Iowa Administrative Code › Agency 701 - Revenue Department › Title X - Inheritance Tax › Chapter 901 - Iowa Estate Tax › Rule 701-901.3 - Tax Imposed, Tax Returns, and Tax Due

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Tax imposed and tax due.
Iowa Code sections 451.2 and
				451.8 impose a tax equal to the
				maximum amount of credit allowable under
				26 U.S.C. Section
				2011 of the Internal Revenue Code for state
				death taxes paid on property included in the gross estate of the decedent. The
				credit allowable under the federal statute is not limited to the Iowa
				inheritance tax imposed under Iowa Code chapter 450 on the property in the
				decedent's gross estate, but also includes any other estate, legacy or
				succession taxes imposed by the state on the property. The Iowa estate tax
				qualifies as an estate tax specified in the federal credit statute. However,
				the tax due and payable, as distinguished from the tax imposed, is the maximum
				credit allowable under 26
				U.S.C. Section 2011, less the Iowa
				inheritance tax paid on the property included in the gross estate of the
				decedent.
Therefore, the Iowa estate tax due and payable is the amount
				  which the maximum credit allowable under
				  26 U.S.C. Section
				  2011 exceeds the Iowa inheritance tax
				  paid.
(2)
Duty of
				the taxpayer.
The taxpayer does not have the option of electing on the
				federal estate return, to claim only the Iowa inheritance tax paid on property
				included in the gross estate of the decedent, or to claim the maximum credit
				allowed under 26 U.S.C.
				Section 2011 of the Internal Revenue Code.
				The maximum credit allowable under the federal statute must be claimed on the
				federal estate tax return. If the taxpayer has filed a federal estate tax
				return claiming an amount of credit less than the maximum credit allowable, the
				taxpayer has the duty to amend the federal estate tax return and claim the
				maximum credit allowable.
If there is a change in the amount of inheritance tax paid or
				  in the amount of the maximum federal credit allowable for state death taxes
				  paid (such as the result of a federal audit or an audit of the inheritance tax
				  return) which results in an estate tax, or additional estate tax due, 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
				  451.8.
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.
(3)
Form of return.
The final inheritance tax return form provided
				for in 701-subrule 86.2(2) shall be the return for reporting the Iowa estate
				tax due. The amount of the Iowa estate tax due shall be listed separately on
				the return from the amount of the inheritance tax shown to be due.
(4)
Liability for the tax.
The personal representative of the decedent's estate and any person, including
				a trustee, in actual or constructive possession of any property included in the
				gross estate, have the duty to file the return with the department and pay the
				tax due. The shares of heirs and beneficiaries abate for the payment of the tax
				as provided in Iowa Code sections
				633.436 and
				633.437 in the same manner as
				they abate for the payment of the federal estate tax. See
Bergren v.
				Mason,
163 N.W.2d 374 (Iowa 1968) for the proper method to abate
				shares to pay the federal estate tax.
Effective for estates with decedents dying on or after July
				  1, 1999, all the provisions of Iowa Code chapter 450 regarding liens,
				  determination, imposition, payment, collection of inheritance tax, computation
				  and imposition of penalty and interest upon delinquent taxes and the
				  confidential aspects of the tax return also apply to the administration of
				  estate tax imposed under this chapter, except to the extent that such rules may
				  conflict with Iowa Code chapter 451 and the rules set forth in this chapter.
				  The exceptions of the lien provisions found in Iowa Code section
				  450.7 do not apply to this
				  chapter.
(5)
Computation of the tax.
a.
Iowa decedent.
If the decedent was a resident of Iowa at the
				time of death and all of the property included in the gross estate has a situs
				in Iowa, the total amount allowable as a credit under
				26 U.S.C. Section
				2001 shall be the tax imposed. If part of the
				gross estate of an Iowa resident decedent consists of property with a situs at
				death in a state other than Iowa, the tax imposed shall be prorated in the
				ratio that the Iowa property included in the gross estate bears to the total
				gross estate.
EXAMPLE 1.
Decedent dies July 3, 1997, a resident of Iowa. The estate
				  was bequeathed in full to inheritance tax-exempt children, except for a $10,000
				  bequest to one niece.
Total gross assets =
$1,200,000
Less debts and expenses (except federal estate
							 tax)
(300,000)
Federal adjusted gross estate =
$900,000
Federal tax computation:
gross federal estate tax =
306,800
less 1997 unified credit
(192,800)
less credit for state death tax paid
(27,600)
Net federal estate tax due =
$86,400
Iowa tax computation:
Inheritance tax on niece's bequest
1,000
Iowa estate tax equals the federal credit for state
							 death taxes paid
27,600
Less inheritance tax due
(1,000)
Estate tax due
26,600
Total Iowa tax due (1,000 + 26,600) =
$27,600
All of the decedent's assets have a situs in Iowa; therefore,
				  the full amount of the credit allowable for state death taxes, less the Iowa
				  inheritance tax, is the Iowa estate tax.
For simplicity in Example 2, the values used are the same for
				  federal and state purposes and the debts and expenses are charged to the Iowa
				  estate, even though under Iowa Code section
				  450.12, certain Minnesota
				  expenses are not deductible in computing the Iowa inheritance tax. All
				  liabilities, except mortgages, are prorated.
EXAMPLE 2.
Decedent dies July 3, 1997, a resident of Iowa, owning a
				  vacation home in Minnesota. The estate was bequeathed in full to inheritance
				  tax-exempt children, except for a $10,000 bequest to one niece.
Total gross assets:
Iowa
$950,000
Minnesota
250,000
Total
1,200,000
Less debts and expenses (except for federal estate
							 taxes)
(300,000)
Federal adjusted gross estate =
900,000
Federal tax computation:
gross federal estate tax =
306,800
less 1997 unified credit
(192,800)
less credit for state death tax paid
(27,600)
Net federal estate tax due =
86,400
Iowa tax computation:
Inheritance tax on niece's bequest
1,000
Iowa estate tax
Proration:
Iowa $950,000
Total $1,200,000 = 79.17%
Iowa portion of federal credit for state death taxes
							 paid: $27,600 x 79.17% =
$21,850.92
Less inheritance tax due
($1,000.00)
Iowa estate tax =
$20,850.92
Total Iowa tax due (1,000 + 20,850.92) =
$21,850.92
b.
Nonresident decedent.
If the gross estate of a nonresident
				decedent includes property with a situs in the state of Iowa, the tax imposed
				is the maximum amount of the federal credit for state death taxes allowable
				prorated on the basis the Iowa situs property in the gross estate bears to the
				total gross estate. For simplicity in the following two examples, it is assumed
				the values are the same for federal and state purposes and the debts, expenses
				and federal estate tax are prorated between Iowa and Arizona even though
				certain liabilities are not prorated under Iowa Code section
				450.12.
EXAMPLE 1.
Decedent died a resident of Arizona on July 3, 1997. The
				  estate was bequeathed in full to tax-exempt children.
Total gross estate:
Iowa real estate
$750,000
Other property
450,000
Total gross estate:
1,200,000
Less debts and expenses (except federal estate
							 tax)
(300,000)
Net adjusted gross estate =
Federal tax computation:
900,000
Gross federal estate tax =
306,800
Less 1997 unified credit
(192,800)
Less credit for state death tax paid
(27,600)
Net federal estate tax due =
86,400
Iowa estate tax computation:
Inheritance tax =
-0-
Iowa estate tax proration:
Iowa gross $750,000
Total gross $1,200,000 = 62.50%
Iowa portion of federal credit for state death tax
							 paid: 27,600 x 62.50%
Iowa estate tax =
$17,250
EXAMPLE 2.
Decedent died a resident of Arizona on July 3, 1997, with the
				  same property as set forth in Example 1. The estate consisted of four separate
				  $100,000 bequests to non-exempt individuals with the rest of the estate going
				  to charity.
Iowa portion of each bequest: $100,000 x 62.50%
							 =
$62,500
Tax on each bequest =
$6,500
Total Iowa inheritance tax due: $6,500 x 4 =
$26,000
Total estate tax due
-0-
Iowa tax due =
$26,000
The Iowa real property is part of the residual estate from
				  which bequests are paid. See Estate of Dennis M. Billingsley, Emmet County
				  District Court, Case No. 13394 (July 15, 1982).