Dept. of Revenue backs down on controversial Inheritance Tax policy

Memorandum

TO: CLIENTS, COLLEAGUES AND OTHERS WITH AN INTEREST IN THIS IMPORTANT MATTER
FROM: KAREN L. HACKMAN
DATE: NOVEMBER 25, 2014
RE: DEPARTMENT OF REVENUE’S “POLICY” FOR THE BUSINESS OF AGRICULTURE AND RELATED EXEMPTIONS AS A RESULT OF ACT 85 OF 2012. 

    For the benefit of those who were not privy to my prior emails reaching out to our representatives and senators throughout Central Pennsylvania, a bit of background information would be helpful. A few months ago in the course of designing an estate plan for a four generation farm family, I contacted the Pennsylvania Department of Revenue Inheritance Tax Division to request the status of regulations implementing Act 85 of 2012. I was advised that no regulations had been adopted nor are any presently under consideration. However, I was also advised that the Department’s “policy” was that transfers into trusts would not qualify for any of these exemptions. As many of you will appreciate, when I requested written communication stating that policy I was told that written confirmation was not possible. Thereafter, I began advising farmers and farm families, legislators and others of this policy. 

    Earlier today, I had a telephone call from Josh Funk, Counsel to Senator John Gordner. He called to advise that the Department’s policy is contrary to Sections 2102 and 2111(s) of the Tax Return Code. Section 2102 defines “transfer” as including the passage of ownership of property, or interest in property, or income from property, in possession or enjoyment, present or future, in trust or otherwise. The Senator’s office through Josh Funk has been in contact with the Pennsylvania Department of Revenue concerning this policy. He has been advised that the Department will cease and desist from the application of the policy. He was also advised that anyone currently appealing an assessment should provide him with the case number. If you do not reside in Senator Gordner’s district, I recommend contacting your senator and providing a copy of this memorandum along with the case number for your appeal.

    At this point in time, I have no pending cases on this issue before the Pennsylvania Department of Revenue. It is my belief that there are very few, if any, cases pending at this time. However, with this knowledge in hand, those of us working with farm families once again have the opportunity to consider the use of trusts in protecting the assets without exposing the family to an Inheritance Tax liability. Of course, income tax and other consideration should still be evaluated in selecting the structure that best fits the needs of each family.

    I am very grateful to the efforts of Senator Gordner and his staff for pursuing this matter in a timely manner and I have asked Josh Funk to keep me in the loop as to future developments in this regard. At the end of our conversation it was agreed that the Senator’s office would pursue written communication to this effect from the Department of Revenue. When I receive that communication, I will forward it to all of you. In the meantime, please contact me if you have any questions.