| September 2008 Inheritance Tax Advisory |
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Form IT-1, Inheritance Tax Return, is available.
Natural Resource and Fishing Business Property Credit Update
As a result of law changes for natural resource and fishing business property, described below, we revised Oregon Form IT-1 and instructions and designed Schedule NRC. Please use the revised Form IT-1 and new Schedule NRC when claiming the new Natural Resource or Fishing Business Property credit. Do not file Form IT-1 or Schedule NRC to claim the new credit until the new law is effective on May 23, 2008.
The revised Form IT-1 and new Schedule NRC are now available on our website.
The 2007 Oregon Legislature passed House Bill 3201. Section 68 of HB 3201 allows an exclusion from the gross estate of a decedent for natural resource property, not to exceed $7.5 million; or an exclusion from the gross estate of a decedent for property used in commercial fishing operations (processing and marketing), not to exceed $7.5 million. This exclusion was codified into Oregon Revised Statute (ORS) 118.140. The 2008 Oregon State Legislative Assembly Special Session passed House Bill 3618. HB 3618 amends ORS 118.140 to allow a credit against estate tax of the decedent for natural resource property or fishing business property. HB 3618 becomes effective on May 23, 2008 and will be retroactive to deaths occurring on or after January 1, 2007. The current law, ORS 118.140, allowing the $7.5 million exclusion (passed in 2007 via HB 3201) becomes obsolete when HB 3618 becomes effective on May 23, 2008.
If you claim the new credit or are directly affected by the changes detailed in HB 3618, you have additional time to file your 2007 Form IT-1 without penalty or interest being assessed. Inheritance tax returns, on which the new credit is claimed, or where the prior exclusion was taken, are not due, and no tax is owed by those estates, prior to September 1, 2008. This extended due date is provided for in HB 3619, Section 9.
If you already filed a 2007 Form IT-1 and claimed the exclusion, allowed under the current law, ORS 118.140, and have not received a letter from the department, please contact us now at estate.help.dor@state.or.us. Please provide the name of the personal representative or the authorized representative and a daytime telephone number in your e-mail.
Transfers of property within three-years before death
In the 2006 Oregon Inheritance Tax Return instructions (Rev. 8-06) for gross estate (page 1, left column), we stated the gross estate includes “...all transfers of property made by the decedent within the three-year period ending on the date of death.”
We based our position on Oregon Revised Statute (ORS) 118.160(2) and Oregon Administrative Rule (OAR) 150-118.005(2)(f). In summary, OAR 150-118.005(2)(f) provides that the gross taxable estate includes... gifts made within the three-year period ending on the date of death.
We revisited our position on the three-year gifts issue and determined that the rule does not reflect the provisions of ORS 118.007, which connects the Oregon determination of the gross estate to the Internal Revenue Code as it existed on December 31, 2000. Instead, the rule reflects a connection to prior federal law, which did require inclusion of gifts within three years of death in an estate for federal tax purposes. We are removing this requirement from our instructions, eliminating inclusion of the three-year gifts in the gross estate. We will revise OAR 150-118.005 and update you on our progress.
If you filed a 2006 Form IT-1, Oregon Inheritance Tax Return, and included gifts made within the three-year period ending on the date of death, you may amend the 2006 inheritance tax return. Attach a statement explaining your reason for amending.
Connection to the Internal Revenue Code (IRC)Oregon inheritance tax law is tied to federal estate tax law as of December 31, 2000.
- Compute tentative tax on taxable estate using Table A.
- Compute Oregon Inheritance Tax using Table B.
Oregon inheritance tax is 100 percent of the state death tax credit allowed by 2000 federal law, not the reduced amount as allowed on the 2002-2004 federal estate return (Form 706).
As of 2005, the federal estate tax law allows the state death tax as a deduction on Form 706. Oregon does not allow the calculation of taxable estate after the state death tax deduction.
Separate Oregon elections House Bill (HB) 3072 effective November 26, 2003
- Oregon Administrative Rule (OAR) 150-118.010(7) effective May 1, 2004.
- Separate election examples.
- Alternate valuation (IRC section 2032).
- Valued as of six months after date of death.
- Marital deduction or Qualified Terminal Interest Property (QTIP) (IRC section 2056).
- Attach Schedule M "For Oregon Only," which identifies the additional "Oregon Marital Property."
- Election irrevocable.
HB 2469 effective November 4, 2005
- Oregon Revised Statutes (ORS) 118.013, 118.016, 118.019.
- 2002–2005 returns filed before November 4, 2005 may be amended until December 31, 2006 to claim the Oregon Special Marital Property deduction.
- Attach the notarized Oregon Special Marital Property consent form.
- Election irrevocable.
HB 2007 effective September 27, 2007
- Provides marital advantages on Form IT-1, for registered same sex domestic partnerships.
- We expect the county clerks registry to be available in 2008.
HB 3201 effective September 27, 2007
Update: HB 3201 will be obsolete on May 22, 2008. It was amended by 2008 HB 3618 and 3619, Section 9, both effective May 23, 2008.
- For deaths on or after January 1, 2007.
- Provides an exclusion of value for farm, forest, or commercial fishing property, up to $7.5 million, if transferred to the surviving spouse, a child, grandchild, sibling, niece, or nephew.
- The excluded property must be used as natural resource property for five out of eight years after the death, or additional tax is due.
HB 3618 effective May 23, 2008
- Retroactive to deaths on or after January 1, 2007.
- Credit allowed on value of natural resource or fishing business property, if property transferred to decedent’s:
- Family member, or
- Registered domestic partner.
- Total adjusted gross estate may not exceed $15 million.
- Natural resource property or fishing business property must be at least 50 percent of the adjusted gross estate.
- Use of property for five out of eight years before the death and after death, or additional tax is due.
Oregon Inheritance Tax Return form and instructions
Contact us with questions about inheritance tax.
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