Tax Type
Estate Tax
Description
Gift Tax
Topic
Estates and Trusts
Date Issued
10-22-1982
October 22, 1982
Re: § 58-1118 Application/Estate Tax
Dear**********
This responds to your application for relief, on behalf of the Estate of ***** from an assessment of Virginia Estate Tax.
ISSUES
The Estate of ******* claims a credit against the Virginia Estate Tax payable in 1982 for the amount of ******* Virginia Gift Tax paid by the donor in 1980. The Estate relies on Commonwealth v. Lewis, 208 Va.221, 156 S.E.2d 589 (1967), an opinion based on the Virginia Inheritance & Gift Tax laws applicable until January 1, 1980, and on the then current position of the Internal Revenue Service, allowing previously paid State gift taxes to be certified by a state to the I.R.S. as state death taxes paid.
The Department of Taxation disallows such credit as no statutory authority now exists for allowing credit for gift tax paid, either in the Virginia Estate Tax Act, effective for transfers of decedents dying on or after January 1, 1980, or in the Internal Revenue Code and the Rules & Regulations promulgated thereunder.
FACTS
In January, 1979, the decedent, ******made a gift to his son, ******* of 25.6 acres in ***** County, Virginia. A Virginia Gift Tax of $ ****** was paid on this transfer. The property was valued on the Gift Tax Return at $******
************* died October 23, 1981. Since this was within three years of the date of the gift, the date-of-death value of the property, $**** was brought back into his estate for purposes of the federal Estate Tax. The gift tax previously paid to Virginia is not deductible on the Federal return. However, on the Virginia Estate Tax Return, the taxpayer took a credit for the previously paid gift tax of $**** against the tax due of $ ***** thus netting Virginia only $ ***** in Estate Tax on a taxable estate of $ **** A Notice of assessment was thereupon issued on August 4, 1982, for $ ***** plus $***** interest, for a total of $ *************
DETERMINATION
Under the former Virginia Inheritance Tax law, § 58-158 of the Code of Virginia provided that a credit be allowed against the tax for any gift tax previously paid. Commonwealth v. Lewis, supra, interpreted the "inheritance tax" against which the gift tax could be credited to refer also to the "pick-up" tax imposed by § 58-162, an alternate minimum tax based on the State Death Tax Credit on the federal Estate Tax Return.
The 1978 Virginia General Assembly replaced the Inheritance & Gift Tax laws with an Estate Tax for transfers made on and after January 1, 1980. § 58-238.3 of the new Estate Tax law imposes a tax "in the amount of the federal credit." § 58-238.2 defines "federal credit" as the "maximum amount of the credit for State death taxes allowable by § 2011 of the United States Internal Revenue Code of 1954, as amended ...." Nowhere in the new Estate Tax law is there any credit allowance for taxes paid under the former Gift Tax law.
The General Assembly chose to start with a clean slate, without referring back to the former Inheritance & Gift Tax laws except to note that the former laws would apply to taxes due with respect to estates of decedents dying before January 1, 1980, and for transfers made on or before that date. The decedent in the present controversy died after that date, and his estate is taxable under the new Virginia Estate Tax laws. It would be unlawful, therefore, for the department to allow this taxpayer to utilize a credit allowed by § 58-158 and the Lewis case since they are not the applicable law here.
Moreover, I.R.S. Revenue Ruling 81-302, issued December 28, 1981, disallowing certification of State Gift Tax paid for purposes of the federal Credit for State Gift Taxes, lays the Estate's claim completely to rest. The ruling explicitly revokes Revenue Rulings 71-355 and 75-63 which had allowed certification of State gift tax paid. Therefore, assuming arguendo that we allowed the Estate a credit against the Virginia Estate Tax, the Estate would still be liable on the federal Estate Tax return for the amount we credited, since we cannot certify that amount to the I.R.S. as State death taxes paid.
Our final determination, therefore, is to deny your application for relief from the assessment of Estate Tax and interest as there is no authority under Virginia or federal law to allow a credit for gift taxes paid against the Virginia Estate Tax.
Sincerely,
W. H. Forst
State Tax Commissioner
Rulings of the Tax Commissioner