Tax News

CCH (cch.taxgroup.com) reports:

  The estate of a person who died in 2003 could not avoid imposition of Illinois estate tax for a taxable property transfer with a tax situs within the state by merely electing to forego a credit for state death taxes under IRC §2011 on its federal tax return, according to a majority of the Illinois Appellate Court. A ruling in favor of the estate was reversed.

  In the case, the decedent's death followed her parents' death, entitling the estate to a prior transfer credit against the federal estate taxes that covered most of the federal liability. Consequently, the estate did not claim any state tax credit against federal liability and, according to the estate, it therefore was not liable for any state estate tax. When in 2003 Illinois decoupled from federal estate law following enactment of the Federal Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the estate continued, it changed the amount of tax due as the amount of state tax credit "allowed" against federal tax, as opposed to the amount of state credit "allowable," as set out in the previous version of the state law. Since the amount "allowed" was equal to the amount actually claimed, there was no tax due under the "unique" and "unusual" circumstances of this case, the estate concluded.

  The state argued that the estate's interpretation of the amended state statute that placed responsibility on the estate itself to decide whether it owed state tax simply by claiming a state death tax credit on its federal return was "absurd." The plain language of the amended statute, along with the legislative purpose of decoupling the state tax from the federal system in order to retain revenue, demonstrated that the Legislature intended for the estate to pay state tax in this case, even where no credit was claimed against the federal tax.

  The appellate court agreed with the state. Irrespective of whether the estate could claim a credit against the federal tax, the Illinois estate tax was due as the credit would have been computed and allowed under the IRC in 2001, the court held.