Tax Type
Estate Tax
Description
Nonresident estate
Topic
Basis of Tax
Date Issued
11-14-1990
November 15, 1990
Re: §58.1-1821 Application; Estate Tax
Dear ****
This will reply to a letter of June 5, 1990, written on behalf of the above-named estate, in which an application was made for correction of an estate tax assessment.
FACTS
The federal estate tax return of a nonresident included Virginia properties in the gross estate. The values included in the gross estate were computed by subtracting the amount of indebtedness on the properties from the appraised value. The auditor recomputed the gross estate by including the entire appraised value of the properties in the gross estate and increased the portion of the federal credit for state death taxes attributable to Virginia, resulting in the assessment of additional estate tax. The estate's representative claims that the mortgages are nonrecourse loans, and neither the decedent nor his estate are liable for the indebtedness; therefore, only the net value of the real property (appraised value less the amount of indebtedness) should be included in the decedent's gross estate.
DETERMINATION
The amount of estate tax due Virginia is based on the maximum amount of the credit for state death taxes allowable under Internal Revenue Code (IRC) §2011. For a nonresident estate, the tax due Virginia is computed by multiplying the federal credit by a fraction, the numerator of which is the value of the portion of the gross estate over which Virginia has jurisdiction, and the denominator of which is the value of the decedent's gross estate. The value of the gross estate is determined in accordance with IRC §2031.
Under federal estate tax law. if the estate is liable for the payment of a mortgage or other indebtedness against property the full value of the property must be included in the gross estate, and the amount of the mortgage or other indebtedness is taken as a deduction. If the estate is not liable, no deduction may be taken. but only the net value of the property should b included in the gross estate. U.S. Teras. Reg. §20.2053-7.
According to information and documents provided with this application, the Virginia properties were secured by promissory notes secured by deeds of trust. All the notes were signed by the decedent's son, as trustee; none were signed by the decedent. The decedent was not liable for payment of the notes. Because neither the decedent nor his estate were liable for payment of the indebtedness on the properties, only the net value of the properties (appraised value less the amount of indebtedness) should be included in the gross estate, in accordance with U.S. Teras. Reg. §20.2053-7. Therefore, the computation of the gross estate and the apportionment of the state death tax credit on the estate tax return was correct.
Accordingly, the assessment will be abated.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner