Loading
The Oregon Administrative Rules contain OARs filed through June 15, 2014
 
QUESTIONS ABOUT THE CONTENT OR MEANING OF THIS AGENCY'S RULES?
CLICK HERE TO ACCESS RULES COORDINATOR CONTACT INFORMATION

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

The official copy of an Oregon Administrative Rule is contained in the Administrative Order filed at the Archives Division, 800 Summer St. NE, Salem, Oregon 97310. Any discrepancies with the published version are satisfied in favor of the Administrative Order. The Oregon Administrative Rules and the Oregon Bulletin are copyrighted by the Oregon Secretary of State. Terms and Conditions of Use

Oregon Secretary of State • 136 State Capitol • Salem, OR 97310-0722
Phone: (503) 986-1523 • Fax: (503) 986-1616 • oregon.sos@state.or.us

© 2013 State of Oregon All Rights Reserved​