Another PA Inheritance Tax Exemption Engrafted?

On January 23, 2013, the Central Pennsylvania Business Journal reported in an article entitled Pa. House committee passes bill to end 'death tax', that the Finance Committee of the Pennsylvania House approved a bill Tuesday for further consideration by the full House that would eliminate Pennsylvania inheritance tax on family-owned businesses.

Cumberland County Republican Rep. Stephen Bloom introduced the measure, which also came up last legislative session.

"The death tax hits businesses during a time when they are most economically vulnerable, crippling our next generation of job creators," Bloom said in a statement. "This is an unnecessary loss to our economy and to the businesses that create 65 percent of Pennsylvania jobs."

House Bill 48 has 70 co-sponsors in the House and is backed by the National Federation of Independent Business in Pennsylvania, the Pennsylvania Retailers' Association and the Americans for Prosperity-Pennsylvania, among others. * * *

In a prior article by Alex Nixon, entitled Proposal would exempt family businesses from Pennsylvania inheritance tax (01/16/13), the reasons for the proposed changes were discussed from the sponsors' and beneficiaries' viewpoints.

The state‘s inheritance tax can leave heirs scrambling to cover a tax bill. And many end up selling the business or taking out costly loans.

“If something were to happen suddenly to my father, there would have been tens of thousands of dollars of estate taxes owed,” said Dave Cranston Jr., president of Cranston Material Handling Equipment Corp. in Robinson. “None of us have that (money) sitting around waiting.”

Cranston owns 80 percent of the business founded by his grandfather in 1957, and his father is alive and well.

But a bill before Harrisburg lawmakers could end the worry for other family-owned companies across the state.* * *

Such relief is proposed in a fashion generally paralleling that which took effect on July 1, 2012, to exempt family farms from such taxation.  See: PA EE&F Law Blog, Family Farms Exempted from PA Inheritance Tax (07/03/12).

Reporter Melissa Daniels, of the Pennsylvania Independent, had interviewed me earlier this year as she prepared her article entitled Family owned businesses could see ‘death tax’ exemption (01/02/13).

Some Pennsylvania lawmakers say the state’s inheritance tax is inherently unfair.
While those lawmakers succeeded in eliminating the tax for family owned farms last year, this session marks round two, with family owned businesses possibly getting a break.

State Rep. Steve Bloom, R-Cumberland, will soon introduce legislation to eliminate the inheritance tax on business assets, including real estate, for children, siblings or other relatives of a decedent.

He led similar legislation last year that exempts family owned farms from paying the tax.

Bloom’s proposal chips away at the tax, rather than eliminating it altogether. But whether another exemption happens will depend on whether lawmakers can stand losing state revenue. * * *

She quoted my concerns about additional changes to Pennsylvania's Inheritance Tax law motivated by one constituency without regard to the effect upon other taxpayers.  I believe that reforms should consider the entire scope of the tax, particularly in view of the transitional and uncertain nature of the federal estate, gift, and generation-skipping tax systems.

But creating parsed-out exemptions in tax codes can create an extra layer of confusion, despite the intent, said Neil Hendershot, a Harrisburg-area attorney who specializes in estate planning.

The inheritance tax is convoluted on its face, he said, with different rates for different situations, and various reporting requirements that may or may not apply to all situations.

“It bears a review but doing it on an ad hoc basis is going to make it more and more complicated,” Hendershot said.

Hendershot said he would prefer to see the law streamlined for all asset classes, or perhaps revamped with advice from a panel of experts. Issues surround the tax, such as privacy concerns on making asset values public information, that could be part of the discussion, he said.

Pennsylvania's Inheritance Tax Laws derive from roots planted in 1826.  Pennsylvania was the first state to apply an inheritance tax, and has done so continuously since.  

Like a tree long-grown and mature, Pennsylvania's Inheritance Tax laws and administrative system may require pruning -- but not just the one low-hanging branch on one side which bothers some nearby.  It is time to examine the living purpose of, and the shadow cast by, that tree in its entirety, thoughtfully and skillfully.  

The Legislature, instead, should constitute a qualified study group to do just that, with the interests of all Pennsylvanians in mind.

Family Farms Exempted from PA Inheritance Tax

On July 2, 2012, Governor Tom Corbett signed legislation that, effective after June 30, 2012, exempts working farms and some related agricultural commodities from Pennsylvania Inheritance Tax.  

The Governor's Press Release was posted by PR Newswire under the title Pennsylvania Governor Tom Corbett Ends Burden for Farmers by Eliminating Inheritance Tax (07/01/12):

Pennsylvania farmers can now pass their farms on to their heirs without worrying they will have to pay steep "death taxes" to keep them in the family.

"The death tax has forced too many families to sell their legacy, their land and their way of life," said Governor Corbett. "This tax has put too many farms out of business because it was too expensive for farmers to pass them down to their children. This will happen no more. We intend to save our farms."

Previously when a landowner died, heirs to their farm property had to pay an inheritance tax of 4.5 percent if they were adult children and 12 percent if they were siblings of the deceased.

"The inheritance tax has been a burden on farm families for decades," said Agriculture Secretary George Greig. "By eliminating this tax, Governor Corbett solidified his commitment to Pennsylvania farm families, and to keeping farmers farming for generations. This law provides farmers the opportunity to save thousands of dollars in inheritance tax, allowing them to reinvest in their agricultural operations." * * *

There was some confusion whether the bill was signed into law on June 30th, when first announced, or later as a part of the budget bill signed by the Governor on July 2nd.  A Press Release by the Governor's Office issued on July 3, 2012, confirms that the relevant bill was signed on July 2nd.  However, the provisions related to this new exemption "shall apply to the estates of decedents dying after June 30, 2012."

The tax relief originally was introduced in the House as House Bill 1864, PN 2401, by Representative Stephen Bloom, of Cumberland County, PA, as sponsored by many other representatives.  That bill provided, simply:

Section 2111.  Transfers Not Subject to Tax.‑‑* * *

(s)  A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve, as those terms are defined in section 2122(a), to lineal descendants or siblings is exempt from inheritance tax.

The objectives of HB 1864 were supported by the Pennsylvania Farm Bureau, which provided testimony on October 17, 2011 to the PA House Finance Committee in support of Inheritance Tax reduction or elimination, including the proposed exemptions provided in HB 1864.  See: Testimony (PDF, 6 pages).

That Bill's objectives became incorporated into the omnibus budget bill, HB 761, PN 3894.  

This lineage was described by the House Republican Caucus in a posted article, Inheritance Tax Relief Measure Heads to Governor’s Desk (06/30/12):

A measure to end the financial burden of Pennsylvania’s inheritance tax on surviving farm family members has become part of the 2012-13 state budget package, which was sent to the governor tonight, said Rep. Stephen Bloom (R-Cumberland).

Bloom’s original bill, House Bill 1864, would exempt transfers of agricultural assets from the Pennsylvania inheritance tax when the receiving heir is a sibling or child of the deceased farmer. The exemption was incorporated into the omnibus Pennsylvania Tax Code bill (House Bill 761) by the Senate this week and passed finally by the House today.

“This measure will prevent the state from continuing to penalize farm families in Pennsylvania during a time when they are most economically vulnerable,” said Bloom. “By eliminating the death tax on transfers of ag assets, we can help farm families keep farming successfully in future generations.”

In addition, Bloom’s initiative would extend the new inheritance tax exemption to farm commodities, such as livestock and crops. It would also exempt from the death tax forest reserves that are passed along from a parent to a child or the parent’s brother or sister.

“This measure is a huge win for Pennsylvania farm families,” said Bloom. “Too many family farms have been divided up and sold when a loved one dies, because surviving family members are unable to pay the burdensome inheritance tax on their farm property.”

The House originally approved Bloom’s measure in December, on a 190-1 bipartisan vote. Companion legislation introduced by Sen. Dominic Pileggi (R-Chester/Delaware) was also amended into the Pennsylvania Tax Code, which was sent to the governor as part of the 2012-13 budget package tonight. * * *

Section 23 of HB 761, PN 3894, which became Act No. 85 of 2012, effective as of June 30, 2012, now provides, in part:

Section 2111 of the act is amended by adding subsections to read:

Section 2111.  Transfers Not Subject to Tax.‑‑* * *

(s)  A transfer of real estate devoted to the business of agriculture between members of the same family, provided that after the transfer the real estate continues to be devoted to the business of agriculture for a period of seven years beyond the transferor's date of death and the real estate derives a yearly gross income of at least two thousand dollars ($2,000), provided that:

(1)  Any tract of land under this article which is no longer devoted to the business of agriculture within seven years beyond the transferor's date of death shall be subject to inheritance tax due the Commonwealth under section 2107, in the amount that would have been paid or payable on the basis of valuation authorized under section 2121 for nonexempt transfers of property, plus interest thereon accruing as of the transferor's date of death, at the rate established in section 2143.

(2)  Any tax imposed under section 2107 shall be a lien in favor of the Commonwealth upon the property no longer being devoted to agricultural use, collectible in the manner provided for by law for the collection of delinquent real estate taxes, as well as the personal obligation of the owner of the property at the time of the change of use.

(3)  Every owner of real estate exempt under this subsection shall certify to the department on an annual basis that the land qualifies for this exemption and shall notify the department within thirty days of any transaction or occurrence causing the real estate to fail to qualify for the exemption. Each year the department shall inform all owners of their obligation to provide an annual certification under this subclause. This certification and notification shall be completed in the form and manner as provided by the department.

(s.1)  A transfer of an agricultural commodity, agricultural conservation easement, agricultural reserve, agricultural use property or a forest reserve, as those terms are defined in section 2122(a), to lineal descendants or siblings is exempt from inheritance tax. [Emphasis added.]

Act 85 includes some new definitions relevant to the exemptions:

Section 2102.  Definitions.‑‑The following words, terms and phrases, when used in this article, shall have the meanings ascribed to them in this section, except where the context clearly indicates a different meaning:

* * *

"Business of agriculture."  The term shall include the leasing to members of the same family or the leasing to a corporation or association owned by members of the same family of property which is directly and principally used for agricultural purposes. The business of agriculture shall not be deemed to include:

(1)  recreational activities such as, but not limited to, hunting, fishing, camping, skiing, show competition or racing;

(2)  the raising, breeding or training of game animals or game birds, fish, cats, dogs or pets or animals intended for use in sporting or recreational activities;

(3)  fur farming;

(4)  stockyard and slaughterhouse operations; or

(5)  manufacturing or processing operations of any kind.

* * *

"Members of the same family."  Any individual, such individual's brothers and sisters, the brothers and sisters of such individual's parents and grandparents, the ancestors and lineal descendents of any of the foregoing, a spouse of any of the foregoing and the estate of any of the foregoing. Individuals related by the half blood or legal adoption shall be treated as if they were related by the whole blood.

The effective date of the act is stated as follows in Section 30 (7) of the Act:  "The amendment or addition of sections 2102 and 2111(s) and (s.1) of the act shall apply to the estates of decedents dying after June 30, 2012."

Note: Thanks to Kathleen B. Murren, Esq., Professor, Legal Studies Chair, Legal Studies Department, Harrisburg Area Community College, for providing an initial inquiry to me, which led to my blog posting.

PA Inheritance Tax Summarized

Pennsylvania is one of 22 states (and the District of Columbia) that imposes an estate tax due after the death of an individual, and is one of only six states that applies an inheritance tax upon residents receiving assets from a decedent or against real estate located here.

With the increased asset thresholds applicable to federal estate, gift, and generation-skipping taxes, which reduce return reporting and tax payments, there is renewed focus on state death taxes. See: Where Not To Die In 2011 -- June Update (06/10/11), by Ashlea Ebeling, and How to Cut Estate Taxes -- Without Moving (07/19/11) by Hani Sarji, both posted by Forbes.

For those seeking a quick overview of the Pennsylvania Inheritance Tax, read the short, official summary that appeared on page 19 in The Tax Compendium (Dec., 2010), issued by the Pennsylvania Department of Revenue.

The cover letter to that report notes its educational use, in the form of a disclaimer: "The Tax Compendium describes the basis, rate and history of Pennsylvania taxes and is intended for research and background information. It is a general guide to Pennsylvania taxes, not a tax manual." 

With that said, here is its useful introductory summary about Pennsylvania "Inheritance and Estate Taxes":

The personal representative of the decedent’s estate or the transferee pays inheritance and estate taxes using proceeds from the estate. The local Register of Wills acts as the Commonwealth’s agent in the collection of these taxes.

The inheritance tax is imposed on the value of the decedent’s estate transferred to beneficiaries by will or intestacy. Certain inter vivos transfers are also subject to inheritance tax. A fractional portion of property held by the decedent and one or more other persons jointly with the right of survivorship is taxable in the decedent’s estate. Specified deductions may be taken in determining taxable estate value.

Inheritance tax is not levied on transfers of assets to certain types of entits. Transfers to governmental entities are exempt. Also exempt are transfers of property to charitable and fraternal organizations when the property is used exclusively for religious, charitable, scientific, literary, or educational purposes. Transfers to qualified veteran organizations are not subject to inheritance tax.

The tax rates levied against estates are based on to whom property is bequeathed. Inheritance tax on the transfer of non-jointly held property to spouses is levied at 0%. The transfer of property from children twenty-one years of age or younger to their parent (either natural, step, or adoptive) is taxed at a rate of 0%. All other transfers to lineal heirs are taxed at the rate of 4.5%. Transfers to siblings (defined as those having at least one parent in common with the decedent, related by blood or adoption) are subject to a tax rate of 12%. Transfers to all other persons are taxed at a rate of 15%.

The estate tax is a pick-up tax imposed to absorb the maximum amount of cedit allowed by federal estate tax law toward state death taxes. For residents, the estate tax represents the difference between the Pennsylvania inheritance tax plus death taxes paid to other states and the maximum federal credit for state taxes allowed by federal estate tax law.

If a resident owned or had an interest in real property or tangible personal property located in another state, the estate tax is reduced by the amount of death taxes paid to the other state or by a proportional amount of the federal credit, whichever is greater.

For nonresidents who owned or had an interest in property located in this Commonwealth, the estate tax is the difference between the Pennsylvania inheritance tax and a proportionate share of the federal credit in the same ratio that the property located in this Commonwealth subject to federal estate tax bears to the decedent’s gross federal estate.

The federal credit upon which the Pennsylvania estate tax is based is phased out between 2002 and 2005. Once the credit is completely phased out, the Pennsylvania estate tax is eliminated. However, estate tax collections will rebound when the federal credit is fully reinstated in 2013.

Inheritance and estate tax payments are due upon the death of the decedent and become delinquent nine months after the individual’s death. If inheritance taxes are paid within three months of the decedent’s death, a 5% discount is allowed. No discount is permitted for estate tax paid within three months of the death of the decedent.

The enabling legislation is Article XXI of the Tax Reform Code of 1971 (P.L. 6, No. 2), as amended, and Chapter 17 of Title 72 (Taxation and Fiscal Affairs), as amended.

For a technical analysis of the underlying law, see the law review article Individuals and Inheritance Taxes: A Praxeological Examination of Pennsylvania’s Inheritance Tax, by Timothy J. Witt, published in the Penn State Law Review, 114 Penn St. L. Rev. 1105 (2010), as noted in PA EE&F Law Blog posting PA Inheritance Tax as Law Review Subject (06/24/10).

The Department offers a few resources online to explain and administer Pennsylvania Inheritance and Estate Taxes, including a general explanation, a "Find Answers" Q&A Section, and official forms, returns, and instructions. The best explanations are found in primary documents -- the Inheritance Tax Return -- Resident Decedent (REV-1500 Form and its Instructions (REV-1501).

Paul Dibert Retires as "Chief" of PA Inheritance Tax Division

Effective June 30, 2011, J. Paul Dibert retired as the Chief of the Pennsylvania Department of Revenue's Inheritance Tax Division.

Paul acted as Chief of the Division since March 24, 2008.  See: PA EE&F Law Blog posting Dibert Appointed Chief of PA Inheritance Tax Division (03/27/08).  He had served as "acting chief" following the retirement of John Murphy on June 15, 2007.  See: PA EE&F Law Blog posting PA Inh Tax Div Chief Murphy Retired (12/04/07) and PBA RPPT Honors Chief John C. Murphy (03/21/2008).

Paul's credentials, as summarized in a 2010 PA DOR Fall Tax Program's Synopses & Topics, noted his skills and accomplishments:

Mr. Dibert is the Chief of the Inheritance Tax Division of the Pennsylvania Department of Revenue, Bureau of Individual Taxes.

He received his BS degree in Business Administration from Michigan Technological University, Houghton Michigan in 1968.  After 8 years in private industry, he joined the Department of Revenue as a supervisor in the Altoona District Office.

He transferred to the Inheritance Tax Division in 1984, where he was a Trust Valuation Specialist.  He was appointed Business & Trust Valuation Manager in 1987.

He is on the faculty of the Pennsylvania Bar Institute and has participated in presentations at least annually for the last 25 years.  He has participated in presentations sponsored by the Pennsylvania Institute of Certified Accountants or the Pennsylvania Society of Public Accountants for the last 16 years.

He is a past member of the Department of Revenue annual statewide, Fall Tax Presentation staff.  He has presented seminars to various estate planning councils and county bar associations across the Commonwealth.

However, to the lawyers and accountants who filed, tracked, or corrected Pennsylvania Inheritance Tax Returns for clients (or even appealed the Division's assessments), or who sat as a student in one of his many seminars delivered to professional audiences during his leadership years -- either as Supervisor & Deputy, and then as Chief, of the Division -- Paul represented more than his credentials.  He was a hard worker, a respectful public official, a knowledgeable tutor, a progressive administrator, and a fair assessor.

Vincent B. Lackner, Jr., founder and president of The Lackner Group, Inc., stated respect and admiration for Paul in comments that he relayed prior to that retirement date:

What are we all going to do?! Wringing of hands and gnashing of teeth are the first things that come to mind.

Your common-sense, no-nonsense, even-handed, and fair-minded approach to dealing with issues and people over the years both as Deputy then as Chief has been a delight. Those were big shoes that John Murphy left for you, but you more than filled them.

For me, one of the highlights every fall was attending your PA Inheritance Tax Update at the PBI Estate Law Institute. This past November I also enjoyed the masterful job that you (and the three others) did in the "How to Prepare the Pennsylvania Inheritance Tax Return" seminar here in Pittsburgh.

[We] congratulate you for your extraordinary 30 years of service, thank you for all of your courtesies, and extend to you our warmest wishes as you head into a well-deserved retirement.

Paul, after a job well done, may you enjoy your next challenges, whatever those might be, and also your leisure!

One Paper Size Fits All Pa Inheritance Tax Returns

Effective April 1, 2011 any REV-1500 (PA Resident Inheritance Tax Return), including attachments, submitted to the Pennsylvania Inheritance Tax Division in a format size other than 8½ x 11 will be rejected by the Department of Revenue, which will equate to a non-filing.

Pursuant to a Notice entitled REV-1500 Formatting Limitations to 8½” X 11”  issued by the Pennsylvania Department of Revenue, Inheritance Tax Division, and referenced by the Registers of Wills in at least two Pennsylvania Counties -- Center County (Inheritance Tax Return Formatting Limitation to 8 1/2" X 11") and Chester County (Inheritance Tax Returns REV 1500 Required Formatting) -- returns not filed on standard letter-sized (8½” X 11”) paper will be rejected.

Rejection (read, "non-filing") will occur because such a filing would "not conform" to the Pennsylvania Inheritance and Estate Tax Act of 1991, 72 P.S. §9136, and the Department's requirements.  That Section provides:

§ 9136.  Returns.  

(a) The following persons shall make a return: * * *

(c) Any person required to file a return under subsection (a) shall promptly file a
supplemental return with respect to additional assets and transfers which come to his knowledge after the original return has been filed. * * *

(e) The returns required by subsections (a) and (c) shall be made in the form prescribed by the department.

The Notice explains why the new limitation will be enforced.

Historically, the Department has manually reduced the size of any 8½” x 14” REV-1500 by coping them onto 8½” x 11” paper.  The copies do not image correctly and the loss of division personnel has required us to input this new procedure.

The REV-1500 is in an official format of 8½” x 11”. The Department will return the forms to the local Register of Wills’ office and note on the inheritance tax system that the forms were returned to the Register’s office as the form did not fit the standard format. * * *

However, there was a phase-in period for the change, which began on April 1, 2011, but will expire on June 30, 2011.

The Department has recommend to the Register of Wills’ office personnel to immediately inform estate return preparers when they bring a REV-1500 to their office printed on any format that is not 8½” x 11” that the Register’s office will reject the REV-1500 to be forwarded to the Department for processing and advise the preparer of the correct procedures.

As a representative of the PA Department of Revenue, Inheritance Tax Division, the county Register of Wills office does have the authority to refuse any form that does not qualify as an accepted form for processing under the above noted section.

From April 1, 2011 [until] June 30, 2011, the Department will inform the estate representative that the forms were sent back to the Register’s offices as a result of incorrect formatting. The estate representative will be required to deliver to the Register a revised REV-1500 formatted correctly and pay any additional filing fee as required.

After June 30, 2011, the Department will discontinue informing the estate representative of their error.

The effort to standardize paper sizes has a long history.  In the legal world, paper sizes have been determined as much by the two standard filing cabinet sizes as anything else.  But now technology, with its scanning processes and computer monitor viewing, drives paper standardization.  Aberrant paper sizes will not be accommodated any longer, due to additional processing costs incurred to fit the systems.

So, when it comes to the filing of Inheritance Tax Returns in Pennsylvania after June 30, 2011, one size shall fit all.

Update: 11/02/11:

For those seeking an overview of, or online resources about, Pennsylvania Inheritance and Estate Taxes, see: PA EE&F Law Blog posting PA Inheritance Tax Summarized (11/02/11).

PA DoR Revised Safe Deposit Box Entry

The Pennsylvania Department of Revenue has loosened restrictions as to who may inventory a safe deposit box in which a decedent had an interest.

By its Inheritance Tax Bulletin 2011-02, entitled Safe Deposit Box Inventories and Notice, issued May 11, 2011, PA DoR announced its modification, effective on that date, of "the procedures under which estate representatives may enter the safe deposit box of a decedent" pursuant to the the provisions of the Inheritance and Estate Tax Act of 1991 (the 'Act')."

The general rule regarding entry into a safe deposit box of a decedent is stated in 93 Pa. Code § 93.11 ("Limitation of entry by statute or regulation"), as follows:

No person seeking entry otherwise prohibited by the act, having actual knowledge of the death of a decedent may enter a safe deposit box of the decedent unless the entry is made under * * * [the Act] and no person acting as deputy, agent or in a similar capacity may enter a safe deposit box except as provided in this subchapter.

Subchapter B of those Regulations specifies the parameters of access, inventory, removal of contents, and reporting of values, regarding a decedent's safe deposit box.  Those regulations address:

• Definitions & Duties generally (93.21 & 93.22);

• Permission to Enter a Box Without Notice to the Department ( 93.31, 93.32, 93.33, 93.34, 93.35, 93.36, & 93.37 ) where a bank, Department representative, court, or business is involved or where a last will or cemetary deed is sought;

• Entry upon Notice to the Department (93.41, 93.42, & 93.43);

• Subsequent entries (93.51);

• Confidential information (93.61); and

• Penalties (93.71, 93.72, & 93.73).

Approximately twenty years ago and before, only PA DoR representatives could open and inventory a safe deposit box after an owner's death. Then the Department relented, and allowed, first banks, and later attorneys or accountants, to perform an inventory at an intial post-motem opening and then report to PA DoR.

With the issuance of this latest bulletin, a personal representative need not be accompanied by a Revenue representative, a bank employee, a lawyer, or an accountant, to inventory a safe deposit box:

[N]either a department or bank employee, nor lawyer or CPA must be present at a safe deposit box inventory. Instead, pursuant to the Act, a safe deposit box of a decedent may be entered at the time fixed in a notice mailed within seven days of the date of proposed entry, to the Department of Revenue and to the financial institution in which the box is located. 72 P.S. § 9193. The department no longer will provide employees to be present at safe deposit box inventories.

The procedures for those authorized by law to access a decedent's safe deposit box remain the same:

The Act requires that notice of a proposed safe deposit box entry and inventory must be delivered to the department via United States Postal Service with return receipt service.

The Act allows that, when a person furnishes a signed statement under penalty of perjury that he or someone in his behalf has given this notice, the financial institution in which a safe deposit box of a decedent is located shall permit entry into the box and removal of its contents, without the presence of a department or bank employee.

(1) The Notice must include:
a. the name of estate and person entering the box,
b. the name and street address of the financial institution in which the box is located, and
c. the date and time of entry.

(2) The Notice must be:
a. delivered via United States Postal Service, return receipt service
b. copied to the financial institution in which the box is located
c. sent at least seven days in advance to:

PA Dept of Revenue
Safe Deposit Box Unit
P.O. Box 280601
Harrisburg, PA 17128-0601

The Department's bulletin was announced in its Tax Update, April/May 2011 (Issue No. 155), on pages 5 & 6, which provided a further explanation:

At the time of entry, the estate representative must also provide a statement to the financial institution attesting the notice was sent to the department, with the following or similar language:

Under penalties of perjury I swear that I gave the notice required under Section 2193 of the Inheritance and Estate Tax Act, 72 PS § 9193, to the Pennsylvania Department of Revenue, via United States Postal Service, of my intention to enter this safe deposit box on today’s date.

Within 20 days of entry, the estate representative must also return a completed Safe Deposit Box Inventory form, REV-485, to the department’s Safe Deposit Box Unit.

That inventory reporting form, REV-485 ("Safe Deposit Box Inventory"), revised May, 2004, is available online.

This new Bulletin will require updating of the Department's Brochure on Pennsylvania Inheritance Tax & Safety Deposit Boxes (REV-584).

PA Inheritance Tax as Law Review Subject

The Pennsylvania Inheritance Tax rarely is the subject of law review articles. But the most recent issue of the Penn State Law Review (Volume 114, Issue 3), published by The Dickinson School of Law of Penn State University, contains an excellent article (known as as a "Comment") on the subject.

Timothy J. Witt (J.D. 2010, Penn State) published Individuals and Inheritance Taxes: A Praxeological Examination of Pennsylvania’s Inheritance Tax, 114 Penn St. L. Rev. 1105 (2010) [PDF, pages 1105-1139], on April 19, 2010, as noted on that Law Review's website.

The author's introduction defines his subject and its treatment:

Much has been written regarding the economic effects of the federal estate tax, but relatively little has been published about state inheritance taxes and their economic consequences.
Additionally, what has been written has not been addressed primarily to a legal audience. The legal literature discussing the Pennsylvania inheritance tax, one of the eleven effective state inheritance or estate taxes found across the country, is no exception to this observation; beyond practice guides, few legal resources have discussed the tax, and virtually none have substantively and systematically examined its economic effects.

Furthermore, Pennsylvania's inheritance tax, like those of other states that have such taxes, has never been specifically analyzed in a legal context from the unique perspective of praxeology, an economic framework rooted in the study of individual human action.

This praxeological approach, with its recognition of “the market” as the aggregation of the actions and exchanges of individual persons, provides several significant and relevant insights into the nature of Pennsylvania’s inheritance tax. * * *

The article first provides a "brief introduction of both the history of Pennsylvania’s inheritance tax and praxeology," and then examines the Pennsylvania inheritance tax:

1. in its current statutory form,
2. as it would have been affected by a recent bill in the General Assembly, and
   
3. in the extreme forms possibly permitted by the case law of both Pennsylvania and the United States Supreme Court.

In Part IV, this Comment outlines the economic effects of each of these three expressions of Pennsylvania’s inheritance tax in four praxeologically-significant categories:

• ante-mortem capital accumulation,
  
• ante-mortem capital flight,
  
• post-mortem capital consumption, and
  
• state revenue. [Reparagrphing applied.]

Consistent with his approach, the author notes that the "Comment advocates neither for nor against the Pennsylvania inheritance tax on the level of public policy."

The Comment analyzes one House member's attempt to phase out Pennsylvania's inheritance tax completely by 2012. House Bill 377 was introduced in November, 2007, by Representative Scott Perry (R) of the 92nd Legislative District.

That legislation failed, as did subsequent attempts to terminate the Pennsylvania Inheritance Tax. See: PA EE&F Law Blog posting, New Attempts to Abolish PA Inheritance Tax (03/02/09).

Given the fiscal shortfall currently for the Commonwealth, and projected burdens on state taxpayers deriving from liberal retirement benefits promised to state workers, I believe that such legislation will continue to fail, as a matter of politics.

The author instead approaches the issue of repeal from an academic approach; and in this analysis, the practicing lawyer may fall away. However, the author's discussion offers a researched and rational approach to a difficult issue -- taxation of interests transferring upon death of an individual.

He concludes, generally:

With regard to Pennsylvania's inheritance tax, praxeology supports the conclusion that high inheritance tax rates would cause significant economic decline by fostering both capital consumption and capital flight, with a secondary effect being a decline in state revenue.

Likewise, under a praxeological examination, the Commonwealth's current inheritance tax causes some capital consumption and capital flight, albeit at levels insufficient to have presently created economic decline in Pennsylvania.

Repealing Pennsylvania's inheritance tax would foster additional economic growth through the increase of capital accumulation and a decrease in capital flight, which could have the contingent potential of increasing state revenue in the long term.

In terms of the debate over the Pennsylvania inheritance tax, the key praxeological insight is that the tax does not encourage economic growth. Rather, Pennsylvania's inheritance tax is something of a hindrance to economic expansion. * * * [Reparagrphing applied.]

Just how difficult an issue state taxation remains is demonstrated in another article that appears in the same law review issue. Jaime S. Bumbarger (J.D. 2010, Penn State) published Pennsylvania's Taxpayer Relief Act: Big Gamble Pays Off for Some, But Most Lose Their Shirt, 114 Penn St. L. Rev. 1004 (2010) [PDF, pages 1004-1018], which examines taxation of real estate in the Commonwealth.

For its case law citations on the topic alone, the law review's Comment about Pennsylvania Inheritance Tax is valuable. But it also adds a fresh analysis that could be considered by elected representatives who determine taxation upon decedents in the Commonwealth.

New Attempts to Abolish PA Inheritance Tax

Pennsylvania's "death" taxes are again targeted for phase-out by some mid-state legislators. But given the grim economy both nationwide and statewide, their chances for success appear dim.

On February 28, 2009, the York [PA] Daily Record & Sunday News reported, in its article entitled 'Death tax' targeted by mid-state lawmakers, by Richard Fellinger, that "a] group of midstate House Republicans are trying to kill the so-called death tax -- or at least cripple it."

Rep. Will Tallman, R-Hanover, has sponsored a bill to eliminate the state inheritance tax this year. The tax is levied on taxable assets that change hands after someone's death.

Meanwhile, Rep. RoseMarie Swanger, R-Lebanon, is preparing to re-introduce a bill that would phase out the tax over the next several years. And Rep. Dan Moul, R-Adams, is pushing a bill that would exclude heirs from paying the tax on estates worth less than $250,000.

Tallman said the tax has to go because it puts a heavy burden on the families of farmers and small business owners after an owner dies.

"What is happening is we are really impairing the ability of businesses or farms to be transitioned to family members," Tallman said. * * * [Links added.]

Not mentioned in the article are other House and Senate bills also introduced in the 2009-2010 Legislative Session with similar long-term phase-out and repeal effects.

The Pennsylvania Farm Bureau lists "Reduction or Elimination of State Inheritance Tax on Farms " as one of its ten key legislative concerns affecting farmers in the Commonwealth.

Pennsylvania’s inheritance tax imposes significant burdens on the ability of farm families to financially manage the transition of farms between generations.

Unlike federal estate tax, state inheritance tax laws essentially impose tax on the first dollar of value of an estate passing from a deceased family member to another family member.

Children who receive a $500,000 farm through death of the parent will be required to pay $22,500 in inheritance taxes.

Payment of the tax is required to be made in cash. If the farm business does not have available cash, the farm family will need to sell off farm assets to pay the tax, with no guarantees that the family will receive a price from the sales of assets that equals what these assets are truly worth.

If land needs to be sold to pay for the tax, succeeding generations will receive farms that are less productive and are less likely to be viable in the future. * * *

That calculation ignores availability of the special rules applying to the valuation of farmland, which are described on page 9 in the Instructions to Schedule A of the REV-1500 (PA Inheritance Tax Return for a Resident Decedent) regarding "Special Farm Use Valuation."

Under Section 9122 of the Inheritance and Estate Tax Act of 1991, land devoted to agricultural use, agriculture reserve or forest reserve may be eligible for preferential assessment measured by particular use, rather than by fair market value. assessments.

If you elect to use this method of valuation, the special use valuation under the Pennsylvania Farmland and Forest Land Assessment Act of 1974, 72 P.S. §5490.1, et. seq. must be reported. You will also be required to submit fair market value appraisals of the residential property, farm outbuildings and agricultural property so that a proper valuation may be made if the special use is discontinued or if the property does not meet all requirements. * * *

Pennsylvania's "Special Farm Use Valuation" provisions differ from the special valuation rules for farms under the Federal Estate Tax. See: Pamphlet, The Pennsylvania Inheritance Tax in Comparison with the Federal Estate Tax (PDF, 2 pages) published & posted by the Pennsylvania Institute of Certified Public Accountants.

But this already-available valuation advantage is not the reason why termination of the Pennsylvania Inheritance Tax likely will not occur any time soon. State budget concerns likely will rule instead, as in the past. See: PA EE&F Law Blog postings "House Passes Bill Abolishing PA Death Taxes" (01/18/08) and "Repeal PA Inheritance Tax?" (11/16/06).

This continuing reality was noted in the recent York Daily article:

As unpopular as the tax is with some conservatives, eliminating it will be a challenge with state revenues on the decline. Gov. Ed Rendell has predicted a $2.3 billion budget shortfall this year.

Last year the inheritance tax brought in $828 million for the state, and this year it was projected to raise $849 million, but collections are down.

As of Jan. 31, the state collected $450 million from the inheritance tax, which is $46.9 million below estimate, according to the Revenue Department.

Swanger introduced her bill to phase out the tax last term, but it languished. She acknowledged it's a longshot this year with the state facing revenue problems.

"But it's something my constituents want done away with, so I'm willing to introduce it," she said. * * *

These are the presently pending House or Senate bills that would affect application of the Pennsylvania Inheritance Tax and the Pennsylvania Estate Tax:

• Senate Bill 80, introduced by Senator ALLOWAY

• House Bill 175, introduced by Representative MOUL

• House Bill 374, introduced by Representative TALLMAN

• House Bill 423, introduced by Representative PETRI

• House Bill 635, introduced by Representative SWANGER

Also noteworthy is House Bill 577, introduced by Representative ADOLPH , which would exempt certain disabled persons from payment of PA Inheritance Tax.

Extensions, Envelopes & Electricity

The deadline to file a PA Inheritance Tax Return for a Resident Decedent 

(PDF) is nine months after the date of death. What if a PIT Return cannot be filed by that deadline?

Answer: Request an extension to file.

In accordance with Section 2136 (d) of the Inheritance and Estate Tax Act of 1995, the time for filing the return is extended for an additional period of six months. That Section provides:

The returns required by subsection (a) shall be filed within nine months after the death of the decedent.

At any time prior to the expiration of the nine-month period, the department, in its discretion, may grant an extension of the time for filing a return for an additional period of six months.

Grant of an extension by the Department is routinely issued upon timely request, which will avoid the imposition of a penalty for failure to file a return by its deadline.

However, grant of an extension does not prevent interest from accruing on any tax remaining unpaid after the original deadline.

But, if you still cannot meet that extended deadline, then the return must enter a delinquent status with the Department:

Because Section 2136 (d) of the 1995 Act allows for only one extra period of six (6) months, no additional extension(s) will be granted that would exceed the maximum time permitted.

In the past, a request for extension was initiated by a signed letter sent to the PA Department of Revenue, Inheritance Tax Division, prior to the filing deadline. There was no standard form for use.

There still is no standard request form. But there is a new method for requesting such an extension.

Recently, Jack Meck, Esq., of Pittsburgh, PA, State Chair of the Pennsylvania Fellows of the American College of Trust & Estate Counsel, made available portions of a letter that he recently received from the PA DOR in response to one of his requests for extension.

A Supervisor for the Division's Document Processing Unit revealed a new method for requesting an extension to file a PIT Return:

We now offer you the option to request your extension request via e-mail.

Please use the following e-mail address: RA-InheritanceTaxExt@state.pa.us.

The letter requesting an extension may now become an email message, or an attachment to an email message.

The necessary information (decedent's name, Department file number, date of death, personal representative's name & contact data or counsel's name & contact data, and filing deadline), the reason for extension, and the request for extension should be set forth, just as before.

However, now it can be sent by electricity, not in an envelope.

That can save some time. But don't use that as an excuse for approaching a deadline even closer.


Update: 2012-07-02:

In requesting such an extension today, I noted a Q&A on this topic posted by the PA Department of Revenue (most recently updated on June 22, 2012), entitled What form do I file to get an extension of time for filing an inheritance tax return?.

The Department responded to the inquiry as follows: 

All that is needed is a letter to the Inheritance Tax Division prior to the due date of the return, identifying the decedent's name, date of death, and county file number and providing a brief explanation of the reason for the request.

The Q&A does not mention the email address previously identified (which I used today, along with a simultaneous fax to the number listed below).  The answer recommends delivery of the request letter by postal mail or by fax, as follows:

Department Of Revenue
Bureau of Individual Taxes
Inheritance Tax Division
P.O. Box 280601
Harrisburg PA 17128-0601

Fax number: 717-772-0412

Approved Software for PA Inheritance Tax Filings

On December 3, 2008, the Pennsylvania Department of Revenue, Inheritance Tax Division, updated its list of "Inheritance Tax Approved Software Vendors" that was sent to the Commonwealth's Registers of Wills.

The listed vendors, in their software packages, offer a form of the REV-1500 ("Pennsylvania Inheritance Tax Return -- Resident Decedent") that meets "the current standards" required by the Department. Some, but not all, of those same vendors also offer an approved form of the REV-346 ("Estate Information Sheet").

Following is the chart provided by the Department:

Company Name and REV-1500 software	REV-346 software
ATX
REV-1500	REV-346
CCH
REV-1500	REV-346
Data Tech Software Solutions
REV-1500	REV-346
Faster systems, LLC
REV-1500	Not included
Fast-Tax
REV-1500	Not included
GEMS
REV-1500	Not included
The Lackner Group, Inc.
REV-1500	REV-346
RIA
REV-1500	Not included
STF Services Group
REV-1500	REV-346
TaxWise
REV-1500	Not included
TAXWORKS
REV-1500	Not included

THORPE
REV-1500	Pending

The Department itself offers, online, both a standard PDF form of the REV-1500 and a "fill in" PDF form of the REV-1500 (June, 2005 revisions), along with related schedules, instructions, and other Inheritance Tax forms, on its Forms and Publications web page.

But, interestingly, the Department does not offer its own form REV-346 in the long list of forms posted on its Forms and Publication web page.

Instead, this form is found on the website of the Unified Judicial System of Pennsylvania, as posted in PDF format by the Administrative Office of Pennsylvania Courts.

REV-346 is RW-01 in the list of the court-approved, standardized Register of Wills forms:

• RW-01: Estate Infomation Sheet

• RW-01: Estate Information Sheet (Fill-In)

As you can see from the chart, presently there are twelve vendors offering software printing Pennsylvania Inheritance Tax returns for filing with the Department. You can automate production of PA Inheritance Tax Returns by choosing and using such software.

But, whatever you do, don't staple the return intended for the Department! Deadly, unpredictable delay might be your penalty.