The Inheritance and Estate Tax Act – PART VII

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 (Article XXI of the Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6, No. 2, added by Act of Aug. 4, 1991, P.L. 97, No. 22, as amended.)

— PAYMENT OF TAX —

Section 2136. Returns.

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

______(1) The personal representative of the estate of the decedent as to property of the decedent administered by him and additional property which is or may be subject to inheritance tax of which he shall have or acquire knowledge.

______(2) The transferee of property upon the transfer of which inheritance tax is or may be imposed by this article, including a trustee of property transferred in trust. No separate return need be made by the transferee of property included in the return of a personal representative.

___(b) The inclusion of property in the return shall not constitute an admission that its transfer is taxable.

___(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.

___(d) 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.

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

___(f) When the decedent was a resident, the returns shall be filed with the register. When the decedent was a nonresident, the returns shall be filed with the register who issued letters, if any, in this Commonwealth; otherwise, the returns shall be filed with the department.

Section 2137. Appraisement.

___The department shall have supervision over, and make or cause to be made, fair and conscionable appraisements of property the transfer of which is subject to tax under this article. The appraisement, unless suspended until audit, shall be made within six months after the return has been filed and, if not so made, shall be made within an additional period as the court, upon application of any party in interest, including the personal representative, shall fix.

Section 2138. Deductions.

___The official with whom the return is required by subsection (f) of section 2136 to be filed shall determine the allowance or disallowance of all deductions claimed. The determination, unless suspended until audit, shall be made within six months after the claim for allowance has been filed and, if not so made, shall be made within such further period as the court, upon application by any party in interest, including the personal representative, shall fix. However, the court, at the request of the fiduciary at the audit of his account, may determine and allow, as deductions, all properly deductible credits claimed in the account or allowed at the audit without requiring the filing of a separate claim for them, and the court may then fix the amount of the tax and decree payment of the tax. Deductions exceeding one hundred dollars ($100) in the aggregate shall not be allowed by the court unless the Commonwealth is represented at the audit by counsel or unless there is proof that the register has had at least thirty days notice of the claim.

Section 2139. Assessment of Tax.

___After the appraisement has been made and the allowance or disallowance of deductions determined, the inheritance tax, as affected by the court’s determination of the allowance or disallowance of deductions as provided in section 2138, shall be assessed by the official with whom the return is required to be filed under subsection (f) of section 2136. The assessment, unless suspended until audit, shall be made within one month after the filing of the appraisement or determination of deductions, whichever occurs later, and, if not so made, shall be made within an additional period as the court, upon application by any party in interest, including the personal representative, shall fix.

Section 2140. Notice.

___The department shall give, or cause to be given, notice of the filing of the appraisement, the determination of the allowance or disallowance of deductions and the amount of tax assessed, and all supplements, to the personal representative and to any transferee who filed a tax return or to their respective attorneys.

Section 2141. Failure to File Returns Not a Bar to Assessment of Tax.

___Failure to file a return of a taxable transfer shall not bar the making of an appraisement or supplemental appraisement or assessment of tax or supplemental assessment of tax based upon taxable transfers not returned under the provisions of this article.

Section 2142. Payment Date and Discount.

___Inheritance tax is due at the date of the decedent’s death and shall become delinquent at the expiration of nine months after the decedent’s death. To the extent that the inheritance tax is paid within three months after the death of the decedent, a discount of five per cent shall be allowed.

Section 2143. Interest.

___If the inheritance tax is not paid before the date it becomes delinquent, interest on the unpaid tax shall be charged after the date of delinquency at the rate established pursuant to section 806 of the Act of April 9, 1929 (P.L. 343, No. 176), known as “The Fiscal Code.” When payment of inheritance tax is not made because of litigation or other unavoidable cause of delay and the property on which the tax has been calculated has remained in the hands of a fiduciary and has not produced a net income equal to the rate of interest provided in this section annually, interest for such period shall be calculated at the rate of the net income produced by the property. Any payment on delinquent inheritance tax shall be applied first to any interest due on the tax at the date of payment and then, if there is any balance, to the tax itself.

Section 2144. Source of Payment.

___(a) In the absence of a contrary intent appearing in the will, the inheritance tax, including interest, on the transfer of property which passes by will absolutely and in fee, and which is not part of the residuary estate, shall be paid out of the residuary estate and charged in the same manner as a general administration expense of the estate. The payments shall be made by the personal representative and, if not so paid, shall be made by the transferee of the residuary estate.

___(b) In the absence of a contrary intent appearing in the inter vivos trust, the inheritance tax, including interest, on the transfer of property which passes absolutely and in fee by inter vivos trust, and which is not part of the residue of the inter vivos trust, shall be paid out of the residue of the trust and charged in the same manner as a general administration expense of the trust. The payment shall be made by the trustee and, if not so paid, shall be made by the transferee of the residue of the trust.

___(c) In the absence of a contrary intent appearing in the will, the inheritance tax, including interest, on the transfer of property which passes by will other than absolutely and in fee, and which is not part of the residuary estate, shall be paid out of the residuary estate and charged in the same manner as a general administration expense of the estate. The payment shall be made by the personal representative and, if not so paid, shall be made by the transferee of the residuary estate.

___(d) In the absence of a contrary intent appearing in the inter vivos trust, the inheritance tax, including interest, on the transfer of property which passes other than absolutely and in fee by inter vivos trust, and which is not part of the residue of the inter vivos trust, shall be paid out of the residue of the trust and charged in the same manner as a general administration expense of the trust. The payment shall be made by the trustee and, if not so paid, shall be made by the transferee of the residue of the trust.

___(e) In the absence of a contrary intent appearing in the will or other instrument of transfer, the inheritance tax, in the case of a transfer of any estate, income or interest for a term of years, for life or for other limited period, shall be paid out of the principal of the property by which the estate, income or interest is supported, except as otherwise provided in subsection (c) or (d). The payment shall be made by the personal representative or trustee and, if not so paid, shall be made by the transferee of such principal.

___(e.1) In the absence of a contrary intent appearing in the will or other instrument of transfer creating the trust or similar arrangement, and in the absence of a contrary intent appearing in the will or other instrument of transfer of the surviving spouse which expressly refers to the trust or similar arrangement, the inheritance tax, including interest, due at the death of a surviving spouse with respect to a trust or similar arrangement to which section 2113(b) is applicable shall be paid out of the residue of the principal of the trust or similar arrangement and charged as a general administration expense of the trust or similar arrangement. The payment shall be made by the trustee or other fiduciary in possession of the property and, if not so paid, shall be made by the transferee of the residue of the trust or similar arrangement.

___(f) In the absence of a contrary intent appearing in the will or other instrument of transfer and except as otherwise provided in this section, the ultimate liability for the inheritance tax, including interest, shall be upon each transferee.

[Subsection (e.1) was added by the Act of June 16, 1994, P.L. 279, No. 48, and was reenacted and amended by Section 21 of the Act of June 30, 1995, P.L. 139, No. 21, effective for decedents dying on or after January 1, 1995.]

Section 2145. Estate Tax Return.

___(a) The person or persons required by section 2136 to make the inheritance tax return shall be initially liable for payment of the estate tax.

___(b) The personal representative of every decedent or, if there is no personal representative, any other fiduciary charged by law with the duty of filing a Federal estate tax return, within one month of the filing or receipt of the return shall file with the register or, if the decedent was a nonresident, with the register who issued letters, if any, in this Commonwealth, or otherwise with the department, a copy of his Federal estate tax return and of any communication from the Federal Government making any final change in the return or of the tax due. The assessment of estate tax shall be made by the register or department within three months after the filing of the documents required to be filed and, if not so made, shall be made within an additional period as the court, upon application of any party in interest, including the personal representative, shall fix.

___(c) The estate tax is due at the date of the decedent’s death but shall not become delinquent until the expiration of nine months after decedent’s death. Any estate tax occasioned by a final change in the Federal return or of the tax due shall not become delinquent until the expiration of one month after the person or persons liable to pay the tax have received final notice of the increase in the Federal estate tax.

___(d) No discount shall be allowed in paying the estate tax.

___(e) If the estate tax is not paid before the date it becomes delinquent under subsection (c), interest on the unpaid tax shall be charged after the date of delinquency at the rate established in section 2143.

___(f) The estate tax shall be apportioned and ultimately borne in accordance with the provisions of 20 Pa.C.S. Ch. 37 (relating to apportionment of death taxes) unless otherwise provided by this article or in the instrument of transfer.

___(g) When the decedent was a resident, the estate tax shall be paid to the register. When the decedent was a nonresident, the estate tax shall be paid to the register who issued letters, if any, in this Commonwealth; otherwise, it shall be paid to the department.

Section 2146. Deduction and Collection of Tax by Personal Representative or Other Fiduciary.

___Subject to the provisions of sections 2144 and 2154, every personal representative or other fiduciary (other than a trustee of a pension, stock-bonus, profit-sharing, retirement annuity, deferred compensation, disability, death benefit, or other employee benefit plan) in charge of or in possession of any property, or instrument evidencing ownership of property, the transfer of which is subject to a tax imposed by this article other than a tax on a future interest not yet delinquent, shall deduct the tax from the property, if money, or shall collect the tax from the transferee. Any delivery of property or instrument by the fiduciary to a transferee, except in accordance with a decree of distribution of the court or pursuant to a duly executed notice of election filed under section 2154, shall not relieve him of personal liability for a tax imposed by this article. No personal representative or other fiduciary in charge of or in possession of any property subject to this article shall be compelled to pay or deliver it to the transferee except upon payment to him of the tax due other than tax on a future interest not yet delinquent. If the transferee neglects or refuses to pay the tax, the personal representative or other fiduciary may sell the property subject to the tax, or so much of the property as is necessary, under direction of the court. All money retained by the personal representative or other fiduciary, or paid to him on account of the taxes imposed by this article, shall be remitted by him before the tax becomes delinquent or, if received after the tax becomes delinquent, shall be remitted by him promptly upon its receipt.

Section 2147. Duties of Depositories.

___When money is deposited or invested in a financial institution located in this Commonwealth in the names of two or more persons, other than husband and wife, or in the name of a person or persons in trust for another or others, and one of the parties to the deposit or investment dies, it shall be the duty of the financial institution, within ten days after knowledge of the death, to notify the department, giving the name of the deceased person, the date of the creation of the joint or trust deposit or investment, the amount invested or on deposit at the date of death with the financial institution and the name and address of the survivor or survivors to the account. No notification shall be required in regard to the account when the deposit at the time of death does not exceed three hundred dollars ($300).

Section 2148. Compromise by Department.

___The department, with the approval of the Attorney General, may compromise in writing, with the person liable, the tax, including interest on the tax, payable on any transfer of property included in the estate of any decedent who it is alleged was a nonresident at the time of his death. A copy of the compromise agreement shall be filed with the register who issued letters, if any, in this Commonwealth; otherwise, it shall be filed with the department. The compromise agreement shall constitute a final determination of the matters covered by it and the payment of the tax, as fixed by the agreement, shall discharge all persons and property from liability with respect to the tax.

Section 2149. Interstate Compromise and Arbitration of Inheritance Taxes.

___When the register or the department alleges that a decedent was a resident of this Commonwealth at the time of his death, and the taxing authorities of another state or territory make a like claim on behalf of their state or territory, a written agreement of compromise or a written agreement to submit the controversy to a board of arbitrators may be made under Part VIII.

Section 2150. Extension of Time for Payment.

___The department may, for reasonable cause, extend the time for payment of any part of the inheritance tax and may, if deemed necessary for the protection of the interest of this Commonwealth, require the transferee in present possession or, if a trust is involved, the trustee to file a bond in the name of the Commonwealth with sufficient surety, in an amount not exceeding twice the tax computed when the bond is given at the highest rate possible in the specific contingencies involved (reduced by the amount of any partial payment made) and conditioned for the payment of the tax at such postponed due date, together with interest from the due date to the payment date. No bond shall be required under this section if the trustee or one of the trustees is a bank and trust company or a trust company incorporated in this Commonwealth or a national banking association having its principal office in this Commonwealth. The bond required shall be filed in the office of the register.

Section 2151. Bond for Delinquent Tax.

___The court, in its discretion, at any time after a tax imposed by this article becomes delinquent, upon application of the department, may require any person liable for a tax imposed by this article to give a bond for its payment. The bond shall be in the name of the Commonwealth, in such amount and with such surety as the court approves and conditioned for the payment of the tax, plus interest at the same rate as the interest rate on deficiencies provided for in section 2143, commencing on the date the tax became delinquent, within a time certain to be fixed by the court and specified in the bond. The bond required shall be filed in the office of the register.

Section 2152. Evidence of Payment of Tax for Real Estate in Another County.

___When any tax is imposed and paid under this article on real estate located in a county other than that of the register who received payment, the register shall immediately forward to the register of the county where the real estate is located a certificate of the payment of the tax on the real estate which shall be entered of record in his office. The register of the county where the real estate is located shall be entitled to a fee of two dollars ($2) for entering the record of payment to be paid as a part of the administration expenses of the decedent’s estate.

Section 2153. Penalties.

___(a) Any person who willfully fails to file a return or other report required of him under the provisions of sections 2136 and 2145 shall be personally liable, in addition to any liability imposed elsewhere in this article, to a penalty of twenty-five per cent of the tax ultimately found to be due or one thousand dollars ($1,000), whichever is less, to be recovered by the department as debts of like amount are recoverable by law.

___(b) Any financial institution which fails to give the notice required by section 2147 shall be liable to a penalty of one hundred dollars ($100) to be recovered by the department as debts of like amount are recoverable by law.

___(c) Any person who willfully makes a false return or report required of him under the provisions of this article, in addition to any liability imposed elsewhere in this article, commits a misdemeanor of the third degree.

Section 2154. Payment of Tax for Small Business Transfers.

___(a) Notwithstanding the provisions of section 2142, the inheritance tax due under this article on the transfer of a small business interest may be paid by the qualified transferee in consecutive quarterly installments beginning immediately following the expiration of nine months after the decedent’s death. The tax may be paid in twenty consecutive quarterly installments.

___(b) The tax shall be paid in consecutive quarterly installments due on March 31, June 30, September 30 and December 31 of each year, provided the return required by section 2136 is timely filed, along with a notice of election executed by the qualified transferee and joined in by the personal representative which shall relieve the personal representative or other fiduciary of liability for the collection and payment of tax under section 2146. The notice of election shall be completed on a form prescribed by the department containing at least the following information:

______(1) The name of the decedent and date of death.

______(2) The name or names of the personal representative or other fiduciary.

______(3) The name or names of the qualified transferees filing the election.

______(4) A description and estimated valuation of the business interest on which tax is due.

______(5) A statement that the qualified transferees assume full personal responsibility for the tax. Each notice of election shall be affirmed before an officer empowered to administer oaths. The installment payment of tax shall bear interest at the rate of nine per cent per annum.

___(c) In the event any portion of a small business interest on which the installment payment of tax has been elected is sold, exchanged or otherwise disposed of prior to the expiration of five years following the date of death and that portion equals or exceeds fifty per cent of the total value of the small business interest received by the qualified transferee, the transferee shall immediately provide written notice of the sale, exchange or disposition to the department, and the full amount of the tax then outstanding on that portion shall become due and payable at the expiration of sixty days following the date of sale, exchange or other disposition.

___(d) For purposes of this section, the term “small business interest” means an interest in an operating trade or business entity the principal purpose of which is not the management of investments or income producing assets owned by the entity which has employed an average of less than fifty full-time employees during the twelve months immediately preceding the date of death and which meets one of the following criteria:

______(1) An interest as a proprietor in a trade or business carried on as a proprietorship.

______(2) An interest as a partner in a partnership carrying on a trade or business if:

_________(i) twenty per cent or more of the total capital interest in the partnership is included in determining the gross estate of the decedent; or

_________(ii) the partnership had ten or less partners.

______(3) Stock in a corporation carrying on a trade or business if:

_________(i) twenty per cent or more in value of the voting stock of the corporation is included in determining the gross estate of the decedent; or

_________(ii) the corporation had ten or less shareholders.

___(e) Qualified transferee defined. For purposes of this section, the term “qualified transferee” means a legatee or other transferee receiving:

______(1) ten per cent or more of the value of a proprietorship qualifying as a small business interest as defined in subsection (d);

______(2) ten per cent or more of the total capital interest in a partnership qualifying as a small business interest as defined in subsection (d); or

______(3) ten per cent or more in value of the voting stock of a corporation qualifying as a small business interest as defined in subsection (d).


Evans Law Office
Daniel B. Evans, Attorney at Law
P.O. Box 27370
Philadelphia, PA 19118
Telephone: (866) 348-4250
Email: resources@evans-legal.com

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