(1)
In general. The
inheritance tax clearance is a written certificate of the department
documenting the satisfaction of the inheritance tax obligation of the persons
succeeding to the property included in the gross estate and the personal
representative of the estate, and also the obligation of the qualified heir, in
case special use valuation is elected under Iowa Code chapter 450B. The
clearance is either in the form of a full payment tax receipt or a statement
that no tax is due on the shares of the estate. Even though the department of
revenue has issued an inheritance tax clearance, the tax may be subject to
change as a result of any federal estate tax changes affecting the Iowa
inheritance tax. Absent an agreement to the contrary, the six-month extension
of the statute of limitations for assessing Iowa inheritance tax based on
federal audit adjustments is limited to federal audit adjustments that directly
affect Iowa inheritance tax and involve Iowa inheritance tax law that
incorporates Internal Revenue Code provisions-see Iowa Code section
450.94(5) and
Kelly-Springfield Tire Co. v. Iowa State Board of Tax Review,
414 N.W.2d 113 (Iowa 1987).
(2)
Limitations on the clearance. Limitations on the inheritance
clearance include, but are not limited to:
a.
If special use valuation has been elected under Iowa Code chapter 450B, a
clearance certifying all inheritance tax has been paid in full, or that no
inheritance tax is due, does not extend to any additional inheritance tax that
may be imposed under Iowa Code section
450B.3 by reason of the early
disposition or early cessation of the qualified use of the real estate
specially valued. Provided, this limitation shall be null and void if:
(1) The real estate specially valued remains
in qualified use for the ten-year period after the decedent's death,
or
(2) There is an early
disposition or early cessation of the qualified use and any additional
inheritance tax imposed by Iowa Code section
450B.3 is paid in
full.
b. The clearance
does not extend to property that is not reported on the return.
c. The clearance does not extend to a
fraudulently filed return or a return which misrepresents a material
fact.
d. The clearance does not
release an underlying tax obligation that remains unpaid, even though a
clearance may release the liens imposed by Iowa Code sections
450.7 and
450B.6.
(3)
The tax paid in full
clearance. Effective for estates of decedents dying on or after July
1, 1983, the distinction between full payment and partial payment clearances is
abolished. For estates of decedents dying on or after July 1, 1983, in which a
tax is due, only full payment clearances will be issued. The full payment
clearance will be issued only after all the tax, penalty and interest have been
paid in full. Provided, if the tax has been paid in full on some, but not all
of the shares in the estate, the department will, upon request, issue a full
payment clearance limited to those shares on which the tax has been paid in
full. The inheritance tax is a separate tax on each share of the estate and not
one tax on the estate itself. In re Estate of Stone, 132 Iowa
136, 109 N.W. 455 (1906). However, see paragraph 900.12(2)"a"
for the limitation on clearances if the estate elected the special use
valuation under Iowa Code chapter 450B.
(4)
The no tax due
clearance. If no tax is found to be due on any of the shares of the
estate, the department will issue a clearance certifying that no tax is due,
subject to the limitations in subrule 900.12(2).
(5)
Clearance releases the
lien.
a.
In general.
Two inheritance tax liens have been created by statute to secure the payment of
an inheritance tax. The lien created by Iowa Code section
450.7 secures the payment of the
tax imposed by Iowa Code section
450.3, regardless of whether the
tax is based on market value in the ordinary course of trade, the alternate
value or special use value. Iowa Code section
450B.6 creates a second lien to
secure the additional inheritance tax that may be due by reason of the early
disposition or early cessation of the qualified use of special use valuation
property.
b.
The section
450.7 lien. Effective
May 20, 1999, a ten-year statutory lien for inheritance tax on all estates is
imposed regardless of whether the decedent died prior to or subsequent to July
1, 1995. A lien is imposed for the inheritance tax on all the property of the
estate or owned by the decedent for a period of ten years from the date of
death of the decedent, unless a remainder or deferred interest is at issue,
then the statutory period for the lien may be extended beyond the ten-year
limitation to accommodate the term of the interest. For exceptions and
additional information, see Iowa Code section
450.7. A tax clearance releases
the lien imposed by Iowa Code section
450.7 on all of the property in
the gross estate that is reported on the return.
Effective for estates of decedents dying on or after July 1,
1984, if a tax, or additional tax, is found to be due after the issuance of an
inheritance tax clearance, the lien under Iowa Code section
450.7 does not have priority
against subsequent mortgages, purchases or judgment creditors, unless the
department gives notice of the lien by recording the notice in the office of
the recorder of the county where the estate is probated, or in the county where
the property is located, if the estate has not been administered. As a result,
if the department has issued an inheritance tax clearance, an examiner of real
estate or personal property titles can rely on this clearance as a release of
the inheritance tax lien even though additional tax may be due. This subrule
only pertains to the security for the tax under the lien provisions of Iowa
Code section 450.7. Other provisions for
security for payment of the tax such as judgment liens, mortgages, bonds and
distress warrants, are not affected by this subrule. See Iowa Code section
450B.6 and subrule 900.8(15) for
the lien for additional tax on property which has been valued at its special
use value.
This subrule can be illustrated by the following
example:
EXAMPLE: Decedent A died August 15, 1994, a resident of Iowa.
By will A devised a 160-acre farm to nephew B and all personal property to
niece C. The net estate consisted of the farm with a fair market value of
$2,000 per acre, or $320,000 and personal property worth $320,000. On May 24,
1995, the inheritance tax return was filed and tax of $88,000 ($44,000 for each
beneficiary) was paid. The department issued its unqualified inheritance tax
clearance on June 13, 1995. On July 5, 1995, C pledges some corporate stock
inherited from A as security for a bank loan. On August 1, 1995, additional
personal property was discovered worth $10,000 ($10,000 × 15% = $1,500)
and an amended inheritance tax return was filed without remittance. On August
15, 1995, the department filed an inheritance tax lien for the $1,500
additional tax plus interest (no penalty was imposed because 90 percent of the
tax was timely paid).
In this example, the bank's lien on the pledged corporate
stock is superior to the inheritance tax lien under Iowa Code section
450.7, because at the time the
stock was pledged (July 5, 1995), the department had not filed its lien for the
additional tax owing. Since only C owed additional tax, B's share of the estate
was not subject to the lien filed August 15, 1995.
c.
The section
450B.6 lien. This lien
has no application to estates of decedents dying prior to July 1, 1982. In
estates of decedents dying on or after July 1, 1982, the lien only applies to
the property which has been specially valued under Iowa Code chapter 450B. A
clearance certifying full payment of the additional inheritance tax imposed by
Iowa Code section 450B.3 releases the lien on the
property which was subject to the additional tax. Since the lien imposed by
Iowa Code section 450B.6 expires automatically ten
years after the decedent's death on property remaining in qualified use during
the ten-year period, a tax clearance is not required.
(6)
Distribution of the
clearance. Effective for estates of decedents dying on or after July
1, 1983, only an original inheritance tax clearance will be issued by the
department. The personal representative is required to designate on the return
who is to receive the clearance. If the return fails to designate a recipient,
the clearance will be sent to the clerk of the district court.
