resident at the time of death.
NOTE: In the two examples it is assumed the generation
				  skipping transfers are in excess of the $1 million exemption.
(10)
Computation of the tax.
a.
In general.
The Iowa
				generation skipping tax is the maximum credit allowed by
				26 U.S.C. Section
				2604 against the amount of the federal
				generation skipping transfer tax. The maximum federal credit is 5 percent of
				the federal tax imposed on the transfer. In this respect, it differs from the
				federal credit for state death taxes paid under
				26 U.S.C. Section
				2011 which is a graduated percentage of the
				value of the property included in the federal adjusted taxable estate. As a
				result, the valuation of the property included in a generation skipping
				transfer is only relevant for computing the Iowa generation skipping transfer
				tax when it is used as the basis for prorating the federal generation skipping
				transfer tax, when the property subject to the generation skipping transfer tax
				has a situs in more than one state.
b.
Computation of the tax-situs in
				more than one state.
When part of the property included in a
				generation skipping transfer which is eligible for the credit for state
				generation skipping transfer tax has situs in Iowa and part in another state or
				states, the maximum federal credit which is allowed under
				26 U.S.C. Section
				2604 must be prorated among the states where
				the property has a situs. In this event, the Iowa generation skipping transfer
				tax is computed by multiplying the federal tax on the entire transfer by the 5
				percent maximum federal credit allowable. This amount is then multiplied by a
				fraction of which the value of the Iowa property is the numerator and the value
				of the total generation skipping transfer is the denominator. The resulting
				amount is the Iowa generation skipping transfer tax. The fact that other states
				where part of the property has a situs do not have a generation skipping
				transfer tax, or the state tax is a lesser percentage than the maximum federal
				credit allowable (5 percent), is not relevant to the computation of the Iowa
				tax.
This subrule can be illustrated by the following:
EXAMPLE. A generation skipping transfer occurs in an Illinois
				  trust in 1996 by reason of the death of A. The property in the generation
				  skipping transfer consists of $650,000 in stocks and bonds and an Iowa farm
				  worth $240,000, for a total generation skipping transfer of $890,000. Assuming
				  the lifetime exemption does not apply, the federal generation skipping transfer
				  tax is 55 percent of $890,000, or $489,500. The maximum federal credit
				  allowable is 5 percent of $489,500, or $24,475. The Iowa portion of the maximum
				  federal credit is:
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In this example, the result would not change if Illinois did
				  not have a generation skipping transfer tax or if its tax were a smaller
				  percentage than the maximum 5 percent credit allowed by the federal
				  statute.