Updated: Sept. 8, 2016
INHERITANCE TAX
How do the 2016 changes in legislation effect
Inheritance Tax?
The agriculture and small business exemptions are
affected by the change in legislation. Due to the
expanded definition of ”members of the same family,”
transfers made by a second-to-die spouse to relatives of
the first-to-die spouse are now included. The deductions
for family farms and family businesses are amended,
allowing for farm and business trusts whose beneficiaries
comprised solely of “members of the same family” to be
included. This change applies retroactively to estates
with a date of death after December 31, 2012, even if
the inheritance tax return has already been filed.
Also the new legislation requires that the inheritance tax
return be timely filed to be eligible to claim the
agriculture exemption.
If the changes to the legislation now make the
estate I filed for eligible for the exemption, how
can I now claim it?
If you have previously filed a return that would now
qualify for the exemption based on the expanded
definition of ”members of the same family,” you may
request an administrative correction. Your request for
an adjustment should include the reason the change
should be made. The request must be accompanied by
Schedule AU, REV-1197 for an agricultural exemption or
Schedule C-SB, REV-571 for the qualified business
exemption. If the administrative adjustment will result
in a credit, a refund may be requested by filing an
Application for Refund, REV-1313. Send your
correspondence, completed Schedule AU or C-SB, and if
applicable, the Application for Refund to:
Post Assessment Review Unit
Inheritance Tax Division
Pennsylvania Department of Revenue
PO BOX 280601
Harrisburg, PA 17128
Does a trust qualify for the agriculture exemption?
A trust whose beneficiaries are comprised solely of
“members of the same family” will qualify.
If the sole purpose of the business is the
management and leasing of real estate, does the
business qualify for the exclusion?
No.
Who is considered a "member of the same family"
for the "business of agriculture" exemption from
inheritance tax?
The decedent, the decedent's brothers, sisters, aunts,
uncles, great aunts, and great uncles, the ancestors and
lineal descendants of any of the foregoing, a spouse of
any of the foregoing, and the estate of any of the
foregoing. A trust for the sole benefit of “members of
the same family” will also qualify. Transfers made by a
second-to-die spouse will include any individuals with the
above mentioned relation to the first-to-die spouse.
Individuals related by the half blood or legal adoption are
treated as if they were related by the whole blood.
Who qualifies for the "business of agriculture"
exemption from inheritance tax?
In order to qualify for the "business of agriculture"
exemption, real estate must be: (1) devoted to the
business of agriculture at the time of the decedent's
death; (2) transferred to "members of the same family"
of the decedent. A trust for the sole benefit of
“members of the same family” will also qualify; (3)
continue to be devoted to the business of agriculture for
a period of seven years after the decedent's date of
death; (4) produce annual gross income of at least
$2,000 in the business of agriculture for a period of
seven years after the decedent's date of death; and (5)
the real estate is reported on a timely filed inheritance
tax return.
What does it mean to be “timely filed”?
To be reported on a timely filed return means the real
estate must be reported on a Pennsylvania Inheritance
Tax return filed within 9 months of the decedent's date
of death, or within 15 months of the decedent’s date of
death if the estate or person required to file the return
was granted the six-month statutory extension.
What documentation is required to maintain the
“business of agriculture” exemption?
Each new owner who owns real estate exempted from
inheritance tax pursuant to the business of agriculture
exemption must file a certification with the department
on an annual basis for a period of seven years after the
decedent's date of death. The certification is provided
by the department every January for the period of seven
years after the decedent’s death. The certification is due
Feb. 15 each year of the seven year period.
Are there any post-death requirements or
restrictions on the "business of agriculture"
exemption from inheritance tax?
Yes. For a period of seven years after the date of the
decedent's death, the exempted real estate must (1)
continue to be devoted to the business of agriculture;
and (2) derive an annual gross income of at least $2,000
per year in the business of agriculture. In addition, an
Updated: Sept. 8, 2016
INHERITANCE TAX
inheritance tax return must be filed timely and each new
owner who owns real estate exempted from inheritance
tax pursuant to the business of agriculture exemption
must comply with the annual certification requirement.
How many inheritance tax exemptions are
available pursuant to Act 85 of 2012?
Act 85 of 2012 created two exemptions, the "business of
agriculture" (72 P.S. § 9111(s)) and "farmland - other"
(72 P.S. § 9111(s.1)) exemptions. Each exemption has
its own requirements and the real estate is reported on a
timely filed inheritance tax return.
How do I claim the "business of agriculture"
exemption from the inheritance tax?
Individuals and/or estates wishing to take advantage of
the "business of agriculture" exemption must file a
timely filed inheritance tax return, report the parcel(s) of
real estate on either Schedule A, F or G, as appropriate,
and claim the exemption by completing Schedule AU and
providing the information and explanations as directed
on Schedule AU. The failure to complete Schedule AU or
provide any information requested by Schedule AU may
result in a denial of the exemption. One Schedule AU
should be completed for each parcel of real estate for
which the business of agriculture exemption is claimed.
How do I obtain the "business of agriculture"
exemption from inheritance tax annual
certification form?
Once the timely filed inheritance tax return, REV-1500,
requesting the business of agriculture exemption is
received and approved by the department, the
certification form will be mailed to each new owner
provided on the Schedule AU each January for a period
of seven years after the date of the decedent’s death
after department approval of exemption. The form must
be completed and returned to the department by Feb.
15th of each year by each new owner provided on the
Schedule AU.
When did the agricultural exemptions from
inheritance tax take effect?
Act 85 of 2012 created the "business of agriculture" (72
P.S. § 9111(s)) and "farmland - other" (72 P.S. §
9111(s.1)) exemptions from inheritance tax. They apply
to the estates of decedents whose date of death is after
June 30, 2012. Act 84 of 2016 created updates to Act 85
of 2012.
What are the requirements to qualify for the
“family-owned business” exemption from
inheritance tax?
Effective July 1, 2013, a small business exemption from
inheritance tax is available for a transfer of a “qualified
family-owned business interest” to one or more
”qualified transferees” or to a trust for the sole benefit of
“members of the same family” of the decedent; provided
that, after the transfer, the family-owned business
interest continues to be owned by a ”qualified
transferee” or a trust for the sole benefit of “members of
the same family” of the decedent for a minimum of
seven years after the decedent's date of death.
The exemption is limited to “qualified family-owned
business interests”, defined as having fewer than 50 full-
time equivalent employees, a net book value of assets
less than $5 million dollars, and being in existence for at
least five years at the decedent's date of death. In
addition, the principal purpose of the business must not
be the management of investments or income-producing
assets of the entity.
In addition, each new owner exempted from inheritance
tax pursuant to the family owned business exemption
must file a certification with the department on an
annual basis for a period of seven years after the
decedent's date of death. The certification is provided
by the department every January for the period of seven
years after the decedent’s death. The certification is due
Feb. 15 each year of the seven year period.
The exemption does not apply to property transferred to
the business within one year of the date of death, unless
the transfer is for a legitimate business purpose.
The exemption MUST be reported on a timely filed
inheritance tax return.
To be reported on a timely filed return means the
“qualified family-owned business interest” must be
reported on a Pennsylvania Inheritance Tax Return, REV
1500, filed within 9 months of the decedent's date of
death, or within 15 months of the decedent’s date of
death if the estate or person required to file the return
was granted the six-month statutory extension.
Who qualifies for the “family-owned business”
exemption from inheritance tax?
The decedent’s husband or wife, lineal descendants,
siblings and their lineal descendants, ancestors and their
siblings, and trusts for the sole benefit of “members of
the same family” as the decedent; provided, however,
that all other applicable statutory requirements are
satisfied.
Updated: Sept. 8, 2016
INHERITANCE TAX
If a “qualified family-owned business interest” is
transferred to a trust does it qualify for the
“family-owned business” exemption?3058
Yes, so long as such trust is solely for the benefit of
“members of the same family” as the decedent.
