TITLE XI
INHERITANCE, ESTATE, GENERATION SKIPPING, AND FIDUCIARY INCOME TAX
CHAPTER 86
INHERITANCE TAX
[Prior to 12/17/86, Revenue Department[730]]
701—86.1(450) Administration.
	86.1(1) Definitions. The following definitions cover Chapter 86.
“Administrator” means the administrator of the compliance division of the department of revenue.
“Child” means a biological or adopted issue entitled to inherit pursuant to Iowa Code chapter 633.
“Compliance division” is the administrative unit of the department created by the director to administer the inheritance and fiduciary income tax laws of the state.
“Department” means the department of revenue.
“Devise,” when used as a verb, means to dispose of property, both real and personal, by a will.
“Director” means the director of revenue.
“Estate” means the real and personal property, tangible and intangible, of the decedent or a trust, that over time may change in form due to sale, reinvestment, or otherwise, and augmented by accretions or additions thereto and substitutions therefor, or diminished by any decreases and distributions therefrom. For the definitions of “gross estate” and “net estate” under this chapter, see those terms as referenced in this subrule.
“Executor” means any person appointed by the court to administer the estate of a testate decedent.
“Fiduciary” includes personal representative, executor, administrator, and trustee. This term includes both temporary and permanent fiduciaries appointed by the court to settle the decedent’s probate estate and also the trustee of an inter vivos trust where the trust assets are part of the gross estate for inheritance tax purposes.
“Gross estate” as used for inheritance tax purposes as defined in Iowa Code section 450.2 includes all those items, or interests in property, passing by any method of transfer specified in Iowa Code section 450.3 without reduction for liabilities specified in Iowa Code section 450.12. The gross estate for tax purposes may not be the same as the estate for probate purposes. For example, property owned as joint tenants with right of survivorship, property transferred with a retained life use, gifts in excess of the annual gift tax exclusion set forth in Internal Revenue Code Section 2503(b) and within three years of death, transfers to take effect in possession or enjoyment at death, trust property, “pay on death” accounts, annuities, and certain retirement plans, are not part of the decedent’s probate estate, but are includable in the decedent’s gross estate for inheritance tax purposes. In re Louden’s Estate, 249 Iowa 1393, 92 N.W.2d 409 (1958); In re Sayres’ Estate, 245 Iowa 132, 60 N.W.2d 120 (1953); In re Toy’s Estate, 220 Iowa 825, 263 N.W. 501 (1935); In re Mann’s Estate, 219 Iowa 597, 258 N.W. 904 (1935); Matter of Bliven’s Estate, 236 N.W.2d 366 (Iowa 1975); In re English’s Estate, 206 N.W.2d 305 (Iowa 1973).
Effective for estates of a decedent dying on or after July 1, 2003, property and any interest in or income from any of the estates and property, which pass from the decedent owner in any manner, are subject to tax if the passing interest is in one of the following: (1) real estate and tangible personal property located in Iowa regardless of whether the decedent was a resident of Iowa at death; and (2) intangible personal property owned by a decedent domiciled in Iowa.
“Gross share” means the total amount of property of an heir, beneficiary, surviving joint tenant, or transferee, without reduction of those items properly deductible in computing the net shares. The total of all gross shares is equal to the gross estate.
“Heir” includes any person, except the surviving spouse, who is entitled to property of the decedent under the statutes of intestate succession.
“Internal Revenue Code” means the Internal Revenue Code of 1954 as defined in Iowa Code section 422.3(5) and is to include the revisions to the Internal Revenue Code made in 1986 and all subsequent revisions.
“Intestate estate” means an estate in which the decedent did not have a will. Administration of such estates is governed by Iowa Code sections 633.227 through 633.230. Rules of inheritance for such estates are found in Iowa Code sections 633.211 through 633.226.
“Issue,” for the purpose of intestate succession, means all lawful lineal descendants of a person, whether biological or adopted. For details regarding intestate succession, see Iowa Code sections 633.210 through 633.226. For details regarding partial intestate succession, see Iowa Code section 633.272.
“Net estate” means the gross estate less those items specified in Iowa Code section 450.12 as deductions in determining the net shares of property of each heir, beneficiary, surviving joint tenant, or transferee. In re Estate of Waddington, 201 N.W.2d 77 (Iowa 1972). The total of all net shares of an estate must equal the total of the net estate.
“Net share” means the gross share less the liabilities, if any, which are properly deductible from the gross share of an heir, beneficiary, surviving joint tenant, or transferee. The law of abatement of shares may be applicable for purposes of determining the net share subject to tax. See Iowa Code section 633.436; In re Estate of Noe, 195 N.W.2d 361 (Iowa 1972); Colthurst v.	Colthurst, 265 N.W.2d 590 (Iowa 1978); In re Estate of Duhme, 267 N.W.2d 688 (Iowa 1978). However, see Iowa Code section 633.278 for property subject to a mortgage.
“Personal representative” shall have the same meaning as the term is defined in Iowa Code section 633.3(29) and shall also include trustees. For information regarding claims of a personal representative, see Iowa Code section 633.431.
“Probate” means the administration of an estate in which the decedent either had or did not have a will. Jurisdiction over the administration of such estates, among other matters, is by the district court sitting in probate. For further details on the subject matter and personal jurisdiction of the district court sitting in probate, see Iowa Code sections 633.10 through 633.21. For matters regarding the procedure in probate, see Iowa Code sections 633.33 through 633.53.
“Responsible party” is the person liable for the payment of tax under this chapter. See 701—86.2(450).
“Simultaneous deaths” occur when the death of two or more persons occurs at the same time or there is not sufficient evidence that the persons have died otherwise than simultaneously. For distribution of property in this situation, see Iowa Code sections 633.523 through 633.528.
“Stepchild” means the child of a person who was married to the decedent at the time of the decedent’s death, or the child of a person to whom the decedent was married, which person died during the marriage of the decedent.
“Surviving spouse” means the legally recognized surviving wife or husband of the decedent.
“Tax” means the inheritance tax imposed by Iowa Code chapter 450.
“Taxpayer” means a person liable for the payment of the inheritance tax under Iowa Code section 450.5 and includes the executor or personal representative of an estate, the trustee or other fiduciary of property subject to inheritance tax, and includes each heir, beneficiary, surviving joint tenant, transferee, or other person becoming beneficially entitled to any property or interest therein by any method of transfer specified in Iowa Code section 450.3, as subject to inheritance tax with respect to any inheritance tax due on the respective shares of the property.
“Trustee” means the person or persons appointed as trustee by the instrument creating the trust or the person or persons appointed by the court to administer the trust.
“Trusts” means real or personal property that is legally held by a person or entity for the benefit of another. This includes, but may not be limited to, express trusts, trusts imposed by court order, trusts administered by the court, and testamentary trusts. Such trusts are subject to Iowa Code chapter 450, even in situations when the estate consists solely of trust property.
“Unknown heirs” means heirs to an estate in which the identities of the heirs or the place of residency of the heirs cannot be ascertained with reasonable certainty.
“Will” includes codicil; it also includes a testamentary instrument that merely appoints an executor, and a testamentary instrument that merely revokes or revives another will. For information regarding mutual and contractual wills, see Iowa Code section 633.270.
	86.1(2) Delegation of authority. The director delegates to the administrator, subject always to the supervision and review by the director, the authority to administer the Iowa inheritance tax. This delegated authority specifically includes, but is not limited to, the determination of the correct inheritance tax liability; making assessments against the taxpayer for additional inheritance tax due; authorizing refunds of excessive inheritance tax paid; issuing receipts for inheritance tax paid; executing releases of the inheritance tax lien; granting extension of time to file the inheritance tax return and pay the tax due; granting deferments to pay the inheritance tax on a property interest to take effect in possession or enjoyment at a future date; requesting or waiving the appraisal of property subject to the inheritance tax and the imposition of penalties for failure to timely file or pay the inheritance tax. The administrator may delegate the examination and audit of inheritance tax returns to the supervisors, examiners, agents, and any other employees or representatives of the department.
	86.1(3) Information deemed confidential. Federal tax returns, federal return information, inheritance tax returns, and the books, records, documents, and accounts of any person, firm, or corporation, including stock transfer books, requested to be submitted to the department for the enforcement of the inheritance tax law, shall be deemed and held confidential by the department, subject to public disclosure only as provided by law. See 26 U.S.C. Section 6103 pertaining to confidentiality and disclosure of federal tax returns and federal return information.
	86.1(4) Information not confidential. Copies of wills, the filing of an inheritance tax lien, release of a real estate lien, probate inventories, trust instruments, deeds and other documents which have been filed for public record are not deemed confidential by the department.
	86.1(5) Forms. The final inheritance tax return, inheritance tax receipts, and forms for the audit, assessment, and refund of the inheritance tax shall be in such form as may be prescribed or approved by the director—see 701—8.3(17A).
	86.1(6) Safe deposit boxes and joint accounts. Effective July 1, 1998, there is no longer a requirement for safe deposit boxes to be inventoried and reported to the department prior to the delivery of the assets to the personal representative, transferee, joint owner, or beneficiary. Additionally, effective July 1, 2005, there is no longer a requirement that all persons, banks, credit unions, and savings and loan associations notify the department of the balance in a joint account on the date of a deceased joint owner’s death and the name and address of the surviving joint owner prior to permitting the withdrawal of funds from the joint account by a surviving joint owner.
This rule is intended to implement Iowa Code chapter 22 and Iowa Code sections 450.1 and 450.2 as amended by 2003 Iowa Acts, chapter 95, sections 1 and 2, and sections 421.2, 450.67, 450.68, 450.94, 450.97 and 450B.7.
[ARC 1137C, IAB 10/30/13, effective 12/4/13; ARC 1545C, IAB 7/23/14, effective 8/27/14]
701—86.2(450) Inheritance tax returns and payment of tax.
	86.2(1) Filing of an inheritance tax return. Estates meeting certain requirements must file an inheritance tax return, and it is the duty of certain persons associated with the estate to file the inheritance tax return as follows:
	a. 	Mandatory filing. The inheritance tax return provided for in subrule 86.2(2) must be filed if the gross share of any heir, beneficiary, transferee, or surviving joint tenant exceeds the exemptions allowable in Iowa Code sections 450.4 and 450.9. In addition, if Iowa real estate is includable in the gross estate, the return must be filed, even if no tax is due, prior to the issuance of a no tax due certificate.
Effective July 1, 2001, an estate is required to file an Iowa inheritance tax return if the entire estate of the decedent exceeds the sum of $25,000 after deducting the liabilities of the estate.
	b. 	Who must file. If the decedent’s estate is probated as provided in Iowa Code chapter 633 or administered as provided in Iowa Code section 450.22, the personal representative of the estate is charged with the duty of filing the return with the department. If the personal representative of the estate fails to file the return or if the estate is not probated, it shall be the duty of those heirs, beneficiaries, transferees, surviving joint tenants, and trustees who receive shares in excess of the allowable exemptions or shares which are taxable in whole or in part, without the deduction of liabilities, and those individuals in receipt of the decedent’s property are either jointly or severally to file the return with the department.
	c. 	Who is not required to file a return for estates of decedents dying on or after July 1, 2004.
	(1)	Effective for estates with decedents dying on or after July 1, 2004, if an estate has no Iowa inheritance tax due and there is no obligation for the estate to file a federal estate tax return, even though real estate is involved, an Iowa inheritance tax return need not be filed if at least one of the following situations is applicable:
	1.	All estate assets are held solely in joint tenancy with right of survivorship between husband and wife alone; or
	2.	All estate assets are held solely in joint tenancy with right of survivorship, and not as tenants in common, solely between the decedent and individuals listed in Iowa Code section 450.9 who are statutorily exempt from Iowa inheritance tax on shares received from a decedent based on the individuals’ relationship to the decedent. This numbered paragraph does not apply to a jointly held interest in an asset that passes to both an individual listed in Iowa Code section 450.9 and any other individual not listed in Iowa Code section 450.9, including that individual’s spouse. See subparagraph 86.2(1)“c”(2) for a list of individuals who are statutorily exempt from Iowa inheritance tax pursuant to Iowa Code section 450.9; or
	3.	All assets are passing by beneficiary designation pursuant to a trust and are intended to pass the decedent’s property at death or through a nonprobate transfer solely to individuals listed in Iowa Code section 450.9 who are statutorily exempt from Iowa inheritance tax on shares received from a decedent based on their relationship to the decedent. This numbered paragraph does not apply to a jointly held interest in an asset that passes to both an individual listed in Iowa Code section 450.9 and any other individual not listed in Iowa Code section 450.9, including that individual’s spouse. See subparagraph 86.2(1)“c”(2) for a list of individuals who are statutorily exempt from Iowa inheritance tax pursuant to Iowa Code section 450.9; or
	4.	All estate assets are passed by will or intestate succession as set forth in Iowa Code chapter 633, division IV, and beginning with section 633.210, solely to individuals who are statutorily exempt from Iowa inheritance tax as set forth below in subparagraph 86.2(1)“c”(2); or
	5.	For estates of decedents dying on or after July 1, 2007, if the total aggregate value of all the tangible personal property in the estate is $5,000 or less and in-kind distributions are made. Any in-kind distribution of personal property is exempt from inheritance tax when the total aggregate value of the tangible personal property in the estate is $5,000 or less. If the total aggregate amount of tangible personal property is greater than $5,000, then the exemption for in-kind distributions of tangible personal property does not apply. See Iowa Code section 450.4(7); see also Iowa Code section 633.276 for a description of tangible personal property that qualifies.
Example 1: The total aggregate value of the tangible personal property in the estate is $3,000. The executor makes an in-kind distribution of a diamond ring worth $1,000 to a neighbor. The diamond ring is not subject to inheritance tax.
Example 2: The total aggregate value of the tangible personal property in the estate is $15,000. The executor makes an in-kind distribution of a diamond ring worth $1,000 to a neighbor. The diamond ring is subject to inheritance tax because the total aggregate value of tangible personal property is greater than $5,000.
	(2)	Individuals listed in Iowa Code section 450.9 who are statutorily exempt from Iowa inheritance tax.
	1.	For estates of decedents dying prior to July 1, 2016, the entire amount of property, interest in property, and income passing solely to the surviving spouse, and parents, grandparents, great-grandparents, and other lineal ascendants, children including legally adopted children and biological children entitled to inherit under the laws of this state, stepchildren, and grandchildren, great-grandchildren, and other lineal descendants are exempt from Iowa inheritance tax.
	2.	For estates of decedents dying on or after July 1, 2016, the entire amount of property, interest in property, and income passing solely to the surviving spouse, lineal ascendants, lineal descendents, and stepchildren and their lineal descendants are exempt from Iowa inheritance tax. “Lineal descendants” includes descendants by adoption.
	d. 	General rules. An Iowa inheritance tax return must be filed if estate assets pass to both an individual listed in Iowa Code section 450.9 and that individual’s spouse.
	(1)	If an inheritance tax return is not required because the estate meets the criteria in paragraph 86.2(1)“c,” the final report (beginning with Iowa Code section 633.469) need not contain an inheritance tax receipt (clearance) issued by the department, but must properly certify that one of the criteria set forth in paragraph 86.2(1)“c” has been met as set forth in Iowa Code section 450.58(2).
	(2)	If any interest in real estate passes on account of the decedent’s death and no Iowa inheritance tax return is required to be filed and the real estate does not pass through probate administration, then one of the persons succeeding to the interest in the real property must file an affidavit in the county in which the real property is located setting forth the legal description of the real property and the fact that an Iowa inheritance tax return is not required to be filed with the department. A copy of this affidavit must be retained by the beneficiary that holds the real estate.
	(3)	If a return is filed with the department and the return is not required to be filed, the department will retain the return as required by statutes governing retention of returns. However, the department will not process the filed return if the statute does not require that the return be filed. The department will not issue a clearance in an estate in which a return is not required to be filed.
	86.2(2) Form and content—inheritance tax return.
	a. 	Estates of decedents dying prior to July 1, 1983. Rescinded IAB 10/13/93, effective 11/17/93.
	b. 	Estates of decedents dying on or after July 1, 1983. For estates of decedents dying on or after July 1, 1983, the preliminary inheritance tax return is abolished and a single inheritance tax return shall be filed. The return shall provide for schedules listing the assets includable in the gross estate, a listing of the liabilities deductible in computing the net estate, and a computation of the tax due, if any, on each share of the net estate. The return shall conform as nearly as possible to the federal estate tax return, Form 706. For information regarding Iowa returns, see subrule 86.1(5). If the estate has filed a federal estate tax return, a copy must be submitted with the Iowa return. If the federal estate return includes the schedules of assets and liabilities, the taxpayer may omit the Iowa schedules of assets from the return. However, any Iowa schedules indicating liabilities must be filed with the Iowa return due to proration of liabilities. When Iowa schedules are filed with the return, only those schedules which apply to the particular assets and liabilities of the estate are required. A return merely listing the assets and their values when the gross estate is in excess of $25,000 ($10,000 for estates of decedents dying before July 1, 2001) is not sufficient in nontaxable estates. In this case, the return must be amended to list the schedule of liabilities and the computation of the shares of the net estate before an inheritance tax clearance will be issued.
	c. 	Special rule when the surviving spouse succeeds to property in the estate. Effective for estates of decedents dying on or after January 1, 1988, the following rules apply when the surviving spouse succeeds to property in the estate:
	(1)	If all of the property includable in the gross estate for inheritance tax purposes is held in joint tenancy with right of survivorship by husband and wife alone, an inheritance tax return is not required to be filed and a certificate from the department stating no inheritance tax is due is not required to release the inheritance tax lien under Iowa Code section 450.7(2).
	(2)	If any of the property includable in the gross estate passes to the surviving spouse by means other than by joint tenancy with right of survivorship or if any property passes by joint tenancy with right of survivorship when the surviving spouse is not the only surviving joint tenant, an inheritance tax return is required to be filed.
	d. 	Estates of decedents dying on or after July 1, 1999.
	(1)	In addition to the special rule for surviving spouses set forth in paragraph 86.2(2)“c,”  effective for estates of decedents dying on or after July 1, 1999, an estate that consists solely of property includable in the gross estate that is held in joint tenancy with right of survivorship and that is exclusively owned by the decedent and any person declared exempt from Iowa inheritance tax pursuant to Iowa Code section 450.9, or a combination solely consisting of such persons, is not required to file an Iowa inheritance tax return, unless such an estate has an obligation to file a federal estate tax return. For property of the estate passing by means other than by joint tenancy with right of survivorship or any property passing by joint tenancy with right of survivorship when the title to the property is held by persons other than those persons declared exempt from Iowa inheritance tax pursuant to Iowa Code section 450.9, an inheritance tax return is required to be filed.
	1.	For estates of decedents dying prior to July 1, 2016, the entire amount of property, interest in property, and income passing solely to the surviving spouse, and parents, grandparents, great-grandparents, and other lineal ascendants, children including legally adopted children and biological children entitled to inherit under the laws of this state, stepchildren, and grandchildren, great-grandchildren, and other lineal descendants are exempt from Iowa inheritance tax pursuant to Iowa Code section 450.9.
	2.	For estates of decedents dying on or after July 1, 2016, the entire amount of property, interest in property, and income passing solely to the surviving spouse, lineal ascendants, lineal descendants, and stepchildren and their lineal descendants are exempt from Iowa inheritance tax pursuant to Iowa Code section 450.9. “Lineal descendants” includes descendants by adoption.
	(2)	The exemption granted to stepchildren and their lineal descendants is limited to the stepchildren of the decedent and the lineal descendants of the stepchildren of the decedent exclusively. The exemption is not extended to include any lineal ascendants of the step relationship, such as stepparent or stepgrandparent, nor does it include step relations of the decedent’s lineal ascendants or descendants, such as the stepchildren of the decedent’s children. For a definition of “stepchild” for estates of decedents dying on or after July 1, 2003, please see the definition found in 701—86.1(450).
	(3)	The rate of Iowa inheritance tax imposed on a share is based upon the relationship of the beneficiary to the decedent or the type of entity that is the beneficiary. For estates of decedents dying before July 1, 2001, a net estate that is less than $10,000 does not have an Iowa inheritance tax obligation. For estates of decedents dying on or after July 1, 2001, the net estate that is less than $25,000 does not have an Iowa inheritance tax obligation. The following is the most current Iowa inheritance tax rate schedule for net estates over $25,000:

SCHEDULE B	
Brother, sister (including half-brother, half-sister), son-in-law, and daughter-in-law. There is no exemption.	
 	 	 	 	
If the share is:
Not over $12,500, the tax is 5% of the share.	

If over	But not over	Tax is	Of excess over	
 	 	 	 	
$ 12,500	$ 25,000	$ 	 625 + 6%	$ 12,500	
25,000	75,000	1,375 + 7%	25,000	
75,000	100,000	4,875 + 8%	75,000	
100,000	150,000	6,875 + 9%	100,000	
150,000	and up	11,375 + 10%	150,000	
 	 	 	 	
SCHEDULE C	
Uncle, aunt, niece, nephew, foster child, cousin, brother-in-law, sister-in-law, child’s stepchild, and all other individual persons. There is no exemption.	
 	 	 	 	
If the share is:
Not over $50,000, tax is 10% of the share.	

If over	But not over	Tax is	Of excess over	
 	 	 	 	
$ 50,000	$100,000	$ 5,000 + 12%	$ 50,000	
100,000	and up	11,000 + 15%	100,000	
 	 	 	 	
SCHEDULE D	
A firm, corporation or society organized for profit, including an organization failing to qualify as a charitable, educational or religious organization:	
 	 	 	 	
Effective July 1, 2001, any fraternal and social organization which does not qualify for exemption under IRC Section 170(c) or 2055:	
 	 	 	 	
15% of the amount.	
 	 	 	 	
SCHEDULE E	
Any society, institution or association incorporated or organized under the laws of any other state, territory, province or country than this state, for charitable, educational or religious purposes, or to a cemetery association, including a humane society not organized under the laws of this state, or to a resident trustee for use without this state:	
 	 	 	 	
10% of the amount.	
 	 	 	 	
SCHEDULE F	
An unknown heir, as distinguished from an heir who is not presently ascertainable, due to contingent events:	
 	 	 	 	
5% of the amount.	
 	 	 	 	
SCHEDULE G	
A charitable, religious, educational, or veterans organization as defined in IRC Section 170(c) or 2055.	
 	 	 	 	
All other shares to income tax exempt organizations that are not defined in IRC Section 170(c) must provide their IRS letter of determination. Organizations may also be required to provide evidence that the bequest has restricted the funds to a conforming activity.	
 	 	 	 	
Public libraries, public art galleries, hospitals, humane societies, municipal corporations, bequests for care of cemetery or burial lots of the decedent or the decedent’s family, and bequests for religious services the total of which does not exceed $500.	
 	 	 	 	
Entirely exempt: No tax.	
 	 	 	 	
	86.2(3) Liability for the tax. The personal representative of an estate is personally liable for the total tax due from any person receiving property subject to the tax, to the extent the person’s share of the property is subject to the jurisdiction of the probate court and the personal representative. The trustee of trust property subject to tax is personally liable for the total tax due from a beneficiary to the extent of the person’s share of the trust property. Each heir, beneficiary, transferee, joint tenant, and any other person being beneficially entitled to any property subject to tax is personally liable for the tax due on all property received subject to the tax. The person is not liable for the tax due on another person’s share of property subject to tax, unless the person is also a personal representative, trustee, or other fiduciary liable for the tax by reason of having jurisdiction over the property, the succession to which is taxable. Eddy v.	Short, 190 Iowa 1376, 179 N.W.	818 (1920); Waterman v.	Burbank, 196 Iowa 793, 195 N.W.	191 (1923).
	86.2(4) Supplemental return—deferred interest. When the tax has been deferred on a property interest to take effect in possession or enjoyment after the termination of a prior property interest, it shall be the duty of the owner of the future interest to file a supplemental inheritance tax return with the department, reporting the future interest for taxation. At the top of the front page of the return, the word “SUPPLEMENTAL” shall be printed.
	86.2(5) Amended return. If additional assets or errors in valuation of assets or deductible liabilities are discovered after the filing of the inheritance tax return increasing the amount of tax due, an amended inheritance tax return must be filed with the department, reporting the additional assets. The appropriate penalty and interest will be charged on the additional tax due pursuant to Iowa Code section 421.27 and department rules in 701—Chapter 10. To file an amended inheritance tax return, Form IA 706 shall be completed and at the top of the front page of the return the word “AMENDED” shall be printed. If additional liabilities are discovered or incurred after the filing of the inheritance tax return which result in an overpayment of tax, an amended inheritance tax return must be filed in the manner indicated above. For amended returns resulting from federal audit adjustments—see subrule 86.3(6) and rules 86.9(450), and 86.12(450). For permitted and amended returns not permitted for change of values—see subrule 86.9(4).
	86.2(6) Due date for filing—return on present property interests. Unless an extension of time has been granted, the final inheritance tax return, or the inheritance tax return in case of decedents dying on or after July 1, 1983, must be filed and any tax due paid, for all property in present possession or enjoyment:
	a. 	On or before the last day of the ninth month after death for estates of decedents dying on or after July 1, 1984, subject to the due date falling on a Saturday, Sunday, or legal holiday, which would then make the return due on the following business day. The following table for return due dates illustrates this subrule:

 	Deaths Occurring During:	Return Due Date:	
 	 	 	
 	July 1996	April 30, 1997	
 	August 1996	June 2, 1997	
 	 	(May 31 is a Saturday and June 1 is a Sunday)	
 	September 1996	June 30, 1997	
 	October 1996	July 31, 1997	
 	November 1996	September 2, 1997	
 	 	(August 31 is a Sunday, September 1 is Labor Day)	
 	December 1996	September 30, 1997	
 	January 1997	October 31, 1997	
 	February 1997	December 1, 1997	
 	 	(November 30 is a Sunday)	
 	March 1997	December 31, 1997	
 	April 1997	February 2, 1998	
 	 	(January 31 is a Saturday and February 1 is a Sunday)	
 	May 1997	March 2, 1998	
 	 	(February 28 is a Saturday and March 1 is a Sunday)	
 	June 1997	March 31, 1998	
	b. 	Within nine months after death for estates of decedents dying during the period beginning July 1, 1981, and ending June 30, 1984.
	86.2(7) Election to file—before termination of prior estate. The tax due on a future property interest may be paid, at the taxpayer’s election, on the present value of the future interest as follows:
	a. 	On or before the last day of the ninth month after the decedent’s death (or within one year after the death of the decedent for estates of decedents dying prior to July 1, 1981). Compute the tax by applying the life estate, annuity, or present value tables to the value of the property at the date of the decedent’s death. If age or time is a determining factor in computing the present value of the future interest, it is the age or time at the date of the decedent’s death that must be used.
	b. 	After the last day of the ninth month following the decedent’s death (one year after death for estates of decedents dying prior to July 1, 1981) but prior to the termination of the prior estate. Compute the tax by applying the life estate, annuity, or present value tables to the value of the property at the date the tax is paid. If age or time is a determining factor in computing the present value of the future interest, it is the age or time at the date the tax is paid that must be used. In re Estate of Wickham, 241 Iowa 198, 40 N.W.2d 469 (1950); In re Estate of Millard, 251 Iowa 1282, 105 N.W.2d 95 (1960). In re Estate of Dwight E. Clapp, Clay County District Court, Probate No.	7251 (1980).
	86.2(8) Mandatory due date—return on a future property interest.
	a. 	For estates of decedents dying prior to July 1, 1984. Rescinded IAB 10/13/93, effective 11/17/93.
	b. 	Mandatory due date—return on a future property interest for estates of decedents dying on or after July 1, 1981. Unless the tax due on a future property interest has been paid under the provisions of subrule 86.2(7), paragraphs “a” and “b,” the tax due must be paid on or before the last day of the ninth month following the termination of the prior estate. The statute does not provide for an extension of the mandatory due date for payment of the tax.
	86.2(9) Extension of time—return and payment. For estates of decedents dying on or after July 1, 1984, the department may grant an extension of time to file an inheritance tax return on an annual basis. To be eligible for an extension, an application for an extension of time must be filed with the department on a form prescribed or approved by the director. The application for extension must be filed with the department prior to the time the tax is due and an estimated payment of 90 percent of the tax due must accompany the application—see Iowa Code section 421.27 and rule 701—10.85(422). An extension of time to pay the tax due may be granted in the case of hardship. However, for extensions to be granted, the request must include evidence of the hardship—see 701—Chapter 10. An extension of time to file cannot be extended for a period of time longer than ten years after the last day of the month in which the death of the decedent occurs.
	86.2(10) Discount. There is no discount allowed for early payment of the tax due.
	86.2(11) Penalties. See rule 701—10.6(421) for the calculation of penalty for deaths occurring on or after January 1, 1991.
	86.2(12) Interest on tax due. All tax which has not been paid on or before the last day of the ninth month following the death of the individual whose death is the event imposing the inheritance tax draws interest at the rate prescribed by Iowa Code section 421.7, to be computed on a monthly basis with each fraction of a month counted as a full month. See rule 701—10.2(421) for the interest rate to use for a specific calendar year. Interest applies equally to tax that is delinquent and tax that is due under an extension of time to pay.
This rule is intended to implement Iowa Code sections 421.14, 450.4, 450.5, 450.6, 450.9, 450.22, 450.44, 450.46, 450.47, 450.51, 450.52, 450.53, 450.63, and 450.94 and 2004 Iowa Acts, chapter 1073, and 2005 Iowa Acts, chapter 14.
[ARC 7761B, IAB 5/6/09, effective 6/10/09; ARC 1137C, IAB 10/30/13, effective 12/4/13; ARC 2633C, IAB 7/20/16, effective 8/24/16]
701—86.3(450) Audits, assessments and refunds.
	86.3(1) Audits. Upon filing of the inheritance tax return, the department must audit and examine it and determine the correct tax due. A copy of the federal estate tax return must be filed with the inheritance tax return in those estates where federal law requires the filing of a federal estate tax return. The department may request the submission of wills, trust instruments, contracts of sale, deeds, appraisals, and such other information as may reasonably be necessary to establish the correct tax due. See Iowa Code sections 450.66 and 450.67 and Tiffany v.	County Board of Review, 188 N.W.2d 343, 349 (Iowa 1971). For taxpayers using an electronic data interchange process or technology also see 701—subrule 11.4(4). The person or persons liable for the payment of the tax imposed by Iowa Code chapter 450 shall keep the records relating to the gross and net estate required for federal estate tax purposes under 26 U.S.C. Section 6001 of the Internal Revenue Code and federal regulation Section 20.6001-1.
	86.3(2) Assessments for additional tax. The taxpayer must file an inheritance tax return on forms prescribed by the director on or before the last day of the ninth month after the death of the decedent. When an inheritance tax return is filed, the department shall examine it and determine the correct amount of tax. If the amount paid is less than the correct amount due, the department must notify the taxpayer of the total amount due together with any penalty and interest which shall be a sum certain if paid on or before the last day of the month in which the notice is postmarked or on or before the last day of the following month if the notice is postmarked after the twentieth day of a month and before the last day of the following month. For estates with decedents dying on or after July 1, 1999, the date of the notice and not the postmark date is controlling. If the inheritance tax return is not filed within the time prescribed by law, taking into consideration any extensions of time, or the return as filed is not correct, the department may make an assessment for the tax and any penalty and interest due based on the inventories, wills, trust instruments, and other information necessary to ascertain the correct tax. For interest and penalty rate information, see 701—Chapter 10.
	86.3(3) Refunds. If the examination and audit of the inheritance tax return discloses an overpayment of tax, the department will refund the excess to the taxpayer. See 701—Chapter 10 for the statutory interest rate commencing on or after January 1, 1982. For estates of decedents dying prior to January 1, 1988, interest shall be computed for a period beginning 60 days from the date of the payment to be refunded. For estates of decedents dying on or after January 1, 1988, interest must be computed for a period beginning the first day of the second calendar month following the date of payment, or the date upon which the return which sets out the refunded payment was actually filed, or the date that return was due to be filed, whichever date is the latest. For the purposes of computing the period, each fraction of a month counts as an entire month. If the taxpayer, after the tax has been paid, discovers additional liabilities which, when offset by any additional assets results in an overpayment of the tax, the excess payment will be refunded to the taxpayer upon filing with the department an amended inheritance tax return claiming a refund. No refund for excessive tax paid shall be made by the department unless an amended return is filed with the department within three years (five years for estates of decedents dying prior to July 1, 1984) after the tax payment upon which the claim is made became due, or one year after the tax was paid, whichever time is the later—see Iowa Code section 450.94(3).
	86.3(4) Supplemental assessments and refund adjustments. The department may, at any time within the period prescribed for assessment or refund adjustment, make a supplemental assessment or refund adjustment whenever it is ascertained that any assessment or refund adjustment is imperfect or incomplete in any respect.
If an assessment or refund adjustment is appealed (protested under rule 701—7.8(17A)) and is resolved whether by informal proceedings or by adjudication, the department and the taxpayer are precluded from making a supplemental assessment or refund adjustment concerning the same issue involved in such appeal for the same tax period unless there is a showing of mathematical or clerical error or a showing of fraud or misrepresentation.
	86.3(5) Assessments—period of limitations. Effective for estates of decedents dying on or after July 1, 1984, assessments for additional tax due must be made within the following periods of time:
	a. 	Within three years after the return is filed for property reported to the department on the return. The three-year period of limitation does not begin until the return is filed. The time of the decedent’s death is not relevant. For purposes of determining the period of limitations, the assessment period shall terminate on the same day of the month three years later which corresponds to the day and month the return was filed. If there is no numerically corresponding day three years after the return is filed, or if the expiration date falls on a Saturday, Sunday, or legal holiday, the assessment period expires the preceding day in case there is no corresponding day, or the next day following which is not a Saturday, Sunday, or legal holiday.
	b. 	The period of time for making an assessment for additional tax is unlimited if a return is not filed with the department.
	c. 	If a return is filed with the department, but property which is subject to taxation is omitted from the return, the three-year period for making an assessment for additional tax on the omitted property does not begin until the omitted property is reported to the department on an amended return. The omission of property from the return only extends the period of limitations for making an assessment for additional tax against the beneficiary, surviving joint tenant, or transferee whose share is increased by the omitted property. Other shares of the estate are not affected by the extended assessment period due to the omitted property. The inheritance tax is a separate succession tax on each share of the estate, not on the estate as a whole. In re Estate of Stone, 132 Iowa 136, 109 N.W.	455 (1906).
	86.3(6) Period of limitations—federal audits.
	a. 	Statute of limitations and federal audits in general. In the case of a federal audit, the department, notwithstanding the normal three-year audit period specified in Iowa Code paragraphs 450.94(5)“a” and “b,” shall have an additional six-month period for examination of the inheritance tax return to determine the correct tax due and for making an assessment for additional tax that may be due.
The additional six-month period begins on the date the taxpayer performs two affirmative acts: (1) notifies the department, and the department receives such a notification, in writing, that all controversies with the Internal Revenue Service concerning the federal estate, federal gift, and federal generation skipping transfer taxes (for deaths occurring after December 31, 2004) have been concluded and (2) submits to the department a copy of the federal audit, closing statement, court decision, or any other relevant federal document concerning the concluded controversy. The additional six-month examination period does not begin until both of the acts are performed. See Iowa Code sections 622.105 and 622.106 for the mailing date as constituting the filing date and Iowa Code section 4.1(34) and Emmetsburg Ready Mix Co.	v.	Norris, 362 N.W.2d 498 (Iowa 1985) when the due date falls on a legal holiday.
	b. 	Statute of limitations regarding federal audits involving real estate.
	(1)	In general. Effective for estates with decedents dying on or after July 1, 1999, in addition to the period of limitation for examination and determination, the department shall make an examination to adjust the value of real property for Iowa inheritance tax purposes to the value accepted by the Internal Revenue Service for federal estate tax purposes. The department shall have an additional six months to make an examination and adjustment for the value of the real property.
	(2)	Beginning of the additional six-month period. The additional six-month period for assessment and adjustment begins on the date the taxpayer performs two affirmative acts: (a) notifies the department, in writing, that all controversies with the Internal Revenue Service concerning the federal estate, federal gift, and federal generation skipping transfer taxes (for deaths occurring after December 31, 2004) have been concluded and (b) submits to the department a copy of the federal audit, closing statement, court decision, or any other relevant federal document. Such documents must indicate the final federal determination and final audit adjustments of all real property.
	(3)	Adjustment required. The department must make an adjustment to the value of real property for inheritance tax purposes to the value accepted for federal estate tax purposes regardless of whether any of the following have occurred: an inheritance tax clearance has been issued; an appraisal has been obtained on the real property indicating a contrary value; there has been an acceptance of another value for real property by the department; an agreement has been entered into by the department and the personal representative for the estate and persons having an interest in the real property regarding the value of the real property.
	(4)	Refunds. Despite the time period for refunds set forth in Iowa Code section 450.94(3), the personal representative for the estate has six months from the day of final disposition of any real property valuation matter between the personal representative for the estate and the Internal Revenue Service to claim a refund from the department of an overpayment of tax due to the change in the valuation of real property by the Internal Revenue Service.
	c. 	Effect of additional time periods. The additional six-month audit period set forth in “a” and “b” under this subrule does not limit or shorten the normal three-year examination period. As a result, a six-month additional examination period has no application if the additional six-month examination period would expire during the normal three-year audit period. If additional tax is found to be due, see paragraph 86.12(5)“b” for the inheritance tax lien filing requirements for securing the additional tax after an inheritance tax clearance has been issued. The six-month additional examination period means the department shall have at least six months to examine the return after the notification. The department will have more time if the normal three-year examination period expires after the six-month additional period for examination. After the expiration of the normal three-year examination period, and 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 for real property is limited to federal audit adjustments that directly affect Iowa inheritance tax and involve Iowa inheritance tax laws that incorporate Internal Revenue Code provisions. See Iowa Code section 450.94(5), 701—86.9(450) and 701—86.12(450), and Kelly-Springfield Tire Co.	v.	Iowa Board of Tax Review, 414 N.W.2d 113 (Iowa 1987).
This rule is intended to implement Iowa Code sections 422.25, 422.30, 450.37, 450.53, 450.65, 450.71, and 450.94.
[ARC 0251C, IAB 8/8/12, effective 9/12/12; ARC 1545C, IAB 7/23/14, effective 8/27/14]
701—86.4(450) Appeals. A determination made by the department of either the correct amount of the tax due, or the amount of refund for excessive tax paid, shall be final unless the taxpayer, or any other party aggrieved by the determination, appeals to the director for a revision of the department’s determination. For notices of assessment issued on or after January 1, 1995, the department will consider a protest to be timely filed if filed no later than 60 days following the date of assessment notice or, if a taxpayer failed to timely appeal a notice of assessment, the taxpayer may make a payment pursuant to rule 701—7.8(17A) and file a refund claim within the period provided by law for filing such claims. In the event of an appeal, the provisions of 701—Chapter 7 of the department’s rules of practice and procedure before the department of revenue and Iowa Code chapter 17A shall apply.
This rule is intended to implement Iowa Code chapter 17A and section 450.94.
701—86.5(450) Gross estate.
	86.5(1) Iowa real and tangible personal property.
	a. 	Real estate and tangible personal property with a situs in the state of Iowa and in which the decedent had an interest at the time of death is includable in the gross estate regardless of whether the decedent was a resident of Iowa. It is immaterial whether the property, or interest, is owned singly, jointly, or in common.
	b. 	Certain other real and tangible personal property with a situs in the state of Iowa in which the decedent did not have an interest at death may also be part of the gross estate for tax purposes. Examples of such property transfers include, but are not limited to, transfers of real estate in which the grantor retained a life estate, life interest, interest or the power of revocation, property or interest in property in trust, and gifts made within three years of death in excess of the federal gift tax exclusion. These constitute transfers of property in which the decedent may not have an interest at death, but are includable in the gross estate for inheritance tax purposes. In re Dieleman’s Estate v.	Dept.	of Revenue, 222 N.W.2d 459 (Iowa 1974); In re English’s Estate, 206 N.W.2d 305 (Iowa 1973); and Lincoln’s Estate v.	Briggs, 199 N.W.2d 337 (Iowa 1972).
	c. 	A nonresident decedent’s interest in a corporation, limited liability company, or partnership that owns real or tangible personal property with an Iowa situs that is titled in the name of that business entity is not subject to inheritance tax. An interest in a business entity is intangible personal property which follows the residence of the decedent for the purposes of inheritance tax.
	d. 	Tangible personal property as defined in Iowa Code section 633.276 with an Iowa situs which is distributed in kind from the estate is not subject to inheritance tax if the aggregate value of all tangible personal property in the estate does not exceed $5,000. See 86.2(1)“c”(1)“5.”
	86.5(2) Foreign real estate and tangible personal property. Real estate and tangible personal property with a situs outside the state of Iowa are not subject to the Iowa inheritance tax and, therefore, are not includable in the decedent’s gross estate for tax purposes. Frick v.	Pennsylvania, 268 U.S. 473, 45 S.	Ct.	603, 69 L.Ed.	1058 (1925); In re Marx Estate, 226 Iowa 1260, 286 N.W.2d 422 (1939).
	86.5(3) Intangible personal property—decedent domiciled in Iowa. Intangible personal property, or interest therein, owned by a decedent domiciled in Iowa is includable in the gross estate for inheritance tax purposes regardless of the physical location of the evidence of the property or whether the account or obligation is with a non-Iowa financial institution. Curry v.	McCanless, 307 U.S. 357, 59 S.	Ct.	900, 83 L.Ed 1339 (1939); Lincoln’s Estate v.	Briggs, 199 N.W.2d 337 (Iowa 1972).
	86.5(4) Intangible personal property—decedent domiciled outside Iowa. Rescinded IAB 10/30/13, effective 12/4/13.
	86.5(5) Classification of property. The property law of the state of situs determines whether property is classified as real, personal, tangible or intangible and also whether decedent had an interest in the property. Dieleman’s Estate v.	Dept.	of Revenue, 222 N.W.2d 459 (Iowa 1974); Williamson v.	Youngs, 200 Iowa 672, 203 N.W. 28 (1925).
	86.5(6) Insurance—in general. Whether the proceeds or value of insurance is includable in the gross estate for inheritance tax purposes depends on the particular facts in each situation. Designated beneficiary and type of insurance (life, accident, health, credit life, etc.) are some of the factors that are considered in determining whether the value or proceeds are subject to tax. In re Estate of Brown, 205 N.W.2d 925 (Iowa 1973).
	a. 	Insurance proceeds subject to tax. The proceeds of insurance on the decedent’s life owned by the decedent and payable to the decedent’s estate or personal representative is includable in the gross estate. Insurance owned by the decedent on the life of another is includable in the gross estate to the extent of the cash surrender value of the policy. The proceeds of all insurance to which the decedent had an interest, at or prior to death, but are payable for reasons other than death, are includable in the gross estate. Bair v.	Randall, 258 N.W.2d 333 (Iowa 1977).
	b. 	Insurance proceeds not taxable. Insurance on the decedent’s life payable to a named beneficiary, including a testamentary trust, other than the insured, the estate, or the insured’s personal representative, is not subject to Iowa inheritance tax. In re Estate of Brown, 205 N.W.2d 925 (Iowa 1973).
	c. 	Insurance proceeds includable—depending on circumstances. Credit life insurance and burial insurance are offsets against the obligation. If the obligation is deducted in full or in part in computing the taxable shares of heirs or beneficiaries, the proceeds of the credit life and burial insurance are includable in the gross estate to the extent of the obligation. Insurance on the decedent’s life and owned by the decedent, pledged as security for a debt is an offset against the debt if the insurance is the primary source relied upon by the creditor for the repayment of the obligation and is includable in the gross estate on the same conditions as credit life insurance. See Estate of Carl M. Laartz Probate No.	9641, District Court of Cass County, March 17, 1973; Estate of Roy P. Petersen, Probate No.	14025, District Court of Cerro Gordo County, May 16, 1974.
Insurance on the decedent’s life, payable to a corporation or association in which the decedent had an ownership interest, while not subject to tax as insurance, may increase the value of the decedent’s interest. In re Reed’s Estate, 243 N.Y.	199, 153 N.E.47, 47 A.L.R.	522 (1926).
	86.5(7) Gifts in contemplation of death—for estates of decedents dying prior to July 1, 1984, only. A transfer of property, or interests in property by a decedent, except in the case of a bona fide sale for fair consideration within three years of the grantor’s death, made in contemplation of death, is includable in the decedent’s gross estate. Any such transfer made within the three-year period prior to the grantor’s death is presumed to be in contemplation of death, unless it is shown to the contrary. Whether a transfer is made in contemplation of death depends on the intention of the grantor in making the transfer and will depend on the facts and circumstances of each individual transfer.
	a. 	Factors to be considered include, but are not limited to:
	(1)	The age and health of the grantor at the time of the transfer,
	(2)	Whether the grantor was motivated by living or death motives,
	(3)	Whether or not the gift was a material part of the decedent’s property,
	(4)	Whether the gift was an isolated event or one of a series of gifts during the decedent’s lifetime.
	b. 	Factors which tend to establish that the motive for the gift was prompted by the thought of death include, but are not limited to:
	(1)	Made with the purpose of avoiding death taxes,
	(2)	Made as a substitute for a testamentary disposition of the property,
	(3)	Of such an amount that the remaining property of the grantor would not normally be sufficient to provide for the remaining years of the grantor and those of the grantor’s household,
	(4)	Made with the knowledge that the grantor is suffering from a serious illness that is normally associated with a shortened life expectancy.
	c. 	Factors which tend to establish that the gift was inspired by living motives include, but are not limited to:
	(1)	Made on an occasion and in an appropriate amount that is usually associated with such gift giving occasions as Christmas, birthdays, marriage, or graduation,
	(2)	Made because of the financial need of the donee and in an amount that is appropriate to the need,
	(3)	Made as a remembrance or reward for past services or favors in an amount appropriate to the occasion,
	(4)	Made to be relieved of the burden of management of the property given, retaining sufficient property and income for adequate support and maintenance.
For a gift to be determined to have been made in contemplation of death it is not necessary that the grantor be conscious of imminent or immediate death. However, the term means more than the general expectation of death which all entertain. It is a gift when the grantor is influenced to do so by such expectation of death, arising from bodily or mental condition, as prompts persons to dispose of their property to those whom they deem the proper object of their bounty. It is sufficient if the thought of death is the impelling cause for the gift. U.S. v.	Wells, 283 U.	S. 102, 51 S.	Ct.	446, 75 L.Ed.	867 (1931); In re Mann’s Estate, 219 Iowa 597, 258 N.W. 904 (1935).
	d. 	Gifts made within three years prior to death—for estates of decedents dying on or after July 1, 1984. All gifts made by the donor within three years prior to death, which are in excess of the annual calendar year federal gift tax exclusion provided for in 26 U.S.C. Section 2503, subsections b and e, are included in the gross estate for inheritance tax purposes. The motive, intention or state of mind of the donor is not relevant. Date of valuation for a gift in which there was a full transfer of ownership is valued at the date in which the gift is completed. However, for a gift of an interest in property that is less than a full transfer of ownership, which includes, but is not limited to, a life estate or conditional gift, the date of valuation is the date of the death of the decedent, unless alternative valuation is chosen. Effective for estates of decedents dying on or after July 1, 2003, valuation of property transferred by the grantor or donor is based on the net market value at the date of transfer. The fact alone that the transfer is a gift, in whole or in part, and exceeds the annual calendar year exclusion for federal gift tax purposes, is sufficient to subject the excess of the transfer over the exclusion to tax. The exclusion is applied to the total amount of the gifts made to a donee in a calendar year, allocating the exclusion to the gifts in the order made during the calendar year. This rule has important application to the earliest year of the three-year period before death because the three-year period for inheritance tax purposes is measured from the date the decedent-donor died. This will only rarely coincide with a calendar year. As a result, none of the gifts made in the earliest calendar year of the three-year period prior to death, regardless of the amount, which are made before the beginning of the three-year period, measured by the decedent’s death date, are subject to tax. However, gifts made before the three-year period begins in this earliest year will reduce or may completely absorb the exclusion amount that is available for the remaining part of this first-year period. The significance of the difference between the three-year period prior to death and the calendar year exclusion amount is illustrated by the following:
Example.  The decedent-donor, A, died July 1, 2012. The three-year period during which gifts may be subject to inheritance tax begins July 1, 2009. During the calendar year 2009, A made a cash gift to nephew B of $14,000 on May 1, 2009, and a second gift to B of $4,000 on August 1, 2009. In this example, none of the $14,000 gift made on May 1, 2009, is includable for inheritance tax purposes because it was made before the three-year period began, based on A’s date of death. All of the $4,000 gift made on August 1, 2009, is includable for inheritance tax purposes because it is in excess of the calendar year 2009 federal gift tax exclusion of $13,000.
	(1)	Split gift. At the election of the donor’s spouse, a gift made by a donor to a person, other than the spouse, shall be considered, for inheritance tax purposes, as made one half by the donor and one half by the donor’s spouse. This split gift election for inheritance tax purposes is subject to the same terms and conditions that govern split gifts for federal gift tax purposes under 26 U.S.C. Section 2513.
The consent of the donor’s spouse signified under 26 U.S.C. Section 2513(b) shall also be presumed to be consent for Iowa inheritance tax purposes, unless the contrary is shown. If the split gift election is made, the election shall apply to all gifts made during the calendar year. Therefore, if the election is made, each spouse may use the annual federal gift tax exclusion which shall be applied to one-half of the total value of all gifts made by both spouses during the calendar year to each donee.
	(2)	Types of transfers which may result in a gift. Whether a transfer of property constitutes a gift depends on the facts and circumstances surrounding each individual transfer. Transfers which may result in a gift, in whole or in part, include, but are not limited to: sales of property where the purchase price, or terms of sale, are less than fair market value; a loan of money, interest free, even though the loan is payable on demand; the release of a retained life use of property; and the payment of a debt or other obligation of another person.
	(3)	Types of transfers that are not a gift. However, certain transfers which in property law would be considered a present transfer of an interest in property may not be considered gifts within the Iowa three-year rule under Iowa Code section 450.3(2). Rather the transfers may be transfers intended to take effect in possession or enjoyment at death. Examples of this kind of transfer would include, but are not limited to, transfers in trust or otherwise, with a retained life use or interest; commercial annuities where payments are made to a beneficiary upon the death of the primary annuitant; transfers that place property in joint tenancy; irrevocable transfers of real or personal property where the deed or bill of sale is placed in escrow to be delivered only upon the grantor’s death. Transfers of this kind are subject to inheritance tax under Iowa Code section 450.3(3) as a transfer to take effect in possession or enjoyment at death, even though under property law an interest in the property may have been transferred prior to death. Different kinds of transfers that may constitute a taxable gift, in whole or in part, include but are not limited to the following:
Example A. Grantor-decedent, A, on July 1, 1992, transferred to nephew B, without consideration, a 160-acre Iowa farm, reserving the life use. On the date of transfer, the farm had a fair market value of $2,000 per acre, or $320,000. On August 1, 1994, A released the retained life estate without any consideration being given and then died on December 1, 1994. The release on August 1, 1994, constitutes a gift, for inheritance tax purposes, of the value of the entire farm (less the annual gift tax exclusion), within the three-year period prior to death. What is taxable is what would have been taxable had the release not been given. United States v.	Allen, 293 F.2d 916 (10th Cir. 1961); Rev.	Ruling 56-324, 1956 2 C.B. 999. In this example, the gift is not to be valued at the time of the release of the life use, but rather at its fair market value at the time of death. See subrule 86.9(1). The real estate cannot be valued at its alternate valuation date because it is not included in the federal gross estate for federal estate tax purposes, but rather it constitutes an adjusted taxable gift not eligible for the alternate valuation date. See rule 701—86.10(450) and Federal Estate Tax Regulation Section 20.2032-1(a) and (d).
Example B. A, on August 1, 2009, loaned brother B $450,000 which was evidenced by a non-interest-bearing promissory note, payable on demand. A died on October 1, 2011, with no part of the loan having been repaid. The principal amount of the note is includable in A’s gross estate. The free use of money is a valuable property right to the debtor. Dickman v.	Commissioner, 465 U.S. 330 (1984). Thus, in effect, A has made a gift of the value of the interest to B each year the debt remains unpaid. Assuming for purposes of illustration that the applicable federal short-term rate for the entire year is 9 percent for each year and no other gifts were made to B, A has made a gift to B of $40,500 through August 2010 (one year after the note was executed) and an additional gift of $40,500 through August 1, 2011, and two months’ interest of $6,750 from August 1, 2011, to the date of death on October 1, 2011. Therefore, in calendar year 2009 A has made a gift of 5/12 of $40,500, or $16,875. After deducting the annual calendar year exclusion of $13,000, $3,875 is subject to inheritance tax. Since the loan was outstanding for all of calendar year 2010, $40,500, less the $13,000 exclusion, or $27,500, is subject to inheritance tax. For calendar year 2011 the loan was outstanding for nine months. Three-fourths of $40,500, less $13,000, or $17,375, is subject to inheritance tax.
In this example it is not necessary that the loan be made within the three-year period prior to death. It is the free use of the loan during the three-year period prior to death that constitutes the gift.
Example C. On March 1, 2010, A sold a 160-acre Iowa farm to niece B for $1,500 per acre, or $240,000. On the date of sale, the fair market value of the farm was $2,500 per acre, or $400,000. A died on August 1, 2012. This sale is, in part, a gift. It is not a bona fide sale for an adequate and full consideration in money or money’s worth, and as a result, the difference between the sale price and the fair market value of the farm on the date of sale constitutes a gift. The sale price in this example represents only 60 percent of the farm’s fair market value; therefore, 40 percent of the farm is a gift. However, the gift percentage to apply to the farm’s value at death is 37 percent, not 40 percent, because the $13,000 annual gift tax exclusion must be deducted from the value of the gift. See the computation of this percentage in Example D immediately following.
Example D. On March 1, 2010, A sold a 160-acre Iowa farm to niece B for $2,500 per acre, or $400,000, which was also the fair market value of the farm on the date of sale. The sale was an installment sale contract, payable in 20 equal annual installments of principal and interest. The unpaid principal balance is to draw interest at one-half of the prevailing Federal Land Bank loan rate, which for purposes of illustration we will assume to be the rate of 12 percent, or 6 percent per year. The annual payments of principal and interest are $34,873.82 per year. A died on August 1, 2012. In this example, the sale price in and of itself does not constitute a gift because the sale price was also the fair market value of the farm. However, the difference between the prevailing Federal Land Bank loan rate of 12 percent and the contract rate of 6 percent constitutes a gift from A to B.
The amount of the gift that is includable in the gross estate is computed by determining the present value of the future annual payments of $34,873.82 discounted to reflect a 12 percent return on the investment. The discounted value is then divided by the fair market value of the farm on the date of the sale to determine the percentage of the sale price that is a bona fide sale for full consideration and the percentage of the sale price that represents a gift before the annual exclusion. The gift percentage is then applied to the fair market value of the farm (or special use value, if applicable) at death, to determine the amount that is includable in the gross estate.
The computation in this example is as follows:
The present value of the future annual payments of $34,873.82 for 20 years to reflect a 12 percent return on an investment is $260,488.05. That is, an investor who desires to earn the market rate of return of 12 percent on an investment would only pay $260,488.05 for this 6 percent $400,000 contract of sale.

 	Bona Fide Sale Percentage	
 	Present value:	260,488.05 = 65%	
 	Sale price:	400,000.00	
This is the percentage of the sale price of $400,000 that represents a bona fide sale for full consideration.
Gift Percentage
The sale price of $400,000 - $260,488.05 or $139,511.95 is the gift portion of the sale price due to the 6 percent interest rate on the contract, before the $13,000 annual exclusion is deducted.
The gift percentage is computed as follows:

$139,511.95 - $13,000	=	$126,511.95	=	32%	
 	 	400,000.00	 	 	
In this example the gift percentage used to determine the amount of the farm value at death that is taxable is only 32 percent of the value because deducting the $13,000 exclusion reduced the gift percentage from 35 percent to 32 percent. The gift took place in the year of sale, not in the year of death. As a result, 32 percent of fair market value (or special use value, if applicable) of the farm at the time of the donor’s death is includable in the gross estate for inheritance tax purposes.
	86.5(8) Joint tenancy property—in general. Whether the form of ownership of property is considered to be joint tenancy is determined by the property law of the state of the situs of the property. Generally, the words and phrases “to A and B as joint tenants with full rights of survivorship and not as tenants in common” create a joint tenancy form of ownership unless a contrary interest can be shown by material evidence. “To A or B, payable to the order of self” creates an alternative right of ownership and for tax purposes is treated as joint tenancy property. In re Estate of Martin, 261 Iowa 630, 155 N.W.2d 401 (1968); Petersen v.	Carstensen, 249 N.W.2d 622 (Iowa 1977); In re Estate of Louden, 249 Iowa 1393, 92 N.W.2d 409 (1958). Joint tenancy property may be held by more than two persons. In re Estate of Horner, 234 Iowa 624, 12 N.W.2d 166 (1944). However, the use of the words “as joint tenants” alone without the use of the phrase “with right of survivorship” may only create a tenancy in common. Albright v.	Winey, 226 Iowa 222, 284 N.W. 86 (1939).
	a. 	Joint tenancy property—husband and wife alone. Generally there are no shares in joint tenancy property because each joint tenant owns the whole property. As a result, joint tenancy property is not taxed like tenancy in common property where each owner has a specific share. If the joint tenancy property is held by husband and wife alone, only one-half of the property is includable in the gross estate for inheritance tax purposes in the estate of the first joint tenant to die. However, if the survivor can establish by competent evidence that separate money or property was used and contributed to a larger percentage than one-half to the acquisition of a specific item or items of jointly held property, then the larger percentage of such item or items shall be excluded from taxation. Ida M. Jepsen v.	Bair, No. 85, State Board of Tax Review, June 18, 1975.
	b. 	Joint tenancy property—not held by husband and wife alone. Property held in this form of joint tenancy is includable in the gross estate of the deceased joint tenant, except to the extent the surviving joint tenant or tenants can establish contribution to the acquisition of the joint property, in which case the proportion attributed to the contribution is excluded from the gross estate. In the case of multiple joint tenancy property, excess contribution established by one surviving joint tenant cannot be attributed to another surviving joint tenant. For tax purposes, the requirement of contribution in effect establishes percentage ownership—or shares—in jointly held property that does not exist in property law. Contribution to the acquisition of jointly held property can be established by the survivor by proof, which includes, but is not limited to, evidence that the property was acquired by gift, inheritance, or purchase from the survivor’s separate funds or property. Contribution means cash or cash in kind that is applied to the cost of obtaining the property at issue. Unlike joint tenancy property held solely between husband and wife, if any of the surviving joint tenants is not the spouse of the decedent, the presumed one-half exclusion is not automatically available without proof of contribution.
	c. 	Joint tenancy—convenience or constructive trust. If the record ownership of bank accounts, certificates of deposit, and other kinds of property are held in the form of joint tenancy, but in fact are held by the decedent and another person or persons who have a confidential or fiduciary relationship with the decedent, the property is not held in joint tenancy but is held in constructive or resulting trust by the survivor for the decedent. A confidential or fiduciary relationship is any relationship existing between the parties to a transaction wherein one of the parties is duty bound to act with the utmost good faith for the benefit of the other party. In its broadest connotation, the phrase embraces those multiform positions in life wherein one comes to rely on and trust another in one’s important affairs. First National Bank v.	Curran, 206 N.W.2d 317 (Iowa 1973). The fact that the decedent furnished the funds to acquire the property or demonstrated a kind, considerate, and affectionate regard for the survivor does not in itself establish a confidential relationship between the decedent and the survivor. If the evidence to establish a contrary relationship with respect to property in the form of joint tenancy is not substantial, a joint tenancy exists as a matter of law. Petersen v.	Carstensen, 249 N.W.2d 622 (Iowa 1977).
If a confidential relationship constituting a constructive or resulting trust is established on behalf of the decedent, the property or property interest that is the subject of the trust is part of the decedent’s gross estate as singly owned property.
	86.5(9) Transfers reserving a life income or interest. If the grantor transfers property, except in the case of a bona fide sale for fair consideration, reserving the income, use, possession, or a portion thereof for life, the property is includable in the gross estate for inheritance tax purposes. In re Sayres’ Estate, 245 Iowa 132, 60 N.W.2d 120 (1953); In re Estate of English, 206 N.W.2d 305 (Iowa 1973). If there is a full reservation of income, the entire value of the property in which the reservation exists is includable for tax purposes. If only a portion of the income is reserved, the amount subject to tax is the full value of the property at death multiplied by a fraction of which the total income reserved is the numerator and the total average earning capacity of like property is the denominator. See In re Estate of English, 206 N.W.2d at 310.
The reservation of the life income, or portion thereof, need not necessarily be stated or contained in the instrument of transfer to be includable for taxation. The transfer of property may contain no reservation of income or other incidents of ownership in the grantor, but if there is a contemporaneous agreement between the grantor and grantee to pay the income, or portion thereof, to the grantor for life, the two instruments or agreements when considered together may be construed to be reservation of the income from the transferred property. See In re Sayres’ Estate, 245 Iowa 132 at 141, 142, 60 N.W.2d 120 (1953) for a full discussion of the subject.
The instrument need not be in any special form. For example, it may take the form of a contract of sale to terminate at death where the payments consist of the income from the property only. In addition, the transfer to be includable for taxation is not limited to income-producing property. For example, the transfer of the grantor’s dwelling, reserving the life occupancy, falls within the meaning of a reserved life income or interest. Generally, revocable trusts can be classified as reserving a life income or interest. This type of transfer does not fall within the annual gift exclusion.
	86.5(10) Powers of appointment—in general. Iowa Code section 450.3(4) is concerned with two aspects of powers of appointment that are subject to inheritance tax. First, the taxation of the decedent’s property subject to the power of appointment in the estate of the donor (decedent), and second, the exercise, or nonexercise, of the power of appointment over the property in the estate of the donee (the decedent possessing the power).
	a. 	General power of appointment. Whether the instrument of transfer utilized by the donor creates a general or special power of appointment is a matter of property law. For example, a devise to A for life with “power to dispose of and pass clear title ... if A so elects,” creates a life estate with a general power of appointment. In re Estate of Cooksey, 203 Iowa 754, 208 N.W. 337 (1927). Also to A for life, “Especially giving unto A the right to use and dispose of the same as A may see fit,” creates a general power of appointment, Volz v.	Kaemmerle, 211 Iowa 995, 234 N.W. 805 (1931). However, the power to sell and convert the assets subject to the power does not in itself create a general power of appointment. In re Estate of Harris, 237 Iowa 613, 23 N.W.2d 445 (1946). A power is general if being testamentary, it can be exercised wholly in favor of the estate of the donee. In re Estate of Spencer, 232 N.W.2d 491 at 495, 496 (Iowa 1975). The definition of a general power of appointment contained in 26 U.S.C. Section 2056(b)(5) of the Internal Revenue Code would meet the test of a general power under Iowa law.
	b. 	Special power of appointment. If there is a limitation on the donee’s right to use the corpus only for care, maintenance and support, the power is special, not general. Brown v.	Brown, 213 Iowa 998, 240 N.W. 910 (1932). Also, to A for life with power to handle the property for A’s interest, limits the power of invasion of the principal for care and support only, and is therefore a special, not a general, power of appointment. Lourien v.	Fitzgerald, 242 Iowa 1258, 49 N.W.2d 845 (1951). Also, to A for life, with unrestricted power of sale with no power over the sale proceeds creates only a special power of appointment in the donee. McCarthy v.	McCarthy, 178 N.W.2d 308 (Iowa 1970).
If the donee’s power to appoint is limited to a class or group of persons, a special, not a general, power is created. In re Estate of Spencer, 232 N.W.2d 491, at 496 (Iowa 1975).
	c. 	Powers of appointment—taxation in donor’s estate. If the instrument in the donor’s estate creates a general power of appointment, the property subject to the power is taxed as if the property had been transferred to the donee in fee simple. Those who would succeed to the property in the event the power is not exercised are treated in the donor’s estate as if they receive no interest in the property, even though in property law those who succeed to the property either by the exercise, or nonexercise, take from the donor of the power. In re Estate of Higgins, 194 Iowa 369 at 373, 189 N.W. 752 (1922); Bussing v.	Hough, 237 Iowa 194 at 200, 21 N.W.2d 587 (1946).
If the instrument in the donor’s estate creates a special power of appointment, the property subject to the power is taxed as if the donee of the power had received a life estate or term for years, as the case may be. Those persons who would take the property in the event the special power is not exercised are taxed in the donor’s estate as if they had received the remainder interest in the property subject to the special power, although an election to defer payment of the tax may result in either no tax or a different tax obligation. This could happen, for example, if the special power is the power to invade the corpus for the health, education, and maintenance of the donee.
	d. 	Powers of appointment in the estate of a donee dying on or after January 1, 1988. Property which is subject to a general power of appointment is includable for inheritance tax purposes in the gross estate of a donee dying on or after January 1, 1988, if the donee has possession of the general power of appointment at the time of the donee’s death, or if the donee has released or exercised the general power of appointment within three years of death. Whether or not the donee of a general power exercises the general power at death is not relevant to the includability of the property subject to the general power in the estate of the donee. The mere possession of the power at death is sufficient for the property subject to the power to be included in the estate of the donee for inheritance tax purposes.
Property subject to a special power of appointment is not includable in the gross estate of the donee of the power regardless of whether the donee possesses the special power or exercised the power at death, unless a QTIP election was made under Iowa Code subsection 450.3(7) in which case the rule governing QTIP elections shall control. See paragraphs 86.5(10)“a” and “b” for the distinction between a general and special power and subrule 86.5(11) for the rule governing QTIP elections.
For inheritance tax purposes, if there is an exercise or release of the general power within three years of the donee’s death, the property subject to the exercise or release is includable in the donee’s estate just as if the donee had retained possession of the power at death and is taxable to those to whom the property is appointed in case the power is exercised, or to those who take in default of the exercise in case the power is released.
The general power of appointment is considered to have been exercised for the purposes of this rule when the nature of the disposition is such that if it were a transfer or disposition of the donee’s property, the transfer would be subject to inheritance tax under Iowa Code section 450.3. The power is considered exercised in the following three nonexclusive classes of cases: (1) where there has been some reference in the will or other instrument to the power; (2) the will or other instrument contains a reference to the property which is the subject on which the power is to be executed; (3) where the provision in the will or other instrument executed by the donee of the power would otherwise be ineffectual or a mere nullity; in other words, the provision would have no operation except as an execution of the power. In re Trust of Stork, 233 Iowa 413, 421, 9 N.W.2d 273 (1943). For the purposes of section 450.3(4), a release of a general power is considered to be a transfer of the property subject to the power to those who would take in default if the power was not exercised.
	86.5(11) Qualified terminable interest property (QTIP).
	a. 	In general. Effective for estates of decedents dying on or after July 1, 1985, property passing from the decedent grantor-donor, which qualifies as qualified terminable interest property (QTIP) within the meaning of 26 U.S.C. Section 2056(b)(7)(B) is eligible to be treated for Iowa inheritance tax purposes, if an election is made, as passing in fee to the donee-grantee surviving spouse, in the estate of the grantor-donor decedent, subject to the provisions of law and this subrule. If the election is made, the qualified property, unless it is disposed of prior to death, shall be included in the gross estate of the surviving spouse and treated as passing in fee to those succeeding to the remainder interest in the qualified property.
	b. 	Property transfers eligible. Five factors are relevant in determining whether property passing from a decedent grantor-donor is eligible for the Iowa qualified terminable interest election. They are: (1) the death of the decedent-transferor, but not necessarily the transfer, must have occurred on or after July 1, 1985; (2) the property must meet the qualifications required in 26 U.S.C. Section 2056(b)(7)(B), or in the case of a gift within three years prior to the decedent-transferor’s death, the qualifications in 26 U.S.C. Section 2523(f); (3) a valid federal election must have been made on a required federal return with respect to the qualified property for federal estate tax purposes or, for federal gift tax purposes, if the transfer occurred within three years prior to the transferor’s death; and (4) the property must be included in the decedent-transferor’s gross estate for Iowa inheritance tax purposes, either because the transfer occurred at death or within three years prior to the transferor’s death; and (5) Iowa must have constitutional nexus with the surviving spouse or QTIP property.
If property is not eligible for an Iowa qualified terminable interest election, or if eligible, but an Iowa election is not made, it is not included in the estate of the surviving spouse grantee-donee for inheritance tax purposes by reason of Iowa Code section 450.3. The fact that the qualified property is included in the estate of the surviving spouse for federal estate tax purposes does not necessarily mean the property is automatically included in the surviving spouse’s Iowa gross estate.
The treatment of the qualified property in both the grantor-donor’s and the surviving spouse’s estates for Iowa inheritance tax purposes is determined by the Iowa election, or lack of an election, being made in the grantor-donor’s estate.
This subrule is illustrated by the following examples:
Example 1. Decedent A died testate, a resident of Iowa, July 2, 1995, leaving a surviving spouse, B, and two children, C and D. On February 1, 1992, A transferred by deed a 160-acre Iowa farm to spouse B for life, with the remainder at B’s death to two children, C and D. An election was made under 26 U.S.C. Section 2523(f) to treat the gift of the 160-acre farm as passing entirely to B in fee.
Upon A’s death the 160-acre farm is not part of A’s gross estate either for federal estate or for Iowa inheritance tax purposes because the transfer was made more than three years prior to death. However, upon the death of B, the surviving spouse, the 160 acres is included in B’s gross estate (unless disposed of prior to death) for federal estate tax purposes, but is not included in B’s Iowa gross estate. The transfer by A took place more than three years prior to death, and therefore is not included in A’s Iowa estate and is not eligible for an Iowa qualified terminable interest election.
Example 2. On October 1, 1992, grantor A executed a revocable inter vivos trust which consisted of cash and a 160-acre Iowa farm. Under the terms of the trust agreement A was to receive the trust income for life and upon A’s death the trustee was to pay the trust income to A’s spouse, B, for life, with the power to invade the principal for B’s care and support. Upon B’s death the trust was to terminate and the balance of the corpus was to be paid to A’s children, C and D. A died July 2, 1995, and the personal representative elected to treat the trust assets as passing entirely in fee to the surviving spouse, B, for federal estate tax purposes. An Iowa qualified terminable interest election was not made. In this fact situation, the election qualified the trust assets for the marital deduction for federal estate tax purposes. For Iowa inheritance tax purposes, since an Iowa election was not made, the trust assets are taxed on the basis of a life estate passing to B, the surviving spouse, and the remainder passing to the children, C and D. Upon B’s death, the trust corpus will be included in B’s estate for federal estate tax purposes, but not in B’s estate for Iowa inheritance tax purposes, because an Iowa qualified terminable interest election was not made in A’s estate.
	c. 	The qualified terminable interest election—in general. The election to treat qualified terminable interest property as passing entirely in fee to the surviving spouse in the estate of the decedent grantor-donor is an affirmative act. In the event an election is not made, the qualified property will be treated as a life estate passing to the surviving spouse with a remainder over as provided in Iowa Code section 450.3(4).
An Iowa election cannot be made unless an election has been made on the same qualified property for federal estate tax purposes on a required federal return, or in case of a gift made within three years of the decedent grantor-donor’s death, for federal gift tax purposes. However, even though a federal election has been made, the personal representative of the decedent grantor-donor’s estate has the option to either make or not to make the election with respect to the qualified property for Iowa inheritance tax purposes. It is sufficient for Iowa inheritance tax purposes that a valid federal election has been made. What constitutes a valid election for federal estate or gift tax purpose is determined under applicable federal law and practice and not by the department.
However, it is permissible for Iowa inheritance tax purposes to make an election for a smaller but not larger percentage of the qualified property than was made for federal estate or gift tax purposes. These general principles can be illustrated by the following examples:
Example 1. Decedent-grantor A created a revocable inter vivos trust on October 15, 1992, which was funded by $200,000 in cash and a 160-acre Iowa farm worth $200,000. The trust provided that the trustee pay the income to A for life and upon A’s death, the trustee was to pay the income to A’s surviving spouse B for life, with power to invade the principal for B’s care and support. Upon B’s death the trust was to terminate and the balance of the principal was to be distributed to A’s two children, C and D.
A died on July 2, 1995, and the principal of the trust is included in A’s gross estate both for federal estate and Iowa inheritance tax purposes because the trust was revocable and A retained the income for life. A’s personal representative elected to treat 50 percent of the trust assets as qualified terminable interest property for federal estate tax purposes. A’s personal representative elected not to treat the qualified property as passing to B for Iowa inheritance tax purposes. This is permissible because the personal representative has the option to either elect or not to elect to treat 50 percent of the qualified property as passing in fee to the surviving spouse for Iowa inheritance tax purposes.
Example 2. Same factual situation as Example 1. A’s personal representative elects to treat only 25 percent of the qualified property as passing in fee to the surviving spouse for Iowa inheritance tax purposes. This is permissible because the personal representative is not required to make an election on all of the qualified terminable interest property on which the federal election has been made. It is sufficient that a federal election has been made for at least as large a percentage of the qualified property on which the Iowa election is made. However, an Iowa election cannot be made for a larger percentage of the qualified property than the percentage made on the federal election.
Example 3. Same factual situation as Example 1. In this example, A’s personal representative, for Iowa inheritance tax purposes, purports to elect to treat the $200,000 cash in the trust as passing in fee to the surviving spouse, but not the 160-acre Iowa farm, which is also valued at $200,000. Although the federal estate tax election is for 50 percent of the qualified property, the Iowa election is invalid even though it is made in respect to an asset which is equal in value to 50 percent of the trust principal. If the election is made for less than all of the qualified terminable interest property, the election must be for a fraction of all the qualified property. The personal representative is not permitted to select for the election some qualified assets and reject others. See Federal Estate Tax Regulation 20.2056-1(b).
	d. 	The election—manner and form. The qualified terminable interest election shall be in writing and made by the personal representative of the decedent grantor-donor’s estate on the Iowa inheritance tax return. The election once made shall be irrevocable. If the election is not made on the first inheritance tax return, the election may be made on an amended return, provided the amended return is filed on or before the due date of the return (taking into consideration any extensions of time granted to file the return and pay the tax due). The personal representative may make an election on a delinquent return, provided it is the first return filed for the estate. The filing for the purpose of protective election is not allowed. Failure to make the election on the first return filed after the due date has passed precludes making an election on a subsequent return. See 26 U.S.C. Section 2056(b)(7)(B)(V) and Internal Revenue Service Letter Ruling 8418005.
The election consists of two affirmative acts performed by the personal representative on the inheritance tax return: (1) by answering in the affirmative the question—Is the estate making a qualified terminable interest election with respect to the qualified property? and (2) by computing the share of the surviving spouse to include the qualified terminable interest property on which the election was made. In the event of an inconsistency in complying with the two requirements, the treatment given to the share of the surviving spouse shall be controlling.
	e. 	Disposition of qualified property prior to death. A disposition of all or part of the qualified property, which was the subject of the qualified terminable interest election, prior to the death of the surviving spouse, voids the election as to that portion of the property disposed of that is not retained by the surviving spouse. In this event, the portion of the qualified property not retained by the surviving spouse shall be taxed to those succeeding to the remainder interests in the disposed property as if the tax on the remainder interest had been deferred under Iowa Code sections 450.44 to 450.49. Except in the case of special use valuation property, the tax shall be based on the fair market value of the amount of the qualified property not retained by the surviving spouse at the time the property was disposed of. In re Estate of Wickham, 241 Iowa 198, 40 N.W.2d 469 (1950), see subrule 86.11(5) for taxation of remainder interests when the tax is deferred. The alternate valuation date cannot be used in computing the tax. See subrule 86.10(2). If QTIP property has been valued at its special use value under Iowa Code chapter 450B, and is disposed of prior to the death of the surviving spouse, the portion of the QTIP property not retained by the surviving spouse shall be valued for taxation as follows:
	1.	At its special use value at the time of its disposition, if the QTIP property remains in qualified use under 26 U.S.C. Section 2032A.
	2.	At its fair market value at the time of its disposition, if there is a cessation of the qualified use under 26 U.S.C. Section 2032A. In case there is a cessation of the qualified use, the recapture tax provisions of Iowa Code section 450B.3 shall not apply. The tax on the remainder interest is treated as a payment of tax deferred and subject to the rules on deferred tax and not a recapture, with interest, of the tax originally imposed in the decedent grantor-donor’s estate.
	f. 	Inclusion in the estate of the surviving spouse.
	(1)	Upon the death of the surviving spouse the qualified terminable interest property, which was the subject of an election, that was not disposed of prior to death, shall be included in the gross estate of the surviving spouse and be treated as if it passed in fee from the surviving spouse to those succeeding to the remainder interests. The included QTIP property will receive a stepped up basis for gain or loss as property acquired from a decedent. See 26 U.S.C. Section 1014(b)(10). The relationship of the surviving spouse to the owners of the remainder interest shall determine whether the individual exemptions provided for in Iowa Code section 450.9 apply and which tax rate in Iowa Code section 450.10 shall be applicable.
	(2)	Qualified property included in the estate of the surviving spouse shall be valued as if it passed from the surviving spouse in fee and shall be valued either (1) at the time of the surviving spouse’s death under the provisions of Iowa Code section 450.37 and rule 701—86.9(450), or at its special use value under Iowa Code chapter 450B and rule 701—86.8(450B), if the real estate is otherwise qualified; or (2) at the alternate valuation date under the provisions of Iowa Code section 450.37(1)“b” and rule 701—86.10(450), if the property is otherwise eligible.
	(3)	This subrule can be illustrated by the following examples:
Example 1. Decedent A died testate on July 2, 2017, survived by a spouse, B, aged 65, a child, C, and C’s stepchildren, D and E. Under A’s will, all property was left in trust to pay all of the income to B for life. Upon B’s death, the trust was to terminate and the principal was to be divided equally between D and E, who are the stepchildren of child C. The personal representative elected to treat the trust assets as passing entirely in fee to surviving spouse B. The net corpus of the trust consists of a 160-acre farm valued at $250,000 and personal property valued at $200,000.

Tax on the basis of all property passing in fee to B	
 	Share	 	Tax	 	
 	$450,000	 	$0	 	
Example 2. Same facts as Example 1, with the exception that the personal representative did not make an Iowa qualified terminable interest election. In this fact situation, the trust assets are taxed on the basis of a life estate passing to the surviving spouse B with a remainder over to D and E.

 	Share	Tax	 	
 	Spouse B: Life estate factor .42226	 	 	
 	$450,000 × .42226 = $190,017	-0-	 	
 	 	 	 	
 	D’s share ½ remainder factor .57774	 	 	
 	$450,000 × .57774 ÷ 2 = $129,991.50	$15,498.73	 	
 	 	 	 	
 	E’s share—same as D’s share $129,991.50	$15,498.73	 	
 	 	 	 	
 	Total $450,000.00	$30,997.46	 	
In Example 1, the qualified terminable interest election results in no inheritance tax. However, as shown in Example 2, it would cost D and E $30,997.46 if the election had not been made.
Example 3.  G, the surviving spouse of F, died testate, a resident of Iowa, on October 15, 2017. Under the terms of G’s will, G’s grandchildren, H and I, inherit G’s entire estate in equal shares. G’s net estate consists of $200,000 in personal property and a 160-acre Iowa farm with a value of $250,000 both of which were the subject of a qualified terminable interest election in F’s estate and in which H and I own the remainder interest. G’s net estate also consisted of $100,000 in intangible personal property that G owned in fee simple.
G’s net estate for Iowa inheritance tax purposes consists of the following:
$200,000, personal property from F’s estate.
$250,000, 160-acre farm from F’s estate.
$100,000, owned by G in fee simple.
$550,000 Total
The shares of H and I and their tax owed in G’s estate are computed as follows:

 	Share	 	 	Tax	 	
 	Beneficiary H: ½ of the net estate, or	 	 	 	
 	 	 	$275,000	 	$0	 	
 	Beneficiary I: (same as H)	$275,000	 	$0	 	
 	Totals	 	$550,000	 	$0	 	
	g. 	The QTIP tax credit and the credit for tax on prior transfers. The credit for the additional tax paid by the surviving spouse in the estate of the decedent grantor-donor on property, which was the subject of a qualified terminable interest election, is governed exclusively by the provisions of Iowa Code section 450.3 and these rules. The credit for tax paid on prior transfers allowable under Iowa Code section 450.10(6) shall not apply. However, property received by the surviving spouse from the estate of the decedent grantor-donor, which was not the subject of a qualified terminable interest election, is eligible for the credit for the tax paid on a prior transfer, if the conditions of Iowa Code section 450.10(6) are otherwise met.
	86.5(12) Annuities. Annuities in general, including the earnings, are considered to be taxable under Iowa Code section 450.3(3) as a transfer made or intended to take effect in possession or enjoyment after the death of the grantor or donor. In re Estate of English, 206 N.W.2d 305 (Iowa 1973); In re Endemann’s Estate, 307 N.Y. 100, 120 N.E.2d 514 (1954); Cochrane v.	Commission of Corps & Taxation, 350 Mass.	237, 214 N.E.2d 283 (1966). For exceptions for employee-sponsored retirement plans, including annuities, see 86.5(13).
	86.5(13) Employer-provided or employer-sponsored retirement plans and individual retirement accounts. Iowa Code section 450.4(5) provides an exemption on that portion of the decedent’s interest in an employer-provided or employer-sponsored retirement plan or on that portion of the decedent’s individual retirement account that will be subject to federal income tax when paid to the beneficiary. This exemption applies regardless of the identity of the beneficiary and regardless of the number of payments to be made after the decedent’s death.
For the purposes of this exemption:
	a. 	An “individual retirement account” includes an individual retirement annuity or any other arrangement as defined in Section 408 of the Internal Revenue Code.
	b. 	An “employer-provided or employer-sponsored retirement plan” includes a qualified retirement plan as defined in Section 401 of the Internal Revenue Code, a governmental or nonprofit employer’s deferred compensation plan as defined in Section 457 of the Internal Revenue Code, and an annuity as defined in Section 403 of the Internal Revenue Code.
Example 1.	The decedent was a participant in a qualified retirement plan through the decedent’s employer. The beneficiary of the retirement plan is the decedent’s niece. The balance in the retirement plan will be fully subject to federal income tax and included as net income pursuant to Iowa Code section 422.7 when paid to the beneficiary. As a result, Iowa inheritance tax would not be imposed on the value of the retirement plan.
Example 2.	The decedent was a participant in a qualified retirement plan through the decedent’s employer. The beneficiary of the pension is the decedent’s niece. A portion of the payments received by the niece will be fully subject to federal income tax and included as net income pursuant to Iowa Code section 422.7. As a result, Iowa inheritance tax would not be imposed on the value of the portion of payments included as net income. However, the remaining portion of the payments not reported as net income pursuant to Iowa Code section 422.7 would be subject to Iowa inheritance tax. See Iowa Code section 450.4.
An exemption from Iowa inheritance tax for a qualified plan does not depend on the relationship of the beneficiary to the decedent. Payments under a qualified plan made to the estate of the decedent are exempt from Iowa inheritance tax. See In re Estate of Heuermann, Docket No.	88-70-0388 (September 21, 1989). In addition, for the purpose of determining the taxable or exempt status of payments under a qualified plan, it is not relevant that the decedent rolled over or changed the terms of payment prior to death. Taxation or exemption of payments made under a qualified plan is determined at the date of the decedent’s death.
	86.5(14) Distribution of trust property. Property of a trust can be divided into two or more trusts, or one or more separate trusts can be consolidated with one or more other trusts into a single trust by dividing the property in cash or in kind, including in undivided interests, by pro-rata or non-pro-rata division or in any combination thereof. Division of property between trusts in this manner does not result in a “sale” of the divided property and a corresponding taxable gain.
	86.5(15) Qualified tuition plans exempt. Effective for estates of decedents dying on or after July 1, 2008, in the event that the decedent was the sole plan participant in a qualified school tuition plan, as defined in Section 529 of the Internal Revenue Code; or in the event that a named co-plan participant does not have a lineal relationship to the named beneficiary of the qualified tuition plan, the value of the decedent’s interest in the qualified tuition plan is not subject to Iowa inheritance tax and therefore is not includable in the decedent’s gross estate for tax purposes. This provision applies only to qualified tuition plans in existence on or after July 1, 1998.
This rule is intended to implement Iowa Code sections 422.7(4), 450.2, 450.3, 450.4(5), 450.8, 450.12, 450.37, 450.91, 633.699, and 633.703A and Iowa Code Supplement section 450.4 as amended by 2008 Iowa Acts, House File 2673, section 2.
[ARC 1137C, IAB 10/30/13, effective 12/4/13; ARC 2633C, IAB 7/20/16, effective 8/24/16]
701—86.6(450) The net estate.
	86.6(1) Liabilities deductible.
	a. 	Debts owing by decedent. A debt, to be allowed as a deduction in determining the net estate under Iowa Code section 450.12, must be the liability of the decedent and also be owing and not discharged at the time of the decedent’s death. The amount allowable as a deduction is the principal amount due, plus interest accruing to the day of the decedent’s death. If the decedent is not the only person liable for the debt, only a portion of the debt shall be deducted for inheritance tax purposes. The portion deducted is based on the number of solvent obligors. If a joint and several debt has more than one obligor and one obligor pays the remaining balance owed on the debt, the obligor who pays the remaining debt has a right of contribution for payment of the debt against the other solvent obligors. If the decedent is the obligor and the estate pays the remaining balance of the debt, the estate must list the right of contribution as an asset on the Iowa inheritance tax return. In re Estate of Tollefsrud, 275 N.W.2d 412 (Iowa 1979); In re Estate of Thomas, 454 N.W.2d 66 (Iowa App.	1990); Estate of Pauline Bladt, Department of Revenue and Finance, Hearing Office Decision, Docket No.	95-70-1-0174 (December 16, 1996). The term “debt owing by the decedent” is not defined in Iowa Code section 450.12. However, Iowa Code section 633.3(10) defines “debts” as including liabilities of the decedent which survive, whether arising in contract, tort, or otherwise.
The term “debt of the decedent” does not include taxes, which are an impost levied by authority of government upon its citizens or subjects for the support of the state. Eide v.	Hottman, 257 Iowa 263, 265, 132 N.W.2d 755 (1965). Please note, that this is a nonexclusive example of “debt of the decedent.” Promissory notes executed by the decedent without consideration are not debts of the decedent and are not allowable as a deduction in determining the net estate subject to tax. In re McAllister’s Estate, 214 N.W.2d 142 (Iowa 1974). Payments to persons in compromise of their claim to a portion of the estate made by those persons who take from the decedent are not debts nor treated as expenses of settlement. In re Estate of Bliven, 236 N.W.2d 366, 371 (Iowa 1975); In re Estate of Wells, 142 Iowa 255, 259, 260, 120 N.W. 713 (1909).
Iowa Code section 450.12 and Internal Revenue Code Section 2053 provide that debts owing by the decedent to be allowable in computing the net estate must be the type of obligation of the decedent for which a claim could be filed and be enforced in the probate proceedings of the estate. In re Estate of McMahon, 237 Iowa 236, 21 N.W.2d 581 (1946); In re Estate of Laartz, Cass County District Court, Probate No.	9641 (1973); In re Estate of Tracy, Department of Revenue and Finance, Hearing Officer Decision Docket No.	77-167-3-A (1977). Filing a claim in probate proceedings is not a prerequisite for the allowance of the liability as a deduction in computing the net estate. An allowable liability is deductible whether or not the liability is legally enforceable against the decedent’s estate. Claims in probate founded on a promise or agreement are deductible only to the extent they were contracted bona fide and for an adequate and full consideration. In re McAllister’s Estate, 214 N.W.2d 142 (Iowa 1974).
The debt must have been paid prior to the filing of the inheritance tax return, or if the debt is not paid at the time the final inheritance tax return is filed (which is frequently the case in installment obligations) the burden is on the taxpayer to establish, if requested by the department, that the debt will be paid at a future date. The validity of a claim in probate based on a liability of the decedent is subject to review by the department. In re Estate of Stephenson, 234 Iowa 1315, 1319, 14 N.W.2d 684 (1944).
If any doubt or ambiguity exists whether an item is deductible or not, it is to be strictly construed against the taxpayer. Therefore, the burden is on the taxpayer to establish that an item is deductible. In re Estate of Waddington, 201 N.W.2d 77 (Iowa 1972).
The department may require the taxpayer to furnish reasonable proof to establish the deductible items such as, but not limited to, canceled checks in payment of an obligation, copies of court orders allowing claims against the estate, attorney and fiduciary fees, allowances for the surviving spouse, and copies of notes and mortgages.
	b. 	Mortgages—decedent’s debt. A mortgage or other encumbrance securing a debt of the decedent on Iowa property in which the decedent had an interest is allowable as a deduction in determining the net estate in the same manner as an unsecured debt of the decedent, even though it may be deducted from different shares of the estate than unsecured debts. (See Iowa Code section 633.278.) However, if the debt of the decedent is secured by property located outside Iowa, which is not subject to Iowa inheritance tax, the debt is allowable as a deduction in determining the net estate, only in the amount the debt exceeds the value of the property securing the debt.
	c. 	Mortgages—not decedent’s debt. If the gross estate includes property subject to a mortgage or other encumbrance which secures a debt which is not enforceable against the decedent, the amount of the debt, including interest accrued to the day of death, is deductible, not as a debt of the decedent, but from the fair market value of the encumbered property. The deduction is limited to the amount the decedent would have had to pay to remove the encumbrance less the value, if any, of the decedent’s right of recovery against the debtor. See Home Owners Loan Corp.	v.	Rupe, 225 Iowa 1044, 1047, 283 N.W. 108 (1938), for circumstances under which the right of subrogation may exist.
	d. 	Mortgages—nonprobate property. A debt secured by property not subject to the jurisdiction of the probate court, such as, but not limited to, jointly owned property and property transferred within three years of death is deducted in the same manner as a debt secured by probate property. The fact the property is includable in the gross estate is the controlling factor in determining the deductibility of the debt (providing the debt is otherwise deductible).
	e. 	Inheritance and accrued taxes.
	(1)	Inheritance tax. The inheritance tax imposed in the decedent’s estate is not a tax on the decedent’s property nor is it a state tax due from the estate. It is a succession tax on a person’s right to take from the decedent. The tax is the obligation of the person who succeeds to property included in the gross estate. Wieting v.	Morrow, 151 Iowa 590, 132 N.W. 193 (1911); Waterman v.	Burbank, 196 Iowa 793, 195 N.W. 191 (1923). Therefore, inheritance tax is not a deduction in determining the net estate of the decedent in which the tax was imposed. However, if a taxpayer dies owing an inheritance tax imposed in another estate, the tax imposed in the prior estate, together with penalty and interest owing, if any, is a deduction as a state tax due in the deceased taxpayer’s estate.
	(2)	Accrued taxes. In Iowa, property taxes accrue on the date that they are levied even though they are not due and payable until the following July 1. In re Estate of Luke, 184 N.W.2d 42 (Iowa 1971); Merv E. Hilpipre Auction Co.	v.	Solon State Board, 343 N.W.2d 452 (Iowa 1984).
Death terminates the decedent’s taxable year for income tax purposes. Federal regulation Section 1.443-1(a)(2), 701—paragraph 89.4(9)“b.” As a result, the Iowa tax on the decedent’s income for the taxable year ending with the decedent’s death is accrued on date of death.
In addition, any federal income tax for the decedent’s final taxable year is owing at death, even though it is not payable until a later date. Therefore, both the decedent’s state and federal income taxes, both for prior years and the year of death, are deductible in computing the taxable estate if unpaid at death.
	f. 	Federal taxes. Deductible under this category are the federal estate taxes and federal taxes owing by the decedent including any penalty and interest accrued to the date of death. Prior to 1983, the federal estate tax was prorated based on the portion of federal estate tax attributable to Iowa property and that attributable to property located outside the state of Iowa. However, currently the deductibility of federal estate tax is treated like other liabilities of the estate. For estates with property located in Iowa and outside the state of Iowa, see the proration computation provided in 86.6(2). The deduction is limited to the net federal tax owing after all allowable credits have been subtracted. Any penalty and interest imposed or accruing on federal taxes after the decedent’s death is not deductible.
	g. 	Funeral expenses. The deduction is limited to the expense of the decedent’s funeral, which includes, but is not limited to, flowers, cost of meals, cards and postage. Expenses that are not deductible include, but are not limited to, family travel expenses. If the decedent at the time of death was liable for the funeral expense of another, such expense is categorized as a debt of the decedent and is deductible subject to the same conditions as other debts of the decedent. In re Estate of Porter, 212 Iowa 29, 236 N.W. 108 (1931). A devise in the decedent’s will, or a direction in a trust instrument, to pay the funeral expense of a beneficiary upon death is an additional inheritance in favor of the beneficiary and not a funeral expense deductible in the estate of the testator or grantor. Funeral expense is the liability of the estate of the person who has died. In re Estate of Kneebs, 246 Iowa 1053, 70 N.W.2d 539 (1955).
What constitutes a reasonable expense for the decedent’s funeral depends upon the facts and circumstances in each particular estate. Factors to be considered include, but are not limited to: the decedent’s station in life and the size of the estate, Foley v.	Brocksmit, 119 Iowa 457, 93 N.W. 344 (1903); and the decedent’s known wishes (tomb rather than a grave), Morrow v.	Durant, 140 Iowa 437, 118 N.W. 781 (1908). Funeral expense includes the cost of a tombstone or monument. In re Estate of Harris, 237 Iowa 613, 23 N.W.2d 445 (1946). A reasonable fee or honorarium paid to the officiating clergy is a deductible funeral expense. In re Estate of Kneebs, 246 Iowa 1053, 1058, 70 N.W.2d 539 (1955). It is not a prerequisite for deductibility that a claim for funeral expenses be filed and allowed in the probate proceedings. It is sufficient that the expense be paid whether or not the claim is legally enforceable against the decedent’s estate. The deduction allowable is limited to the net expense of the decedent’s funeral, after deducting any expense prepaid by the decedent, burial insurance or death benefit, such as the death benefit allowed by the veterans administration or the social security administration.
	h. 	Allowance for surviving spouse and dependents. An allowance for the support of the surviving spouse and dependents to be deductible in determining the net estate for taxation must meet two conditions: First it must be allowed and ordered by the court and second it must be paid from the assets of the estate that are subject to the jurisdiction of the probate court. The allowance is not an additional exemption for the spouse or children. It is part of the costs of administration of the decedent’s estate. Iowa Code section 633.374; In re Estate of DeVries, 203 N.W.2d 308, 311 (Iowa 1972). Upon request of the department, the taxpayer shall submit a copy of the order of the court providing for the allowance and copies of canceled checks or other documents establishing payment of the allowance.
For the purpose of determining the shares of heirs or beneficiaries for inheritance tax, the allowance is a charge against the corpus of the shares of the estate even though it is paid from the income of the shares. The allowance is included with the other debts and charges for the purpose of abatement of shares to pay the debts and charges of the estate.
	i. 	Court costs. The deduction under this category is limited to Iowa court costs only. In re Estate of Evans, 246 Iowa 893, 68 N.W.2d 289 (1955). The term “court costs” is not synonymous with “costs of administration” as defined in Iowa Code section 633.3(8) or “administration expenses” under Section 2053(a) of the Internal Revenue Code. See federal regulation Section 20.2053-3(d). “Court costs” is a narrower term. Court costs are part of costs of administration in Iowa and are an expense of administration under the Internal Revenue Code, but not all costs or expenses of administration are court costs. For example, interest payable on an extension of time to pay the federal estate tax is a cost of administration in the estate in which the federal estate tax is imposed, but it is not part of court costs, and therefore not deductible for inheritance tax purposes.
In general, court costs include only those statutory fees and expenses relating directly to the probate proceeding, carried on the clerk’s docket, and paid routinely in the process of closing every estate. In re Estate of Waddington, 201 N.W.2d 77, 79 (Iowa 1972). The term “court costs” since August 15, 1975, also includes the expenses of selling property. See Iowa Code sections 450.12 and 633.3(8) and Internal Revenue Code Section 2053 for further details.
	j. 	Additional liabilities that are deductible. Subject to subrules 86.6(4) and 86.6(5), the only liabilities deductible from the gross value of the estate include debts owing by the decedent at the time of death, local and state taxes accrued before the decedent’s death, federal estate tax and federal taxes owing by the decedent, a sum for reasonable funeral expenses, the allowance for surviving spouse and minor children granted by the probate court or its judge, court costs, and any other administration expenses allowable pursuant to Section 2053 of the Internal Revenue Code.
	(1)	Criteria for deductible administration expenses under Section 2053 of the Internal Revenue Code. Administration expenses must meet certain requirements to be allowable deductions under Section 2053 of the Internal Revenue Code. To be allowable deductions, expenses must meet the following conditions:
	1.	The expenses must be payable out of property subject to claims;
	2.	The expenses are allowable (not based on the deductible amount) by the law governing the administration of the decedent’s estate;
	3.	The expenses are actually and necessarily incurred in the administration of the estate. Administration expenses are limited to those expenses incurred in the settlement of the estate and the transfer of the estate property to beneficiaries and trustees, including an executor that is a trustee. Expenses that are not essential to the settlement of the estate, but are incurred for the individual benefit of the heirs, legatees, or devisees, may not be taken as deductions; and
	4.	The allowable amount of expenses for deduction is limited to the value of property included in the decedent’s gross estate and subject to claims, plus amounts paid out of the property not subject to claims against the decedent’s estate, on or before the last day of the ninth month after death or within any granted extension(s) of time for filing the return. “Property subject to claims” is defined as the property includable in the gross estate which bears the burden or would bear the burden under law for payment of the deduction in the final adjustment and settlement of the decedent’s estate, less an initial deduction allowable under Section 2054 of the Internal Revenue Code, for any losses for casualty or theft attributable to such property and incurred during the settlement of the estate.
	(2)	Allowable administration expenses. Subject to the limitations in paragraph “a” of this subrule, allowable administration expenses under Section 2053 of the Internal Revenue Code include costs and fees incurred in the collection of assets, payment of debts, distribution of property to entitled persons, executor’s commission, attorney’s fees, and miscellaneous administration expenses. Miscellaneous administration expenses include costs or fees for surrogates, accountants, appraisers, clerk hire, storing or maintaining property of the estate, and selling the property of the estate. Expenses for preserving and caring for the property do not include expenditures for additions or improvements or expenses for a longer period than the executor is reasonably required to retain the property. Expenses for selling property of the estate are limited to those for sales that are necessary in order to pay the decedent’s debts, expenses of administration, and taxes, preserve the estate, or effect distribution. Expenses for selling the property include brokerage fees or auctioneer fees and may include the expenses for a sale of an item in a bona fide sale that is below the fair market value of the item. The allowable selling expense for an item sold below its fair market value to a dealer in such items is the lesser of the amount by which the fair market value of the item on the valuation date exceeded the proceeds from the sale or the amount by which the fair market value of the item on the date of the sale exceeded the proceeds of the sale.
	86.6(2) Prorated liabilities.
	a. 	The amount of the liability that is deductible depends upon the situs of the property in the gross estate.
If part of the property included in the gross estate has a situs in a jurisdiction other than Iowa, only a pro rata amount of the liabilities specified in Iowa Code section 450.12, with the exception of liabilities secured by a lien on property, is deductible in computing the net estate for Iowa inheritance tax purposes. The amount deductible is computed by multiplying the total amount of the unsecured liabilities by a fraction of which the Iowa situs property in the gross estate is the numerator and the total gross estate is the denominator. For the purpose of apportionment of the liabilities, the term “gross estate” means the gross estate for federal estate tax purposes. Provided, if the federal gross estate formula produces a grossly distorted result then, subject to the approval of the department, an alternate apportionment formula may be used either by the department or the taxpayer which fairly represents the particular facts of the estate.
Liabilities secured by a lien on property are allocated to the state of situs. If the secured liability exceeds the value of the security, any excess is prorated in the same manner as an unsecured liability.
	b. 	Liabilities that must be prorated. If the gross estate includes property with a situs outside Iowa, the liabilities that must be prorated are: (1) court costs, both foreign and domestic; (2) unsecured debts of the decedent regardless of where the debt was contracted; (3) federal and state income tax, including the tax on the decedent’s final return, federal estate, gift and excise tax, and state and local sales, use and excise tax; (4) expenses of the decedent’s funeral and burial, regardless of the place of interment; (5) allowances for the surviving spouse and children allowed by the probate court in Iowa or another jurisdiction; (6) the expense of the appraisal of property for the purpose of assessing a state death or succession tax; (7) the fees and necessary expenses of the personal representative and the personal representative’s attorney allowed by order of court, both foreign and domestic; (8) the costs of the sale of real and personal property, both foreign and domestic, if not otherwise included in court costs; and (9) the amount paid by the personal representative for a bond, both foreign and domestic.
	c. 	Liabilities that are not prorated. Liabilities secured by a lien on property included in the gross estate are to be allocated in full to the state of situs. These are liabilities secured by: (1) mortgages, mechanic’s liens and judgments; (2) real estate taxes and special assessments on real property; (3) liens for an obligation to the United States of America, a state or any of its political subdivisions; and (4) any other lien on property imposed by law for the security of an obligation.
	d. 	Prorated cash bequests. Rescinded IAB 10/30/13, effective 12/4/13.
	86.6(3) Liabilities deductible from property not subject to the payment of debts and charges.
	a. 	Estates with all of the property located in Iowa. Subject to the special provisions in 86.6(3)“c,” the liabilities deductible under Iowa Code section 450.12 may be deductible in whole or in part from property includable in the gross estate for inheritance tax purposes which under Iowa debtor-creditor law is not liable for the payment of the debts and charges of the estate under the following terms and conditions:
	(1)	The application of liabilities.
	1.	The liabilities must be paid. If a liability is not paid in full, the amount deductible is limited to the amount paid. If the amount claimed is not certified as paid by the time the inheritance tax return is filed, the statute requires that the director must be satisfied that the liabilities, or portions thereof deductible, will be paid.
	2.	The liability can be deducted only from property that is included in the gross estate for Iowa inheritance tax purposes. This rule would exclude, among others, that portion of joint tenancy property which is excluded from the gross estate, wrongful death proceeds, gifts to each donee made within three years of death up to an amount equal to the annual federal gift tax exclusion, and property with a situs outside Iowa.
	3.	The property included in the gross estate that is under Iowa debtor-creditor law subject to the payment of the deductible liabilities must first be applied to the liabilities, and only after this property has been exhausted can the excess liabilities be applied to the remaining property included in the gross estate.
	4.	Any excess liabilities remaining unpaid after exhausting the property subject to the payment of the liabilities must be allocated to the remaining property included in the gross estate for inheritance tax purposes on the basis of the ratio the value of each person’s share of the remaining property in the gross estate bears to the total value of the remaining property included in the gross estate.
	(2)	General rules.
	1.	The source of the funds used for payment of the excess liabilities is not relevant to the allowance of the deduction. It is sufficient for the allowance of the deduction that the liability be paid.
	2.	The applicability of the statute is limited to the deduction for inheritance tax purposes of those liabilities listed in Iowa Code subsection 450.12(1). It neither enlarges nor diminishes the rights of creditors under existing Iowa law.
	3.	The statute is not limited to estates which are probated and subject to the jurisdiction of the probate court. The statute also applies to estates which file an inheritance tax return for a tax clearance (CIT proceedings) or those otherwise not probated such as, but not limited to, inter vivos trusts whose assets are subject to inheritance tax, estates consisting of joint tenancy with right of survivorship property, estates whose assets consist of transferred property with a reserved life use or interest, estates whose assets consist of gifts made within three years of the decedent’s death and estates consisting entirely of qualified terminal interest property (QTIP) in the estate of the surviving spouse.
The statute will apply to any estate when any share of the estate will remain taxable after being reduced by the liabilities in Iowa Code subsection 450.12(1) which are lawfully charged to the share and the deduction of any statutory exemption. Excess liabilities must be prorated over all of the property not subject to debts and charges regardless of whether or not the property is part of a taxable share.
	b. 	Estates with part of the property located outside Iowa. Iowa Code section 450.12(2) and subrule 86.6(2) require that the liabilities deductible be prorated in those estates where a portion of the property included in the gross estate has a situs outside Iowa. Subject to the special provision in 86.6(3)“c,” in these estates the portion of the liabilities deductible which is allocated to the Iowa property under the proration formula must first be applied to the Iowa situs property which is subject to the payment of the liabilities. Any portion of the liabilities allocated to Iowa remaining unpaid may then be applied to the other Iowa property included in the gross estate subject to the same limitations provided for in 86.6(3)“a”(1)“1” to “4.”
	c. 	Special rule for liabilities secured by property included in the gross estate. If a liability which is deductible under Iowa Code section 450.12(1)“a” is secured by property included in the gross estate, then the liability is deductible from the specific property that secures the liability, regardless of whether or not the property is subject to the payment of the ordinary debts and charges of the estate. If the liability exceeds the value of the property that secures it and is the obligation of the decedent, then any excess liability is deductible under the same rules that govern unsecured obligations.
	86.6(4) Resident and nonresident deductions distinction abolished. Effective for estates of decedents dying on or after July 1, 1983, the domicile of the decedent is not relevant in determining whether a liability is deductible in computing the net estate. In the case of In re Estate of Evans, 246 Iowa 893, 68 N.W.2d 289 (1955) applies only to estates of decedents dying prior to July 1, 1983. However, the amount of the liability that is deductible depends upon the situs of the property in the gross estate.
If part of the property included in the gross estate has a situs in a jurisdiction other than Iowa, only a pro rata amount of the liabilities specified in Iowa Code section 450.12, with the exception of liabilities secured by a lien on property, is deductible in computing the net estate for Iowa inheritance tax purposes. The amount deductible is computed by multiplying the total amount of the unsecured liabilities by a fraction of which the Iowa situs property in the gross estate is the numerator and the total gross estate is the denominator.
Liabilities secured by a lien on property are allocated to the state of situs. If the secured liability exceeds the value of the security, any excess is prorated in the same manner as an unsecured liability.
This rule is intended to implement Iowa Code sections 450.7(1), 450.12, 450.22, 450.24, 450.38, 450.89, 633.278, and 633.374.
[ARC 1137C, IAB 10/30/13, effective 12/4/13; ARC 1545C, IAB 7/23/14, effective 8/27/14]
701—86.7(450) Life estate, remainder and annuity tables—in general. For estates of decedents dying on or after July 4, 1965, and prior to January 1, 1986, the value of a life estate in property, an annuity for life and the value of a remainder interest in the property, shall be computed by the use of the commissioners’ standard ordinary mortality table at the rate of 4 percent per annum.
	86.7(1) Tables for life estates and remainders. This subrule only applies to estates of decedents dying on or after July 4, 1965, and prior to January 1, 1986. The two factors on the same line on the next page added together equal 100 percent. Multiply the corpus of the estate by the first factor to obtain the value of the life estate. Use the second factor to obtain the value of the remainder interest in the corpus if the tax is to be paid within 12 months after the death of the decedent who created the life estate remainder. If the tax on the remainder is to be paid prior to the death of the life tenant, but after one year from the decedent’s death, use the remainder factor opposite the age of the life tenant at the time the tax is to be paid.

Age of
Life
Tenant	 	Life
Estate	 	Remainder	
0	 	.90164	 	.09836	
1	 	.89936	 	.10064	
2	 	.89900	 	.10100	
3	 	.89676	 	.10324	
4	 	.89396	 	.10604	
5	 	.89104	 	.10896	
 	 	 	 	 	
6	 	.88792	 	.11208	
7	 	.88464	 	.11536	
8	 	.88120	 	.11880	
9	 	.87756	 	.12244	
10	 	.87380	 	.12620	
 	 	 	 	 	
11	 	.86984	 	.13016	
12	 	.86576	 	.13424	
13	 	.86152	 	.13848	
14	 	.85716	 	.14284	
15	 	.85268	 	.14732	
 	 	 	 	 	
16	 	.84808	 	.15192	
17	 	.84336	 	.15664	
18	 	.83852	 	.16148	
19	 	.83356	 	.16644	
20	 	.82840	 	.17160	
 	 	 	 	 	
21	 	.82308	 	.17692	
22	 	.81756	 	.18244	
23	 	.81184	 	.18816	
24	 	.80592	 	.19408	
25	 	.79976	 	.20024	
 	 	 	 	 	
26	 	.79336	 	.20664	
27	 	.78672	 	.21328	
28	 	.77984	 	.22016	
29	 	.77268	 	.22732	
30	 	.76524	 	.23476	
 	 	 	 	 	
31	 	.75756	 	.24244	
32	 	.74960	 	.25040	
33	 	.74132	 	.25868	
34	 	.73280	 	.26720	
35	 	.72392	 	.27608	
 	 	 	 	 	
36	 	.71476	 	.28524	
37	 	.70532	 	.29468	
38	 	.69560	 	.30440	
39	 	.68560	 	.31440	
40	 	.67536	 	.32464	
 	 	 	 	 	
41	 	.66488	 	.33512	
42	 	.65412	 	.34588	
43	 	.64316	 	.35684	
44	 	.63192	 	.36808	
45	 	.62044	 	.37956	
 	 	 	 	 	
46	 	.60872	 	.39128	
47	 	.59680	 	.40320	
48	 	.58464	 	.41536	
49	 	.57228	 	.42772	
50	 	.55972	 	.44028	
 	 	 	 	 	
51	 	.54700	 	.45300	
52	 	.53412	 	.46588	
53	 	.52104	 	.47896	
54	 	.50788	 	.49212	
55	 	.49452	 	.50548	
 	 	 	 	 	
56	 	.48108	 	.51892	
57	 	.46756	 	.53244	
58	 	.45392	 	.54608	
59	 	.44024	 	.55976	
60	 	.42652	 	.57348	
 	 	 	 	 	
61	 	.41280	 	.58720	
62	 	.39908	 	.60092	
63	 	.38538	 	.61462	
64	 	.37174	 	.62826	
65	 	.35817	 	.64183	
 	 	 	 	 	
66	 	.34471	 	.65529	
67	 	.33140	 	.66860	
68	 	.31829	 	.68171	
69	 	.30542	 	.69458	
70	 	.29282	 	.70718	
 	 	 	 	 	
71	 	.28048	 	.71952	
72	 	.26840	 	.73160	
73	 	.25653	 	.74347	
74	 	.24481	 	.75519	
75	 	.23322	 	.76678	
 	 	 	 	 	
76	 	.22175	 	.77825	
77	 	.21045	 	.78955	
78	 	.19938	 	.80062	
79	 	.18863	 	.81137	
80	 	.17826	 	.82174	
 	 	 	 	 	
81	 	.16830	 	.83170	
82	 	.15876	 	.84124	
83	 	.14960	 	.85040	
84	 	.14078	 	.85922	
85	 	.13224	 	.86776	
 	 	 	 	 	
86	 	.12395	 	.87605	
87	 	.11584	 	.88416	
88	 	.10785	 	.89215	
89	 	.09990	 	.90010	
90	 	.09192	 	.90808	
 	 	 	 	 	
91	 	.08386	 	.91614	
92	 	.07563	 	.92437	
93	 	.06715	 	.93285	
94	 	.05826	 	.94174	
95	 	.04866	 	.95134	
 	 	 	 	 	
96	 	.03801	 	.96199	
97	 	.02595	 	.97405	
98	 	.01275	 	.98725	
99	 	.00000	 	1.00000	
	86.7(2) Table for an annuity for life. This subrule only applies to estates of decedents dying on or after July 4, 1965, and prior to January 1, 1986. To find the present value of an annuity or a given amount (specified sum) for life, annualize the annuity payments and multiply the result by the annuity factor in Column 3 opposite the age at the nearest birthday of the person receiving the annuity.

Column 1
Age in
Years	 	Column 2
Life
Expectancy
in Years	 	Column 3
4%
Annuities
$1.00	
0	 	68.30	 	22.541	
1	 	67.78	 	22.484	
2	 	66.90	 	22.475	
3	 	66.00	 	22.419	
4	 	65.10	 	22.349	
5	 	64.19	 	22.276	
 	 	 	 	 	
6	 	63.27	 	22.198	
7	 	62.35	 	22.116	
8	 	61.43	 	22.030	
9	 	60.51	 	21.939	
10	 	59.58	 	21.845	
 	 	 	 	 	
11	 	58.65	 	21.746	
12	 	57.72	 	21.644	
13	 	56.80	 	21.538	
14	 	55.87	 	21.429	
15	 	54.95	 	21.317	
 	 	 	 	 	
16	 	54.03	 	21.202	
17	 	53.11	 	21.084	
18	 	52.19	 	20.963	
19	 	51.28	 	20.839	
20	 	50.37	 	20.710	
 	 	 	 	 	
21	 	49.46	 	20.577	
22	 	48.55	 	20.439	
23	 	47.64	 	20.296	
24	 	46.73	 	20.148	
25	 	45.82	 	19.994	
 	 	 	 	 	
26	 	44.90	 	19.834	
27	 	43.99	 	19.668	
28	 	43.08	 	19.496	
29	 	42.16	 	19.317	
30	 	41.25	 	19.131	
 	 	 	 	 	
31	 	40.34	 	18.939	
32	 	39.43	 	18.740	
33	 	38.51	 	18.533	
34	 	37.60	 	18.320	
35	 	36.69	 	18.098	
 	 	 	 	 	
36	 	35.78	 	17.869	
37	 	34.88	 	17.633	
38	 	33.97	 	17.390	
39	 	33.07	 	17.140	
40	 	32.18	 	16.884	
 	 	 	 	 	
41	 	31.29	 	16.622	
42	 	30.41	 	16.353	
43	 	29.54	 	16.079	
44	 	28.67	 	15.798	
45	 	27.81	 	15.511	
 	 	 	 	 	
46	 	26.95	 	15.218	
47	 	26.11	 	14.920	
48	 	25.27	 	14.616	
49	 	24.45	 	14.307	
50	 	23.63	 	13.993	
 	 	 	 	 	
51	 	22.82	 	13.675	
52	 	22.03	 	13.353	
53	 	21.25	 	13.026	
54	 	20.47	 	12.697	
55	 	19.71	 	12.363	
 	 	 	 	 	
56	 	18.97	 	12.027	
57	 	18.23	 	11.689	
58	 	17.51	 	11.348	
59	 	16.81	 	11.006	
60	 	16.12	 	10.663	
 	 	 	 	 	
61	 	15.44	 	10.320	
62	 	14.78	 	9.9770	
63	 	14.14	 	9.6346	
64	 	13.51	 	9.2935	
65	 	12.90	 	8.9543	
 	 	 	 	 	
66	 	12.31	 	8.6178	
67	 	11.73	 	8.2851	
68	 	11.17	 	7.9572	
69	 	10.64	 	7.6355	
70	 	10.12	 	7.3204	
 	 	 	 	 	
71	 	9.63	 	7.0121	
72	 	9.15	 	6.7101	
73	 	8.69	 	6.4133	
74	 	8.24	 	6.1203	
75	 	7.81	 	5.8304	
 	 	 	 	 	
76	 	7.39	 	5.5437	
77	 	6.98	 	5.2612	
78	 	6.59	 	4.9845	
79	 	6.21	 	4.7158	
80	 	5.85	 	4.4566	
 	 	 	 	 	
81	 	5.51	 	4.2076	
82	 	5.19	 	3.9689	
83	 	4.89	 	3.7399	
84	 	4.60	 	3.5194	
85	 	4.32	 	3.3061	
 	 	 	 	 	
86	 	4.06	 	3.0988	
87	 	3.80	 	2.8961	
88	 	3.55	 	2.6963	
89	 	3.31	 	2.4975	
90	 	3.06	 	2.2981	
 	 	 	 	 	
91	 	2.82	 	2.0965	
92	 	2.58	 	1.8907	
93	 	2.33	 	1.6787	
94	 	2.07	 	1.4564	
95	 	1.80	 	1.2166	
 	 	 	 	 	
96	 	1.51	 	.9503	
97	 	1.18	 	.6487	
98	 	.83	 	.3189	
99	 	.50	 	.0000	
	86.7(3) Annuity tables when the term is certain. This table is to be used to compute the present values of two types of annuities: (1) the use of property for a specific number of years and (2) an annuity of a specific amount of money for a number of years certain. To compute the present value of the first annuity, multiply the value of property by 4 percent. Then multiply the result by the annuity factor opposite the number of years of the annuity. Multiply the value of the property by the remainder factor for the present value of the remainder. For the second annuity annualize the payments and multiply the result by the annuity factor opposite the number of years of the annuity. Subtract the present value of the annuity from the value of the property from which the annuity is funded for the remainder value.

 	Number
of Years	 	Present Value of an
Annuity of One Dollar,
Payable at the End of
Each Year, for a
Certain No.	of Years	 	Present Value of
One Dollar,
Payable at the
End of a Certain
Number of Years	 	
 	 	 	ANNUITY	 	REMAINDER	 	
 	1	 	$0.96154	 	$0.961538	 	
 	2	 	1.88609	 	0.924556	 	
 	3	 	2.77509	 	0.888996	 	
 	4	 	3.62990	 	0.854804	 	
 	5	 	4.45182	 	0.821927	 	
 	 	 	 	 	 	 	
 	6	 	5.24214	 	0.790315	 	
 	7	 	6.00205	 	0.759918	 	
 	8	 	6.73274	 	0.730690	 	
 	9	 	7.43533	 	0.702587	 	
 	10	 	8.11090	 	0.675564	 	
 	 	 	 	 	 	 	
 	11	 	8.76048	 	0.649581	 	
 	12	 	9.38507	 	0.624597	 	
 	13	 	9.98565	 	0.600574	 	
 	14	 	10.56312	 	0.577475	 	
 	15	 	11.11839	 	0.555265	 	
 	 	 	 	 	 	 	
 	16	 	$11.65230	 	$0.533908	 	
 	17	 	12.16567	 	0.513373	 	
 	18	 	12.65930	 	0.493628	 	
 	19	 	13.13394	 	0.474642	 	
 	20	 	13.59033	 	0.456387	 	
 	 	 	 	 	 	 	
 	21	 	14.02916	 	0.438834	 	
 	22	 	14.45112	 	0.421955	 	
 	23	 	14.85684	 	0.405726	 	
 	24	 	15.24696	 	0.390121	 	
 	25	 	15.62208	 	0.375117	 	
 	 	 	 	 	 	 	
 	26	 	15.98277	 	0.360689	 	
 	27	 	16.32959	 	0.346817	 	
 	28	 	16.66306	 	0.333477	 	
 	29	 	16.98371	 	0.320651	 	
 	30	 	17.29203	 	0.308319	 	
	86.7(4) Tables for life estates and remainders for estates of decedents dying on or after January 1, 1986, and prior to January 1, 2004. For estates of decedents dying on or after January 1, 1986, and prior to January 1, 2004, the following tables are to be used in computing the value of a life estate, an annuity for life and the value of a remainder in property. The table is based on the commissioners’ standard ordinary mortality tables of life expectancy, with no distinction being made between the life expectancy of males and females of the same age. As a result, the sex of the recipient is not relevant in computing the value of the property interest received. Arizona Governing Committee for Tax Deferred Annuity and Deferred Compensation Plans v.	Norris, 463 U.S. 1073, 103 S.Ct.	3492, 77 L.Ed.2d 1236 (1983). Valuation is based on the age at the nearest birthday. The following table is to be applied in the same manner as specified in subrule 86.7(1).
1980 CSO-D MORTALITY TABLE
BASED ON BLENDING 50% MALE—50% FEMALE
(PIVOTAL AGE 45)
AGE NEAREST BIRTHDAY
4% INTEREST

AGE OF
LIFE
TENANT	LIFE
ESTATE	REMAINDER	AGE OF
LIFE
TENANT	LIFE
ESTATE	REMAINDER	
0	.91904	.08096	50	.61730	.38270	
1	.91919	.08081	51	.60576	.39424	
2	.91689	.08311	52	.59399	.40601	
3	.91443	.08557	53	.58199	.41801	
4	.91186	.08814	54	.56979	.43021	
5	.90914	.09086	55	.55740	.44260	
6	.90629	.09371	56	.54483	.45517	
7	.90329	.09671	57	.53206	.46794	
8	.90014	.09986	58	.51906	.48094	
9	.89683	.10317	59	.50582	.49418	
10	.89338	.10662	60	.49234	.50766	
11	.88977	.11023	61	.47862	.52138	
12	.88603	.11397	62	.46471	.53529	
13	.88219	.11781	63	.45064	.54936	
14	.87828	.12172	64	.43647	.56353	
15	.87429	.12571	65	.42226	.57774	
16	.87027	.12973	66	.40801	.59199	
17	.86617	.13383	67	.39372	.60628	
18	.86200	.13800	68	.37936	.62064	
19	.85773	.14227	69	.36489	.63511	
20	.85333	.14667	70	.35031	.64969	
21	.84878	.15122	71	.33565	.66435	
22	.84404	.15596	72	.32098	.67902	
23	.83912	.16088	73	.30639	.69361	
24	.83399	.16601	74	.29199	.70801	
25	.82865	.17135	75	.27787	.72213	
26	.82306	.17694	76	.26405	.73595	
27	.81724	.18276	77	.25053	.74947	
28	.81117	.18883	78	.23727	.76273	
29	.80487	.19513	79	.22422	.77578	
30	.79833	.20167	80	.21134	.78866	
31	.79155	.20845	81	.19866	.80134	
32	.78451	.21549	82	.18625	.81375	
33	.77723	.22277	83	.17419	.82581	
34	.76970	.23030	84	.16260	.83740	
35	.76192	.23808	85	.15151	.84849	
36	.75389	.24611	86	.14093	.85907	
37	.74562	.25438	87	.13081	.86919	
38	.73710	.26290	88	.12108	.87892	
39	.72836	.27164	89	.11163	.88837	
40	.71940	.28060	90	.10235	.89765	
41	.71022	.28978	91	.09309	.90691	
42	.70083	.29917	92	.08368	.91632	
43	.69122	.30878	93	.07390	.92610	
44	.68138	.31862	94	.06350	.93650	
45	.67131	.32869	95	.05221	.94779	
46	.66101	.33899	96	.03994	.96006	
47	.65046	.34954	97	.02678	.97322	
48	.63966	.36034	98	.01321	.98679	
49	.62860	.37140	99	.00000	1.00000	
	86.7(5) Table for an annuity for life—for estates of decedents dying on or after January 1, 1986, and prior to January 1, 2004. The following table is to be used in computing the present value of an annuity of a given amount (specified sum) for life in estates of decedents dying on or after January 1, 1986, and prior to January 1, 2004. The table is to be used in the same manner as the table listed in subrule 86.7(2).
1980 CSO-D MORTALITY TABLE
BASED ON BLENDING 50% MALE—50% FEMALE
(PIVOTAL AGE 45)
AGE NEAREST BIRTHDAY
4% INTEREST

AGE
IN
YEARS	LIFE
EXPECTANCY
IN YEARS	ANNUITIES
$1.00	AGE
IN
YEARS	LIFE
EXPECTANCY
IN YEARS	ANNUITIES
$1.00	
0	73.30	22.976	50	27.45	15.433	
1	72.56	22.980	51	26.61	15.144	
2	71.63	22.922	52	25.77	14.850	
3	70.70	22.861	53	24.94	14.550	
4	69.76	22.796	54	24.13	14.245	
5	68.82	22.728	55	23.32	13.935	
6	67.87	22.657	56	22.52	13.621	
7	66.93	22.582	57	21.73	13.301	
8	65.98	22.504	58	20.95	12.976	
9	65.03	22.421	59	20.18	12.645	
10	64.07	22.334	60	19.41	12.308	
11	63.12	22.244	61	18.66	11.966	
12	62.16	22.151	62	17.91	11.618	
13	61.21	22.055	63	17.18	11.266	
14	60.27	21.957	64	16.45	10.912	
15	59.32	21.857	65	15.75	10.557	
16	58.39	21.757	66	15.05	10.200	
17	57.46	21.654	67	14.38	9.843	
18	56.53	21.550	68	13.71	9.484	
19	55.61	21.443	69	13.06	9.122	
20	54.69	21.333	70	12.42	8.758	
21	53.77	21.219	71	11.79	8.391	
22	52.85	21.101	72	11.17	8.024	
23	51.93	20.978	73	10.57	7.660	
24	51.01	20.850	74	10.00	7.300	
25	50.08	20.716	75	9.44	6.947	
26	49.15	20.576	76	8.91	6.601	
27	48.23	20.431	77	8.39	6.263	
28	47.30	20.279	78	7.90	5.932	
29	46.36	20.122	79	7.42	5.605	
30	45.43	19.958	80	6.96	5.283	
31	44.50	19.789	81	6.52	4.967	
32	43.57	19.613	82	6.09	4.656	
33	42.64	19.431	83	5.68	4.355	
34	41.72	19.242	84	5.29	4.065	
35	40.79	19.048	85	4.93	3.788	
36	39.87	18.847	86	4.58	3.523	
37	38.94	18.640	87	4.26	3.270	
38	38.03	18.428	88	3.95	3.027	
39	37.11	18.209	89	3.66	2.791	
40	36.21	17.985	90	3.37	2.559	
41	35.30	17.756	91	3.09	2.327	
42	34.41	17.521	92	2.81	2.092	
43	33.52	17.280	93	2.52	1.848	
44	32.63	17.035	94	2.22	1.588	
45	31.75	16.783	95	1.90	1.305	
46	30.88	16.525	96	1.56	.999	
47	30.01	16.261	97	1.20	.670	
48	29.15	15.991	98	.84	.330	
49	28.30	15.715	99	.50	.000	
	86.7(6) Table for life estates and remainders for estates of decedents dying on or after January 1, 2004. For estates of decedents dying on or after January 1, 2004, the following table is to be used in computing the value of a life estate, an annuity for life and the value of a remainder in property. The following table is to be applied in the same manner as specified in subrule 86.7(1).
2001 CSO-D MORTALITY TABLE
BASED ON BLENDING 50% MALE—50% FEMALE
(PIVOTAL AGE 45)
AGE NEAREST BIRTHDAY
4% INTEREST
The two factors across the page equal 100 percent. Multiply the corpus of the estate by the first factor to obtain value of the life estate.
Use the second factor to obtain the remainder interest if the tax is to be paid at the time of probate or to determine if there would be any tax due.

AGE OF
LIFE
TENANT	LIFE
ESTATE	REMAINDER	AGE OF
LIFE
TENANT	LIFE
ESTATE	REMAINDER	
0	0.94022	0.05978	60	0.54240	0.45760	
1	0.93854	0.06146	61	0.52918	0.47082	
2	0.93653	0.06347	62	0.51579	0.48421	
3	0.93431	0.06569	63	0.50229	0.49771	
4	0.93192	0.06808	64	0.48868	0.51132	
5	0.92939	0.07061	65	0.47495	0.52505	
6	0.92676	0.07324	66	0.46112	0.53888	
7	0.92402	0.07598	67	0.44717	0.55283	
8	0.92119	0.07881	68	0.43306	0.56694	
9	0.91825	0.08175	69	0.41882	0.58118	
10	0.91519	0.08481	70	0.40442	0.59558	
11	0.91202	0.08789	71	0.38991	0.61009	
12	0.90874	0.09126	72	0.37533	0.62467	
13	0.90537	0.09463	73	0.36081	0.63919	
14	0.90192	0.09808	74	0.34633	0.65367	
15	0.89837	0.10163	75	0.33189	0.66811	
16	0.89475	0.10525	76	0.31751	0.68249	
17	0.89107	0.10893	77	0.30318	0.69682	
18	0.88731	0.11269	78	0.28898	0.71102	
19	0.88344	0.11656	79	0.27495	0.72505	
20	0.87944	0.12056	80	0.26116	0.73884	
21	0.87529	0.12471	81	0.24761	0.75239	
22	0.87098	0.12902	82	0.23452	0.76548	
23	0.86651	0.13349	83	0.22188	0.77812	
24	0.86186	0.13814	84	0.20962	0.79038	
25	0.85704	0.14296	85	0.19778	0.80222	
26	0.85205	0.14795	86	0.18642	0.81358	
27	0.84688	0.15312	87	0.17540	0.82460	
28	0.84154	0.15846	88	0.16507	0.83493	
29	0.83599	0.16401	89	0.15544	0.84456	
30	0.83022	0.16978	90	0.14650	0.85350	
31	0.82421	0.17579	91	0.13802	0.86198	
32	0.81798	0.18202	92	0.12909	0.87091	
33	0.81151	0.18849	93	0.12008	0.87992	
34	0.80480	0.19520	94	0.11133	0.88867	
35	0.79786	0.20214	95	0.10320	0.89680	
36	0.79068	0.20932	96	0.09618	0.90382	
37	0.78326	0.21674	97	0.09014	0.90986	
38	0.77559	0.22441	98	0.08532	0.91468	
39	0.76767	0.23233	99	0.07952	0.92048	
40	0.75949	0.24051	100	0.07338	0.92662	
41	0.75104	0.24896	101	0.06745	0.93255	
42	0.74233	0.25767	102	0.06160	0.93840	
43	0.73335	0.26665	103	0.05590	0.94410	
44	0.72412	0.27588	104	0.05042	0.94958	
45	0.71463	0.28537	105	0.04523	0.95477	
46	0.70490	0.29510	106	0.04045	0.95955	
47	0.69491	0.30509	107	0.03604	0.96396	
48	0.68468	0.31532	108	0.03199	0.96801	
49	0.67415	0.32585	109	0.02823	0.97177	
50	0.66333	0.33667	110	0.02479	0.97521	
51	0.65223	0.34777	111	0.02174	0.97826	
52	0.64086	0.35914	112	0.01899	0.98101	
53	0.62926	0.37074	113	0.01643	0.98357	
54	0.61743	0.38257	114	0.01357	0.98643	
55	0.60539	0.39461	115	0.01107	0.98893	
56	0.59317	0.40683	116	0.00869	0.99131	
57	0.58077	0.41923	117	0.00638	0.99362	
58	0.56821	0.43179	118	0.00437	0.99563	
59	0.55542	0.44458	119	0.00246	0.99754	
 	 	 	120	0.00000	1.00000	
	86.7(7) Table for an annuity for life—for estates of decedents dying on or after January 1, 2004. The following table is to be used in computing the present value of an annuity of a given amount (specified sum) for life in estates of decedents dying on or after January 1, 2004. The table is to be used in the same manner as the table listed in subrule 86.7(2).
2001 CSO-D MORTALITY TABLE
BASED ON BLENDING 50% MALE—50% FEMALE
(PIVOTAL AGE 45)
AGE NEAREST BIRTHDAY
4% INTEREST
To find the present value of an annuity or a given amount (specified sum) for life, multiply the annuity by the annuity factor opposite the age at the nearest birthday of the person receiving the annuity.

AGE IN
YEARS	LIFE EXPECTANCY
IN YEARS	ANNUITIES
$1.00	
 	0	 	78.65	 	23.505	
 	1	 	77.73	 	23.464	
 	2	 	76.78	 	23.413	
 	3	 	75.81	 	23.358	
 	4	 	74.84	 	23.298	
 	5	 	73.86	 	23.235	
 	6	 	72.87	 	23.169	
 	7	 	71.89	 	23.101	
 	8	 	70.91	 	23.030	
 	9	 	69.92	 	22.956	
 	10	 	68.94	 	22.880	
 	11	 	67.95	 	22.801	
 	12	 	66.97	 	22.718	
 	13	 	65.99	 	22.634	
 	14	 	65.01	 	22.548	
 	15	 	64.04	 	22.459	
 	16	 	63.07	 	22.369	
 	17	 	62.11	 	22.277	
 	18	 	61.15	 	22.183	
 	19	 	60.19	 	22.086	
 	20	 	59.23	 	21.986	
 	21	 	58.27	 	21.882	
 	22	 	57.32	 	21.774	
 	23	 	56.36	 	21.663	
 	24	 	55.40	 	21.547	
 	25	 	54.45	 	21.426	
 	26	 	53.49	 	21.301	
 	27	 	52.53	 	21.172	
 	28	 	51.58	 	21.038	
 	29	 	50.63	 	20.900	
 	30	 	49.67	 	20.755	
 	31	 	48.72	 	20.605	
 	32	 	47.76	 	20.449	
 	33	 	46.81	 	20.288	
 	34	 	45.85	 	20.120	
 	35	 	44.90	 	19.946	
 	36	 	43.95	 	19.767	
 	37	 	43.00	 	19.581	
 	38	 	42.05	 	19.390	
 	39	 	41.11	 	19.192	
 	40	 	40.16	 	18.987	
 	41	 	39.22	 	18.776	
 	42	 	38.28	 	18.558	
 	43	 	37.35	 	18.334	
 	44	 	36.42	 	18.103	
 	45	 	35.49	 	17.866	
 	46	 	34.57	 	17.623	
 	47	 	33.65	 	17.373	
 	48	 	32.74	 	17.117	
 	49	 	31.84	 	16.854	
 	50	 	30.94	 	16.583	
 	51	 	30.04	 	16.306	
 	52	 	29.15	 	16.021	
 	53	 	28.27	 	15.731	
 	54	 	27.40	 	15.436	
 	55	 	26.54	 	15.135	
 	56	 	25.68	 	14.829	
 	57	 	24.84	 	14.519	
 	58	 	24.01	 	14.205	
 	59	 	23.19	 	13.886	
 	60	 	22.38	 	13.560	
 	61	 	21.57	 	13.229	
 	62	 	20.78	 	12.895	
 	63	 	20.00	 	12.557	
 	64	 	19.24	 	12.217	
 	65	 	18.49	 	11.874	
 	66	 	17.75	 	11.528	
 	67	 	17.02	 	11.179	
 	68	 	16.31	 	10.827	
 	69	 	15.60	 	10.470	
 	70	 	14.91	 	10.110	
 	71	 	14.23	 	9.748	
 	72	 	13.56	 	9.383	
 	73	 	12.91	 	9.020	
 	74	 	12.28	 	8.658	
 	75	 	11.66	 	8.297	
 	76	 	11.06	 	7.938	
 	77	 	10.47	 	7.580	
 	78	 	9.91	 	7.224	
 	79	 	9.36	 	6.874	
 	80	 	8.83	 	6.529	
 	81	 	8.32	 	6.190	
 	82	 	7.84	 	5.863	
 	83	 	7.38	 	5.547	
 	84	 	6.94	 	5.240	
 	85	 	6.52	 	4.944	
 	86	 	6.13	 	4.660	
 	87	 	5.75	 	4.385	
 	88	 	5.41	 	4.127	
 	89	 	5.09	 	3.886	
 	90	 	4.79	 	3.662	
 	91	 	4.51	 	3.451	
 	92	 	4.23	 	3.227	
 	93	 	3.94	 	3.002	
 	94	 	3.67	 	2.783	
 	95	 	3.43	 	2.580	
 	96	 	3.21	 	2.405	
 	97	 	3.03	 	2.253	
 	98	 	2.88	 	2.133	
 	99	 	2.71	 	1.988	
 	100	 	2.53	 	1.835	
 	101	 	2.35	 	1.686	
 	102	 	2.18	 	1.540	
 	103	 	2.02	 	1.398	
 	104	 	1.87	 	1.260	
 	105	 	1.72	 	1.131	
 	106	 	1.59	 	1.011	
 	107	 	1.47	 	0.901	
 	108	 	1.35	 	0.800	
 	109	 	1.25	 	0.706	
 	110	 	1.16	 	0.620	
 	111	 	1.08	 	0.544	
 	112	 	1.00	 	0.475	
 	113	 	0.93	 	0.411	
 	114	 	0.86	 	0.339	
 	115	 	0.79	 	0.277	
 	116	 	0.73	 	0.217	
 	117	 	0.67	 	0.159	
 	118	 	0.61	 	0.109	
 	119	 	0.56	 	0.062	
 	120	 	0.50	 	0.000	
This rule is intended to implement Iowa Code sections 450.51 and 450.52.
[ARC 1137C, IAB 10/30/13, effective 12/4/13]
701—86.8(450B) Special use valuation.
	86.8(1) In general. Effective for estates of decedents dying on or after July 1, 1982, real estate which has been valued at its special use value under 26 U.S.C. Section 2032A for computing the federal estate tax is eligible to be valued for inheritance tax purposes at its special use value, subject to the limitations imposed by statute and these rules. Special use valuation under the provisions of Iowa Code chapter 450B is in lieu of valuing the real estate at its fair market value in the ordinary course of trade under Iowa Code section 450.37. The valuation of real estate at its special use value must be made on the entire parcel of the real estate in fee simple. The value of undivided interests, life or term estates and remainders in real estate specially valued is determined by (1) applying the life estate, remainder or term tables to the special use value—see rule 86.7(450), or (2) by dividing the special use value by the decedent’s fractional interest in case of an undivided interest. The eligibility of real estate for special use value is not limited to probate real estate. Real estate transfers with a retained life use or interest, real estate held in joint tenancy, real estate transferred to take effect in possession or enjoyment at death, real estate held by a partnership or corporation and real estate held in trust are noninclusive examples of real estate not subject to probate that may be eligible for special use valuation.
	86.8(2) Definitions and technical terms. References in this subrule to sections of the Internal Revenue Code mean sections of the Internal Revenue Code of 1954 as defined (and periodically updated) in Iowa Code section 422.3(5). Technical terms such as, but not limited to, “qualified real property”; “qualified use”; “cessation of qualified use”; “disposition”; “qualified heir”; “member of the family”; “farm”; “farming purpose”; “material participation”; and “active management” are examples of technical terms which have the same meaning for Iowa special use valuation under Iowa Code chapter 450B as the terms are defined and interpreted in 26 U.S.C. Section 2032A. It is the purpose of Iowa special use valuation to conform as nearly as possible to the special use valuation provisions of 26 U.S.C. Section 2032A, as can be done within the framework of an inheritance tax instead of an estate tax.
	86.8(3) Eligibility requirements. The eligibility requirements for valuing real estate at its special use value for computing inheritance tax are the same as the eligibility requirements of 26 U.S.C. Section 2032A for the purpose of computing the federal estate tax imposed by 26 U.S.C. Section 2001. Real estate cannot be specially valued for inheritance tax purposes unless it is also eligible and is valued at its special use value for federal estate tax purposes. However, even though real estate is specially valued for federal estate tax purposes, the estate has the right to elect or not to elect to value real estate at its special use value for computing the inheritance tax. Real estate otherwise qualified will be eligible for special use valuation for Iowa inheritance tax purposes if a valid special use valuation election has been made on the federal estate tax return. What constitutes a valid election for federal estate tax purposes is determined under applicable federal law and practice and is not determined by the department.
	86.8(4) Real estate—not eligible.
	a. 	Real estate otherwise qualified is not eligible to be specially valued for inheritance tax purposes if it is not includable in the federal gross estate. For example, a gift of real estate may not be part of the federal gross estate. However, the real estate may be a taxable gift, but the real estate would not qualify for special valuation.
	b. 	Real estate, otherwise qualified, will not be eligible for the special use valuation provisions of Iowa Code chapter 450B, if the owner of a remainder, or other future property interest in the real estate, defers the payment of the inheritance tax until the termination of the prior estate. Special use valuation is made at the date of the decedent’s death, while Iowa Code section 450.44 requires the future interest to be revalued at the time of the termination of the prior estate when the tax is deferred. See In re Estate of Wickham, 241 Iowa 198, 40 N.W.2d 469 (1950); department subrules 86.2(8) and 86.2(9). In addition, when the tax has been deferred the life estate-remainder factor to be used in computing the tax on the future interest is the factor existing at the time of payment or the termination of the prior estate, while the additional inheritance tax under special use value is based on the life estate-remainder factor at the time of death. See In re Estate of Millard, 251 Iowa 1982, 105 N.W.2d 95 (1960). A second valuation after death is not within the scope of either 26 U.S.C. Section 2032A or Iowa Code chapter 450B. Since all persons with an interest in the real estate must sign the agreement specified in 86.8(5)“e,” the deferral of the inheritance tax on a future property interest disqualifies all of the property interests in the real estate because the future property interest is not eligible to be specially valued in case of a deferral of the tax.
	86.8(5) Election and agreement.
	a. 	In general. The election to specially value real estate under the provisions of Iowa Code chapter 450B must be made by the fiduciary for the estate or trust on the inheritance tax return or on a statement attached to the return. The election may be made on a delinquent return. However, once made, the election is irrevocable. The election is an affirmative act. Therefore, failure to make an election on the inheritance tax return shall be construed as an election not to specially value real estate under Iowa Code chapter 450B.
	b. 	Form—election. The election to value real estate at its special use value shall comply with the requirements of 26 U.S.C. Section 2032A(d) and federal regulation Section 20.2032A-8. An executed copy of the election filed as part of the federal estate tax return and accepted by the Internal Revenue Service will fulfill the requirements of this subrule.
	c. 	Content of the election. The election must be accompanied by the agreement specified in 86.8(5)“e” and shall contain the information required by federal regulation Section 20.2032A-8. Submission of an executed copy of the information required by federal regulation Section 20.2032A-8(3) in support of the election to specially value property for federal estate tax purposes will fulfill the requirements of this subrule.
	d. 	Protective elections. A protective election may be made to specially value qualified real property for inheritance tax purposes. The availability of special use valuation is contingent upon values, as finally determined for federal estate tax purposes, meeting the requirements of 26 U.S.C. Section 2032A. The protective election must be made on the inheritance tax return and shall contain substantially the same information required by federal regulation Section 20.2032A-8(b). Submission of an executed copy of the protective election filed and accepted for federal estate tax purposes will fulfill the requirements of this subrule.
If it is found that the real estate qualifies for special use valuation as finally determined for federal estate tax purposes, an additional notice of election must be filed within 60 days after the date of the determination. The notice must set forth the information required in 86.8(5)“c” and is to be attached, together with the agreement provided for in 86.8(5)“e,” to an amended final inheritance tax return. Failure to file the additional notice within the time prescribed by this subrule shall disqualify the real estate for special use valuation.
	e. 	Agreement. An agreement must be executed by all parties who have any interest in the property to be valued at its special use value as of the date of the decedent’s death. In the agreement, the qualified heirs must consent to personal liability for the additional inheritance tax imposed by Iowa Code section 450B.3 in the event of early disposition or cessation of the qualified use. All other parties with an interest in the property specially valued must consent to liability for the additional inheritance tax to the extent of the additional tax imposed on their share of the property no longer eligible to be specially valued. The liability of the qualified heir or the successor qualified heir for the additional inheritance tax is not dependent on the heir’s share of the property specially valued, but rather it is for the amount of the additional inheritance tax imposed on all of the shares of the parties with an interest in the property no longer eligible for special use value.
	f. 	Failure to file the election and agreement. Failure to file with the inheritance tax return either the election provided for in 86.8(5)“b” or the agreement specified in 86.8(5)“e” shall disqualify the property for the special use value provisions of Iowa Code chapter 450B. In the event of disqualification, the property shall be valued for inheritance tax purposes at its market value in the ordinary course of trade under the provisions of Iowa Code section 450.37.
	86.8(6) Value to use.
	a. 	Special use value. The special use value established and accepted by the Internal Revenue Service for the qualified real property shall also be the value of the qualified real property for the purpose of computing the inheritance tax on the shares in the specially valued property.
	b. 	Fair market value when a recapture tax is imposed. The additional inheritance tax imposed by Iowa Code section 450B.3, due to the early disposition or cessation of the qualified use, is based on the fair market value of the qualified real property at the time of the decedent’s death as reported and established in the election to value the real estate at its special use value, subject to the limitations in 86.8(6)“c.” Iowa Code chapter 450B makes reference only to the use of federal values. Therefore, a fair market value appraisal made by the Iowa inheritance tax appraisers cannot be used in computing the amount of the additional inheritance tax imposed unless it is accepted by the Internal Revenue Service. Iowa Code section 450.37 only applies to property which is not specially valued under Iowa Code chapter 450B.
	c. 	Fair market value limitations. The following fair market value limitations shall govern the computation of the additional inheritance tax imposed, if any. If at the time of its disposition or cessation of the qualified use, the fair market value of the property which is the subject of the additional tax is:
	1.	Greater than its fair market value at the time of the decedent’s death, the additional tax is computed on the fair market value at death.
	2.	Less than its fair market value at the time of death but greater than the special use value, the additional tax is computed on the lesser fair market value.
	3.	Equal to or less than the special use value of the property, no additional inheritance tax is imposed. In this event, no refund is allowed. Iowa Code chapter 450B makes reference only to the imposition of additional inheritance tax, not to an additional benefit if the agreement is not fulfilled.
As a result, failure to fulfill the agreement provided for in 86.8(5)“e” may, in certain circumstances, result in a lower tax liability than would have been the case had the special use valuation election not been made.
The rule for computing the additional federal estate tax under 26 U.S.C. Section 2032A(c) is different. See lines 8 to 11, Additional Federal Estate Tax Form 706-A and IRS letter ruling 8215036 (1982).
	86.8(7) Imposition of additional inheritance tax.
	a. 	In general. If within ten years after the decedent’s death there is a disposition of the property or a cessation of the qualified use within the meaning of 26 U.S.C. Section 2032A(c), an additional inheritance tax is imposed on the shares in the qualified real property specially valued, subject to the limitation in 86.8(6)“c.” Failure to begin the special use within two years after the decedent’s death disqualifies the property for the special use valuation provisions of Iowa Code chapter 450B. However, the ten-year period for imposing an additional inheritance tax is not extended by the period of time between the decedent’s death and the beginning date of the special use. The rule for federal estate tax purposes is different. The ten-year period for federal estate tax purposes is extended by the period of time between the decedent’s death and the time the special use begins. See 26 U.S.C. Section 2032A(c)(7)(A)(ii). In this respect, the Iowa law does not conform to the federal statute. See Iowa Code section 450B.3.
	b. 	Additional tax on life or term estates and remainders. The additional tax on life or term estates and remainders in real estate which no longer qualifies for special use valuation is computed as if the special use valuation had not been elected. Therefore, if age or time is a determining factor in computing the additional tax, it is the age or time at the date of the decedent’s death which governs the computation, not the age or time at the date of the disposition or cessation of the qualified use. Therefore, subrule 86.2(7) implementing Iowa Code section 450.44 does not apply. Iowa Code section 450B.3 makes no provision for deferral of the additional tax on a future property interest in real estate which is no longer eligible to be specially valued.
	c. 	Interplay of the additional inheritance tax with the Iowa estate tax for deaths occurring prior to January 1, 2005. In the event of an early disposition or cessation of the qualified use of the specially valued real estate, the federal estate tax is recomputed with a corresponding recomputation of the credit allowable under 26 U.S.C. Section 2011 for state death taxes paid. If the maximum allowable credit for state death taxes paid as recomputed is greater than the total inheritance tax obligation on all of the shares of the estate, including the shares which have not been revalued, the amount of the maximum credit for state death taxes paid is the additional tax.
	d. 	Computation of the tax—full disposition or full cessation. If there is an early disposition or a cessation of the qualified use of all of the real estate specially valued, the inheritance tax on the shares of all persons who succeed to the real estate from the decedent are recomputed based on the fair market value of the specially valued real estate. See 86.8(6)“c” on which market value to use. The total revalued share of each person who had an interest in the disqualified real property is the value of that person’s share of the property not specially valued plus the revalued share of the special use property. The tax is then recomputed based on the applicable exemption, if any, allowable under Iowa Code section 450.9 and the rates of tax specified in Iowa Code section 450.10 in effect at the time of the decedent’s death. A credit is allowed against the amount of the recomputed tax, without interest, for the tax paid which was based on the special use value.
Examples: Disposition of all of the qualified real property.
It is assumed in these examples that the real estate has qualified for special use valuation and that prior to the date of disposition, the real estate remained qualified.
Example.  Farmer A, a widower, died July 1, 1992, a resident of Iowa, and by will left all of his property to his three nephews in equal shares. Nephew B operates the farm. Nephew C lives in Des Moines, Iowa, and Nephew D lives in Phoenix, Arizona. At the time of death, Farmer A’s estate consisted of:

 	Asset	Fair Market
Value	 	Special Use Value	 	
 	160-acre Iowa farm	$ 480,000
($3,000 per acre)	 	$ 160,000
($1,000 per acre)	 	
 	Grain and livestock	90,000	 	90,000	 	
 	Stocks, bonds and bank accounts	80,000	 	80,000	 	
 	Gross Estate	$ 650,000	 	$ 330,000	 	
 	Less: Deductions without federal estate tax	25,000	 	25,000	 	
 	Net estate before federal estate tax	$ 625,000	 	$ 305,000	 	
COMPUTATION OF THE INHERITANCE TAX
UNDER SPECIAL USE VALUATION

 	Net estate before federal estate tax	$305,000	 	
 	Less: Federal estate tax	4,120	 	
 	Net Estate	$300,880	 	
TAX ON SHARES

 	Beneficiary	Share	 	Tax	 	
 	To each nephew	$101,666.67	 	$11,250.00	 	
 	Total Tax Paid	$11,250 × 3	=	$33,750.00	 	
On October 15, 1995, Nephew B, the qualified heir, retires from farming and all three nephews sell the farm to a nonrelated party for $3,200 per acre, or $512,000. Under 86.8(6)“c,” the $3,000 per acre valuation at death governs the computation of the additional inheritance tax.
COMPUTATION OF THE ADDITIONAL INHERITANCE TAX DUE TO THE EARLY
DISPOSITION OF THE QUALIFIED USE PROPERTY

 	Net estate before federal estate tax	$625,000	 	
 	Less: Revised federal estate tax
($9,250 was deducted for credit for state death taxes paid)	0	 	
 	Net Estate	$625,000	 	

 	Tax on Shares	Share	 	Tax	 	
 	To each nephew $208,333.33	$27,250.00	 	 	 	
 	Less tax previously paid	11,250.00	 	 	 	
 	 	16,000.00	 	 	 	
 	Additional tax due	 	 	 	 	
 	Interest at 10% from 4-03-93 to due date 4-15-96	 	 	$4,734.40	 	
 	Total Due Each Nephew	 	 	$20,734.40	 	
Total additional tax and interest for all three shares $20,734.40 × 3 = $62,203.20.	
Note:  In this example, the total additional tax for the three nephews before a credit for tax previously paid is $27,250.00 × 3 or $81,750.00. The credit for state death taxes paid on the revalued federal estate is $9,250.00. Therefore, the larger amount is the additional tax, before the credit for tax previously paid is deducted. The additional inheritance or Iowa estate tax bears interest at 10 percent beginning the last day of the ninth month after the decedent’s death until the due date, which is six months after the disposition of the specially valued real estate. Interest accrues on delinquent tax at the same rate. Since interest only accrues on unpaid tax, the amount of the interest in this example would have been less if the tax had been paid prior to its due date, April 15, 1996.
	e. 	Computation of the tax—partial disposition or cessation of the qualified use.
	(1)	First partial disposition or cessation of the qualified use. Compute the maximum amount of the additional tax that would be due from each person who has an interest in the portion of the real estate no longer eligible to be specially valued, as if there were an early disposition or cessation of the qualified use of all that person’s specially valued real estate. The additional tax on a partial disposition or cessation of the qualified use is computed by multiplying the maximum amount of the additional tax by a fraction of which the fair market value of the portion no longer eligible is the numerator and the fair market value of all of that person’s specially valued real estate is the denominator. The resulting amount is the tax due on the first partial disposition or cessation of the qualified use.
Example 1. First partial additional tax. Assume the fair market value of three parcels of real estate owned by a single qualified heir (brother of the decedent) is $100,000 and the special use value of the three parcels is $75,000. The qualified heir is in the 10 percent tax bracket. FMV in this example means fair market value.

Parcel 1, fair market value	$25,000	
Parcel 2, fair market value	50,000	
Parcel 3, fair market value	25,000	
Computation of Maximum Amount of Additional Tax

 	Tax based on fair market value ($100,000 × 10%)	$10,000	 	
 	Tax based on special use value ($75,000 × 10%)	7,500	 	
 	Maximum amount of additional tax	$ 2,500	 	
Computation on the First Partial Additional Tax
Parcel 1, sale to an unrelated party

FMV of Parcel 1	$ 25,000	×	$2,500
(Maximum
add’l tax)	=	$625
(First
add’l tax)	
FMV of all special use property	$100,000					
	(2)	Second or any succeeding disposition or cessation of the qualified use. Compute the maximum amount of the additional tax as outlined in the first partial disposition or cessation of the qualified use. Increase the numerator of the fraction used to determine the first additional tax by the fair market value of the second partial disposition or cessation of the qualified use. The denominator remains the same. The computed tax is then credited with the tax paid on the first partial disposition or cessation of the qualified use. Succeeding partial dispositions or cessations of the qualified use are handled in the same manner by increasing the numerator of the fraction and a corresponding increase in the credit for the prior additional tax paid.
Computation of the second and succeeding partial dispositions or cessations of the qualified use can be illustrated by the following examples:
Example 2. Second partial additional tax. Same facts as in Example 1. In this example, Parcel 2 is sold to an unrelated party.
Computation of the Second Partial Additional Tax

FMV of Parcels 1 & 2	$ 75,000	×	$2,500
(Maximum
add’l tax)	=	$1,875	
FMV of all special use property	$100,000					
 	 	 	 	 	 	
Less tax paid on Parcel 1	 	 	 	 	625	
Second Add’l Tax	 	 	 	 	$1,250	
Example 3. Third partial additional tax. Same facts as in Example 1. In this example, Parcel 3 is sold to an unrelated party.
Computation of the Third Partial Additional Tax

FMV of Parcels 1, 2, & 3	$100,000	×	$2,500
(Maximum
add’l tax)	=	$2,500	
FMV of all specially valued real estate	$100,000					
 	 	 	 	 	 	
Less tax paid on Parcels 1 & 2	 	 	 	1,875	
Third Additional Tax	 	 	 	 	$ 625	
	f. 	No additional tax on shares not revalued. The shares of persons who received no interest in the real estate which is no longer eligible to be specially valued are not subject to an additional tax. Therefore, on the amended final inheritance tax return only the shares of the persons receiving interest in the real estate need to be revalued when computing the additional tax under this subrule.
Example. Decedent A, a widower and resident of Iowa, died testate July 1, 1992, survived by nephew B and niece C. His estate consisted of two Iowa farms and certain personal property. Under A’s will, the niece and nephew share equally in the personal property. Nephew B received one farm and niece C the other one. Nephew B, a qualified heir, elected to specially value his farm and niece C did not. The inheritance tax was paid on this basis. Five years after A’s death, nephew B quits farming and sells his inherited farm to an unrelated party, thus incurring an additional inheritance tax. Only nephew B owes an additional tax. Niece C’s share in the estate is not revalued.
	86.8(8) Return for additional inheritance tax. The return reporting the additional inheritance or Iowa estate tax imposed due to the early disposition or cessation of the qualified use shall conform as nearly as possible to the federal additional estate tax return, Form 706A, as can be done within the framework of an inheritance tax on shares instead of an estate tax. The return must be executed by the qualified heir and filed with the Iowa Department of Revenue, Hoover State Office Building, Des Moines, Iowa 50319.
	86.8(9) Due date for paying the additional inheritance tax. The additional inheritance tax imposed by Iowa Code section 450B.3 and the return for the additional tax is due six months after the early disposition or cessation of the qualified use of the real estate specially valued.
	86.8(10) No extension of time to file or pay. Iowa Code chapter 450B makes no provision for an extension of time to file the return for the additional tax and pay the additional inheritance tax due. Therefore, if the return for the additional tax is not filed or the additional inheritance tax is not paid within six months after the early disposition or cessation of the qualified use, the return or the tax is delinquent and subject to penalty under subrule 86.8(13).
	86.8(11) Interest on additional tax. The additional inheritance tax imposed under Iowa Code section 450B.3 accrues interest at the rate of 10 percent per annum until paid commencing the last day of the ninth month after the decedent’s death. The variable prime interest rate made applicable to inheritance tax by 1981 Iowa Acts, chapter 131, sections 15 and 16, on real estate not specially valued, does not apply to interest due on the additional tax imposed by Iowa Code section 450B.3. In addition, the federal rule that interest only accrues on the additional federal estate tax when an election is made under 26 U.S.C. Section 1016(c) to increase the basis for gain or loss on the real estate no longer eligible to be specially valued, has no application to Iowa special use valuation. In this respect the Iowa law does not conform to the federal statute.
	86.8(12) Receipt for additional tax. The receipt for the additional tax imposed by Iowa Code section 450B.3 is separate and distinct from the receipt for inheritance tax required by Iowa Code section 450.64. The receipt must identify the property which was the subject of the early disposition or cessation of the qualified use, the owners of the property, the qualified heir, the amount paid and whether the additional tax paid is for a partial or full disposition or cessation of the qualified use.
	86.8(13) Penalty for failure to file or failure to pay. Department rules 701—Chapter 10, pertaining to the penalty for failure to timely file the return or to pay the inheritance tax imposed by Iowa Code chapter 450, also apply where there is a failure to timely file the return reporting the additional inheritance tax or to pay the additional tax due imposed by Iowa Code section 450B.3.
	86.8(14) Duties and liabilities.
	a. 	Duty to report an early disposition or cessation of the qualified use. The agent designated in the agreement required by 86.8(5)“e” has the duty to notify the department of any early disposition or cessation of the qualified use of the property on or before the due date of the additional inheritance tax. An executed copy of the notice required by federal regulation Section 20.2032A(c)(4) will satisfy this subrule.
	b. 	Liability for payment of the tax. The qualified heir or the heir’s successor is personally liable for all the additional inheritance tax imposed under Iowa Code section 450B.3. It is the qualified heir’s duty to collect the additional Iowa inheritance tax from each person whose share was revalued. In respect to the additional tax, the duty of the qualified heir is the same as the duty of the fiduciary of an estate or trust under Iowa Code section 450.5, for the regular inheritance tax. See subrule 86.2(1) regarding the responsibility of the fiduciary of an estate or trust. While the qualified heir is primarily liable for the payment of all of the additional tax, each person who has an interest in the real estate no longer eligible to be specially valued is also liable under the agreement provided for in 86.8(5)“e” for additional tax on that person’s revalued share. Therefore, if the qualified heir fails to pay the additional tax imposed on any revalued share, the department may proceed to collect the delinquent tax from the person who received the share. The liability for the additional tax due from each person who had an interest in the revalued real estate is the same as the liability for the inheritance tax on property not specially valued. See Eddy v.	Short, 190 Iowa 1376, 1380, 1832, 179 N.W. 818 (1920); In re Estate of Stone, 132 Iowa 136, 109 N.W. 455 (1906).
	c. 	Books and records. It is the duty of the qualified heir to keep books and records necessary to substantiate the continued eligibility of the real estate for special use valuation. Upon request, the agent designated in the agreement shall furnish the department sufficient information relating to the use, ownership and status of the real estate to enable the department to determine whether there has been an early disposition or cessation of the qualified use.
	86.8(15) Special lien for additional inheritance tax.
	a. 	In general. The special lien created by Iowa Code section 450B.6 is separate and distinct from the lien provided for in Iowa Code section 450.7, for the inheritance tax imposed at the time of the decedent’s death. The special lien is to secure any additional inheritance tax that may be due within the ten-year period after the decedent’s death, should there be an early disposition or cessation of the qualified use. The inheritance tax lien provided for in Iowa Code section 450.7 is only to secure the tax imposed at the time of the decedent’s death on the transfer of property including property that is specially valued. If an additional tax is imposed for the early disposition or cessation of the qualified use, it is secured by the lien created by Iowa Code section 450B.6.
	b. 	Form of the notice of the special lien. The notice of the special lien for additional inheritance tax created by Iowa Code section 450B.6 must conform as nearly as possible to the special use valuation lien provided for in 26 U.S.C. Section 6324B.
	c. 	Notice of lien. Unlike the lien provided for in Iowa Code section 450.7, notice of the special lien for additional inheritance tax must be recorded before it has priority over subsequent mortgagees, purchasers or judgment creditors. The special lien is perfected by recording the notice of the special lien in the recorder’s office in the county where the estate is being probated (even though the real estate may be located in a different county). Failure to perfect the special lien by recording as provided for in Iowa Code section 450B.6 divests the qualified real property from the lien in the event of a sale to a bona fide purchaser for value.
	d. 	Duration of the special lien. The special lien continues:
	(1)	Until the additional inheritance tax is paid, or ten years after the date the additional tax is due, whichever first occurs, if there is an early disposition or cessation of the qualified use, or
	(2)	For ten years after the decedent’s death on all other property which has been specially valued.
	e. 	Release of the lien. The special lien for additional inheritance tax:
	(1)	May be released at any time in whole or in part upon adequate security being given to secure the additional tax that may be due, if any.
	(2)	Is released by payment of the additional inheritance tax imposed by Iowa Code section 450B.3, on the property which was the subject of an early disposition or cessation of the qualified use.
	(3)	Is released when it becomes unenforceable by reason of lapse of time.
	f. 	Application to release the lien. Ten years after the decedent’s death, unless there is an additional tax remaining unpaid, the qualified heir may submit to the department an application in writing for release of the lien on the real estate specially valued. The application must contain information necessary to enable the department to determine whether or not the special use valuation lien should be released. Supporting documentation may include a copy of the federal release. If, after audit of the application, it is determined the real estate remained eligible for special valuation, the department will release the lien.
	86.8(16) Valuation of the decedent’s interest in corporations, partnerships and trusts—special rules. If the decedent’s interest in a corporation, partnership or a trust has been valued at its special use valuation under 26 U.S.C. Section 2032A for federal estate tax purposes, it is also eligible to be valued at its special use value for inheritance tax purposes, subject to the limitation imposed by statute and these rules. See Internal Revenue Service letter ruling 8108179 (1980) for guidelines in valuing the decedent’s interest. Other factors indicative of value, such as the value of other assets, net dividend-paying capacity, book value, profit and loss statements and net worth must also be taken into account in arriving at the value of the decedent’s interest for inheritance tax purposes. See Revenue ruling 59-60, 1959-1 C.B. 243 for the factors to be considered in valuing closely held corporate stock. In the event the decedent’s interest in a corporation, partnership or trust is no longer eligible to be specially valued, the additional inheritance tax will be imposed on the fair market value of the decedent’s interest in the same manner and subject to the same limitations as other property specially valued.
	86.8(17) Audits, assessments and refunds. Subrules 86.3(1) to 86.3(3) providing for the audit, assessment and refund of the inheritance tax imposed by Iowa Code sections 450.2 and 450.3, shall also be the rules for the audit, assessment and refund of the additional inheritance tax imposed by Iowa Code section 450B.3.
	86.8(18) Appeals. Rule 701—86.4(450) providing for an appeal to the director and a subsequent appeal to district court under the Iowa administrative procedure Act for disputes involving the inheritance tax imposed by Iowa Code chapter 450 shall also be the rule for appeal for disputes concerning special use valuation and the additional inheritance tax imposed by Iowa Code chapter 450B.
This rule is intended to implement Iowa Code sections 450B.1 to 450B.7.
[ARC 1545C, IAB 7/23/14, effective 8/27/14]
701—86.9(450) Market value in the ordinary course of trade. Fair market value of real or personal property is established by agreement or the appraisal and appeal procedures set forth in Iowa Code section 450.37 and subrules 86.9(1) and 86.9(2). If the value is established by agreement, the agreement may be to accept the values of such property as submitted on the Iowa inheritance tax return, to accept a negotiated value or to accept the values as finally determined for federal estate tax purposes. Values submitted on an inheritance tax return constitute an offer regarding the value of the property by the estate. An inheritance tax clearance that is issued based upon property values submitted on an inheritance tax return constitutes an acceptance of those values on that return. An agreement to accept negotiated values or accept values as finally determined for federal estate tax purposes must be an agreement between the department of revenue, the personal representative, and the persons who have an interest in the property. If an agreement cannot be reached regarding the valuation of real property, then the department may request, within 30 days after the return is filed, an appraisal pursuant to Iowa Code sections 450.37 and 450.27 and subrule 86.9(2). Effective for estates with decedents dying on or after July 1, 2004, if an agreement cannot be reached regarding the valuation of real property, then the department may request, within 60 days after the return is filed with the department, an appraisal pursuant to Iowa Code sections 450.37 and 450.27 and subrule 86.9(2). If an appraisal is not requested within the required period, then the value listed on the return is the agreed value of the real property. If an agreement cannot be reached regarding the valuation of personal property, the personal representative or any person interested in the personal property may appeal for a revision of the department’s value as set forth in Iowa Code section 450.37 and subrule 86.9(2). Any inheritance tax clearance granted by the department may be subject to revision based on federal audit adjustments. 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).
	86.9(1) In general. With the exception of real estate which has been specially valued under Iowa Code chapter 450B, property included in the gross estate for inheritance tax purposes must be valued under the provisions of Iowa Code section 450.37 at its market value in the ordinary course of trade. See rule 701—86.10(450) for the rule governing the market value in the ordinary course of trade if the alternate valuation date is elected. “Market value in the ordinary course of trade” and “fair market value” are synonymous terms. In re Estate of McGhee, 105 Iowa 9, 74 N.W. 695 (1898). Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includable in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item whenever appropriate. See federal regulation Section 20.2031(1)(b) and Iowa Code section 441.21(1)“b” for similar definitions of fair market value.
	a. 	Values not to be used. Other kinds of value assigned to property such as, but not limited to, assessed value of real estate for property tax purposes, cost price, true value, or book value are only relevant in computing the value of the property for inheritance tax purposes, to the extent they may be properly used in the determination of fair market value or special use value. In re Estate of McGhee, 105 Iowa 9, 74 N.W.695 (1898). Fair market value cannot be determined alone by agreement between the persons succeeding to the decedent’s property. Also, fair market value cannot be determined alone by setting out in the decedent’s will the price for which property can be sold. In re Estate of Fred W. Rekers, Probate No.	28654, Black Hawk County District Court, July 26, 1972.
	b. 	Date of valuation. Unless the alternate valuation date is elected under Iowa Code section 450.37, or the tax has been deferred according to Iowa Code sections 450.44 to 450.49, all property includable in the gross estate must be valued at the time of the decedent’s death for the purpose of computing the tax imposed by Iowa Code section 450.2. Subject to the two exceptions listed, any appreciation or depreciation of the value of an asset after the decedent’s death is not to be taken into consideration. Insel v.	Wright County, 208 Iowa 295, 225 N.W.378 (1929).
	86.9(2) Market value—how determined.
	a. 	In general. The fair market value of an item of property, both real and personal, that is included in the gross estate for inheritance tax purposes is expressed in the property’s monetary equivalent. The process used to determine fair market value presupposes the voluntary exchange of the item in a market for its equivalent in money. Hetland v.	Bilstad, 140 Iowa 411, 415, 118 N.W. 422 (1908). The fact the item of property is not actually sold or exchanged or even offered for sale is not relevant. It is sufficient for establishing the item’s value to arrive at the specific dollar amount that a seller would voluntarily accept in exchange for the property and the amount that a buyer would be willing to pay. Juhl v.	Greene County Board of Review, 188 N.W.2d 351 (Iowa 1971). It is assumed when determining this specific dollar amount, which is the item’s fair market value, that the seller is desirous of obtaining the highest possible price for the property and that the buyer does not wish to pay more than is absolutely necessary to acquire the property.
The item of property must be valued in a market where it is customarily traded to the public. See federal regulation 20.2031-1(b). Therefore, if an item of property is valued in a market which is not open to the general public, the party asserting the value in the restricted market has the burden to prove by a preponderance of the evidence that the value in the restricted market is the item’s fair market value.
The distinction between a public and a restricted market can be illustrated by the following:
Example 1. Under the provisions of the decedent’s will, the personal representative of the estate is given the power to sell the decedent’s property at either a public or private sale. Pursuant to this power, the personal representative sold the decedent’s household goods at public auction held on a specific day and time which was widely advertised both in the newspaper in the locality where the decedent lived and also by sale bills posted in numerous public places in the decedent’s community. The household goods sold at auction for $2,500. The fair market value of the household goods on the day of sale is $2,500. The public auction is a market where such items are commonly sold and the public had knowledge of the impending sale. The public was also invited to bid and the items to be sold were available for inspection.
Example 2. Pursuant to an agreement between the beneficiaries of the estate, the personal representative sold the decedent’s household goods and personal effects at an auction where only members of the decedent’s family were permitted to bid. The items sold for $2,500, which may or may not be the fair market value of the property. Family pride, sentiment, and other personal considerations may have entered into the selling price. In this type of sale the burden is on the personal representative to prove that the selling price is the fair market value of the items sold.
	b. 	Values established by recognized public markets.
	(1)	Stocks, bonds, and notes. Items of personal property such as, but not limited to, corporate stock, bonds, mutual funds, notes, and commodities which are traded on one or more of the nation’s stock or commodity exchanges shall be valued under the provisions of Federal Estate Tax Regulation 20.2031-2, which regulation is incorporated in and made a part of this subrule by reference.
Individuals who have a registration of a security indicating sole ownership by one individual or multiple ownership by two or more individuals with a right of survivorship and not as tenants in common, may obtain a registration in beneficiary form as provided in the uniform transfer on death security registration Act as provided in Iowa Code section 633.800. A “registering entity” under this Act must provide notice to the department of revenue of all reregistrations made pursuant to this Act. Such notice must include the name, address, and social security number of the decedent and all transferees. Until the division of the security, after the death of all the owners, multiple beneficiaries surviving the death of all the owners hold their interest as tenants in common. If no beneficiary survives the death of all the owners, the security belongs to the estate of the deceased sole owner of the estate of the last to die of the multiple owners.
	(2)	Local elevator and sale barn prices. The fair market value of grain and livestock may be determined either by the quoted price from the grain elevator or sale barn in the community where the grain or livestock is located or by the price quoted from the nearest commodity exchange, less the customary delivery discount.
	(3)	Public auctions by the court. The fair market value of an item may be established in a public market other than a market which has a permanent location and which holds sales at periodic stated intervals. It is common for estates or the probate court to hold a public auction to sell estate property and if the sale meets certain criteria the selling price received in this type of public auction will establish the fair market value of the property. Factors in an estate or court sale which tend to establish the selling price as one at fair market value include but are not limited to the time and place of the sale were well advertised; the public was invited and encouraged to bid; members of the decedent’s family or business associates were not given special consideration as to price or terms of sale; and the terms of sale were comparable to those offered at sales in a regularly established public market.
	(4)	Sales in a regularly established market. Sales made in a regularly established market pursuant to Iowa Code section 633.387 would qualify as a sale at fair market value for inheritance tax purposes.
	c. 	Private sales that may establish fair market value. Private sales of estate assets may establish the fair market value of the item depending on the facts and circumstances surrounding each sale. Factors which tend to establish a private sale as one at fair market value include but are not limited to:
	(1)	Sales made by a recognized broker who receives a commission from the seller based on the selling price and who has exercised diligence in obtaining a buyer.
	(2)	Sales made by the personal representative to nonfamily members after a good-faith effort was made to solicit bids from persons who are known to be interested in buying that particular kind of property.
	(3)	Sales made by the attorney or the personal representative after the item of property was advertised for sale in a newspaper of general circulation or in trade publications and a good-faith effort was made to obtain the best possible price.
	(4)	Sales made by the personal representative when the sale price is the price quoted on one of the nation’s stock or commodity exchanges.
	(5)	Private sales made by the personal representative to members of the decedent’s family or business associates are suspect due to personal, family, or business reasons, but nevertheless may constitute a sale at fair market value, depending on the facts and circumstances surrounding each sale. The personal representative has the burden to establish that this kind of private sale is a sale at fair market value. Factors which have a bearing on whether this type of private sale is one at fair market value include, but are not limited to, the following: Did the decedent’s will give a sale or price preference to a member of the decedent’s family or business associate? Were the terms of sale more advantageous than terms that would be given to the general public? Was a good-faith effort made to solicit bids from other persons known to be interested in buying that particular kind of property? Was the sale made as part of a family settlement of a will contest or dispute on a claim against the estate?
	d. 	Fair market value—no regularly established market.
	(1)	In general. Certain items of personal property such as, but not limited to, closely held corporate stock, real estate contracts of sale, private promissory notes, accounts receivable, partnership interests, and choses in action are not customarily bought and sold in a public market. Occasional sales of these items of personal property at infrequent intervals do not establish a market for this kind of personal property, but the lack of a regular market does not indicate that the item is of no value. When there is not a regularly established market to use as a reference point for value, it is necessary to create a hypothetical market to determine fair market value. The factors used to create a hypothetical market vary with the kind of property being valued and depend on the facts and circumstances in each individual case.
	(2)	Fair market value of closely held corporate stock. A closely held corporation is a corporation whose shares are owned by a relatively limited number of stockholders. Often the entire stock issue is held by members of one family or by a small group of key corporate officers. Because of the limited number of stockholders and due to a family or business relationship, little, if any, trading in the shares takes place. There is, therefore, no established market for the stock. Sales that do occur are usually at irregular intervals and seldom reflect all of the elements of a representative transaction as is contemplated by the term fair market value. The term “fair market value” has the same meaning for federal estate tax purposes as it does for Iowa inheritance tax purposes. As a result, the federal revenue rulings establishing the criteria for valuing closely held corporate stock are equally applicable to inheritance tax values. Therefore, corporate stock which meets the standards for being closely held must be valued for inheritance tax purposes under the provisions of Federal Revenue Ruling 59-60, 1959-1 C.B. 237 as modified by Revenue Ruling 65-193, 1965-2 C.B. 370 and amplified by Revenue Ruling 77-287, 1977-2 C.B. 319, Revenue Ruling 80-213, 1980-2 C.B. 101, and Revenue Ruling 83-120, 1983-2 C.B. 170, which Federal Revenue Rulings are incorporated in and made a part of this subrule by reference.
	(3)	Fair market value of real estate contracts, notes, and mortgages. The fair market value of promissory notes, secured or unsecured, contracts for the sale of real estate, and other obligations to pay money which are included in the gross estate is presumed to be the amount of the unpaid principal plus the amount of interest, if any, accrued to the day of the decedent’s death. If the asset is not reported on the return at face value plus accrued interest, the burden is on the party claiming a greater or lesser value to establish that face value plus accrued interest is not the asset’s fair market value.
Factors which have a bearing on whether the fair market value of an asset is greater or less than face value include, but are not limited to, the rate of interest charged on the obligation; the length of time remaining on the obligation; the credit standing and payment history of the debtor; the value and nature of the property, if any, securing the obligation; the relationship of the debtor to the decedent; and whether the obligation is to be offset against the debtor’s share of the estate. See Iowa Code section 633.471 and Welp v.	Department of Revenue, 333 N.W.2d 481 (Iowa 1983). This subrule can be illustrated by the following:
Example 1. The decedent at the time of death owned a seller’s interest in an installment sale contract for the sale of a 160-acre farm. The contract contained a forfeiture provision in the event the buyer failed to make the payments and further provided that the purchase price was to be paid in 20 equal annual principal payments plus interest at 7 percent per year on the unpaid principal balance. At the time of the decedent’s death, the contract of sale had ten years yet to run and the current federal land bank interest rate for farm land loans was 12 percent. Assuming in this example that other valuation factors are not relevant, the fair market value of the contract is the face amount of the contract, plus interest, discounted to reflect a 12 percent interest return on the outstanding principal balance. A prudent investor would not invest at a lower rate of interest when a comparable investment with equal security would earn 12 percent interest.
Example 2. A tenant of the decedent owed the decedent $5,000, which was evidenced by a promissory note, payable on demand, drawing 6 percent interest, and which was executed in 1992, a year prior to the decedent’s death. Assuming no other valuation factors are relevant, the fair market value of the $5,000 promissory note is its face value, plus accrued interest. The less than market interest rate on the note does not affect its fair market value because the note is due on demand and, as a consequence, there is no loss of a higher rate of interest which would be the case if the note specified a future payment date.
Example 3. Decedent A died intestate July 1, 1993, survived by two nephews, B and C. The estate consisted, after debts and charges, of $300,000 in cash and U.S. Government bonds and a noninterest bearing promissory note for $10,000 executed by nephew B in 1975 for money borrowed for his college education. No payments were ever made on the note. The note is outlawed by the statute of limitations and would be worthless if anyone other than nephew B or C had executed the note. However, since nephew B inherits one-half of A’s estate, and is required under the law of setoff and retainer to pay the note before he can participate in the estate, the fair market value of the note in this particular fact situation is $10,000 because it is collectible in full. Each nephew’s share of the estate is $155,000. Nephew C receives $155,000 in cash and nephew B receives $145,000 in cash plus his canceled note for $10,000. In this example, the statutory right of setoff and retainer supersedes other factors which are relevant in determining the fair market value of the asset. See Iowa Code section 633.471; In re Estate of Farris, 234 Iowa 960, 14 N.W.2d 889 (1944); Indiana Department of Revenue v.	Estate of Cohen, 436 N.E.2d 832 (Ind.	App.	1982); Gearhart’s Ex’r and Ex’x v.	Howard, 302 Ky.	709, 196 S.W.2d 113 (1946).
	(4)	Fair market value of a sole proprietorship or partnership interest. The fair market value of the decedent’s interest in a business, whether a partnership or a proprietorship, is the net amount a willing buyer would pay for the interest to a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts. Relevant factors in determining net value include but are not limited to the following: a fair appraisal as of the applicable valuation date of all of the assets of the business, tangible and intangible, including goodwill; the demonstrated earning capacity of the business; and the other factors in rule 701—89.8(422), to the extent they are applicable, that must be considered in valuing closely held corporate stock.
	(5)	Fair market value of choses in action. The fair market value of the decedent’s interest in a right to sue for a debt or a sum of money often cannot be determined with certainty at the time of the decedent’s death. The value of this right is dependent on many factors which include, but are not limited to, the following: the strength and credibility of the decedent’s evidence; the statutory and case law supporting the decedent’s claim or position; the ability of the opposing party to pay a judgment; the extent, if applicable, of the decedent’s contributory negligence; and the other normal hazards of litigation. However, this lack of certainty does not mean the right to sue has no value at the time of the decedent’s death. Evidence of what was actually received for this right by the decedent’s estate or its beneficiary is evidence of the fair market value of the right at death.
This subrule can be illustrated by the following example:
The decedent died in a fire of uncertain origin that destroyed his dwelling. Due to the circumstances surrounding the fire, the estate’s right of recovery from the fire insurance carrier was speculative and, therefore, the value of this right at death was unknown. After the estate was closed, the beneficiary of the estate settled the fire insurance claim for $15,000. The amount received in settlement of the claim can be considered as evidence of the fair market value of the right of action at death. Bair v.	Randall, 258 N.W.2d 333 (Iowa 1977). In addition, interest on the unpaid tax begins and continues to accrue from the date of the decedent’s death.
	(6)	Wrongful death proceeds are not included in the gross estate. Estate of Dieleman v.	Department of Rev., 222 N.W.2d 459 (Iowa 1974).
	e. 	By agreement between the department, the estate and its beneficiaries. Iowa Code section 450.37 provides that the market value in the ordinary course of trade is to be determined by agreement between the estate and its beneficiaries and the department. The term “agreement” when used with reference to the value of an asset, whether it is real or personal property, has the same meaning as the term is used in the law of contracts. The agreement between the department, the estate and its beneficiaries may be contained in a single written instrument, or it may be made by an offer submitted by the estate and its beneficiaries and its acceptance by the department. The agreement establishing values for computing the tax may specify that the values as finally determined for federal estate tax purposes on all or a portion of the assets will be the values used in computing the tax.
	(1)	Offer by the estate and the beneficiaries. It is the duty of the taxpayer to list on the inheritance tax return the values of the assets in the gross estate which the estate and those beneficially entitled to the decedent’s property are willing to offer as the values for computing the taxable shares in the estate. The value of the assets listed on the return will constitute an offer for the department to accept or reject. Counteroffers may be made in the event an offer is rejected. This rule applies equally to real and personal property.
	(2)	Acceptance of values by the department. The values offered on the inheritance tax return by the estate and its beneficiaries are accepted by the department when:
	1.	The department has accepted the offered values in writing, or
	2.	A clearance certifying full payment of the tax due or a clearance certifying no tax due is issued by the department, or
	3.	The department does not request an appraisal within 60 days after the return has been filed in the case of the value of real estate. Notice of appraisal must be served by certified mail, and the notice is deemed completed when the notice is deposited in the mail and postmarked for delivery. However, see 86.9(2)“e”(3) for the rule governing values listed as “unknown” or “undetermined.” See Iowa Code sections 622.105 and 622.106 for the law determining the filing date of a tax return that is mailed.
	(3)	Values listed on the return as “undetermined” or “unknown.” If at the time the inheritance tax return is filed the information necessary to determine the value of an asset cannot be presently ascertained, the taxpayer may list the value of that asset as “unknown” or “undetermined.” The return must contain a statement signed by the taxpayer on behalf of the estate and the beneficiaries with an interest in the property granting the department an extension of time for requesting an appraisal until 60 days after an amended return is filed listing a value for the real estate. Failure to grant an extension of time will subject the real estate to an immediate request for an appraisal. The amended return shall be accompanied with sufficient facts and other information necessary to substantiate the value offered. An agreement concerning the value of an asset presupposes that the department, the beneficiaries and the estate have knowledge of the relevant facts necessary to determine value. There can be no meaningful agreement or appraisal until the relevant facts relating to value are known. See Bair v.	Randall, 258 N.W.2d 333 (Iowa 1977), regarding the criteria that may be used to determine the value of an asset which was unknown at the time of the decedent’s death.
	f. 	Values established—no agreement.
	(1)	Real estate. If the department, the estate and the persons succeeding to the decedent’s property have not reached an agreement as to the value of real estate under 86.9(2)“e,” the market value for inheritance tax purposes will be established by the appraisal proceedings specified in Iowa Code sections 450.27 to 450.36. For the purposes of appraisal, “real estate or real property” means the land and appurtenances, including structures affixed thereto. Use of the inheritance tax appraisers to determine value for other purposes such as, but not limited to, determining the share of the surviving spouse in the estate or for determining the fair market value of real estate for the purposes of sale, is not controlling in determining values for inheritance tax purposes. In re Estate of Giffen, 166 N.W.2d 800 (Iowa 1969); In re Estate of Lorimor, 216 N.W.2d 349 (Iowa 1974). Appraisals of real estate must be made in fee simple including land, all appurtenances and structures affixed to the real estate. Discounts in the value of real estate are not to be considered in the valuation of real property for the purposes of an appraisal. Such discounts in valuation are to be resolved by mutual agreement through informal procedures between the personal representative of the estate and the department. If an agreement between the personal representative of the estate and the department cannot be obtained, then the valuation placed on the property by the department may be appealed by the personal representative of the estate pursuant to the procedures set forth in rule 701—86.4(450). If either the department or the estate does not agree with the results of an appraisal that is conducted pursuant to Iowa Code sections 450.27 through 450.36, either the department or the estate may file an objection to the appraisal pursuant to Iowa Code section 450.31. See 701—subrule 86.9(2) for additional factors to assist in the determination of fair market value of real property.
	(2)	Personal property. Effective for estates of decedents dying on or after July 1, 1983. If an agreement is not reached on the value of personal property under 86.9(2)“e,” the estate or any person beneficially receiving the personal property may appeal to the director under Iowa Code section 450.94, subsection 3, for a resolution of the valuation dispute, with the right of judicial review of the director’s decision under Iowa Code chapter 17A.
	g. 	Amending returns to change values.
	(1)	Amendment permitted or required. Unless value has been established by the appraisal or administrative proceedings, the inheritance tax return may be amended by the estate to change the value of an asset listed on the return as long as the amendment is filed before an agreement is made between the estate and the department as to the asset’s value. The return must be amended to list the value of an asset omitted from the original return or to assign a value for an item listed on the original return as “unknown” or “undetermined.”
If the facts and circumstances surrounding the value agreement would justify a reformation or rescission of the agreement under the law of contracts, the return may be amended by the estate, and must be amended at the department’s request, to change the value of the item to its correct fair market value or its special use value as the case may be.
	(2)	Amendment not permitted. A return cannot be amended:
	1.	To change the agreed value of an asset, if the facts and circumstances surrounding the agreement would not justify a reformation or rescission of the agreement,
	2.	To change a real estate value that has been established by the appraisal proceedings under Iowa Code sections 450.31 to 450.33, Insel v.	Wright County, 208 Iowa 295, 225 N.W. 378 (1929), or
	3.	To change the value of an item of personal property that has been established by the department’s administrative procedure under 701—Chapter 7, or, if an appeal is taken from the director’s decision, by judicial review under Iowa Code chapter 17A. Provided, in no event may the return be amended to lower the value of an asset that would result in a refund of tax more than three years after the tax became due or one year after the tax was paid, whichever time is the later. Iowa Code section 450.94, Welp v.	Department of Revenue, 333 N.W.2d 481 (Iowa 1983).
This rule is intended to implement Iowa Code sections 450.27 to 450.37, 450.44 to 450.49, and 633.800 to 633.811.
[ARC 1137C, IAB 10/30/13, effective 12/4/13]
701—86.10(450) Alternate valuation date.
	86.10(1) When available. The alternate valuation date allowed by 26 U.S.C. Section 2032 is available for estates of decedents dying on or after July 1, 1983, on the same terms and conditions which govern the alternate valuation date for federal estate tax purposes. Effective for estates of decedents dying after July 18, 1984, the alternate valuation date cannot be elected unless the value of the gross estate for federal estate tax purposes is reduced and the amount of federal estate tax owing, after all credits have been deducted, has also been reduced. See 26 U.S.C. Section 2032(c) enacted by Public Law 98-369 Section 1023(a). In general, the alternate valuation date is six months after the date of the decedent’s death. If property is sold within the six-month period, the date of sale is the alternate date for valuing the property sold. See federal regulation Section 20.2032-1, as amended December 28, 1972, for the rules governing the valuation of property in the gross estate at its alternate valuation date for federal estate tax purposes. If the election is made, all of the property included in the gross estate and not just a portion of the property, must be valued at the alternate valuation date. The estate may elect both the alternate valuation date and the special use value under Iowa Code chapter 450B, if the estate is otherwise qualified. See Federal Revenue Ruling 83-31(1983). It is a precondition for valuing the property at its alternate value for Iowa inheritance tax purposes that the property has been valued at the alternate value for federal estate tax purposes. However, even if the property in the gross estate is valued at the alternate valuation date for federal estate tax purposes, the estate has the option either to elect or not to elect the alternate valuation date for Iowa inheritance tax purposes. If the alternate valuation date is elected, the value established for federal estate tax purposes shall also be the alternate value for inheritance tax purposes. The election is an affirmative act and for estates of decedents dying prior to July 19, 1984, it must be made on a timely filed inheritance tax return, taking into consideration any extensions of time granted to file the return. Effective for estates of decedents dying after July 18, 1984, the election may be made on the first return filed for the estate, regardless of whether the return is delinquent, providing the return is filed no more than one year after the due date, taking into consideration any extensions of time granted to file the return and pay the tax due. See 26 U.S.C. 2032(d) as amended by Public Law 98-369 Section 1024(a). Failure to indicate on the inheritance tax return whether the alternate valuation date is elected shall be construed as a decision not to elect the alternate valuation date.
	86.10(2) When not available.
	a. 	The alternate valuation date provided for in 26 U.S.C. Section 2032 cannot be elected by the estate if the tax on a future property interest has been deferred under Iowa Code sections 450.44 to 450.49. The tax on a future property interest must be computed on the fair market value of the future property interest at the time the tax is paid. In re Estate of Wickham, 241 Iowa 198, 40 N.W. 2d 469 (1950).
	b. 	Real estate which is subject to an additional inheritance tax imposed by Iowa Code section 450B.3 due to the early disposition or cessation of the qualified use cannot be valued at the alternate valuation date for purposes of the recapture tax, unless the alternate valuation date was originally elected on the return for the decedent’s estate.
	c. 	The alternate valuation date cannot be elected if the size of the gross estate for federal estate tax purposes, based on the fair market value of the assets at the time of death, is less than the minimum filing requirements under current federal authority. The fact that the gross estate for inheritance tax purposes is less than the minimum federal estate tax filing requirement is not relevant.
This rule is intended to implement Iowa Code sections 422.3 and 450.37.
701—86.11(450) Valuation—special problem areas.
	86.11(1) Valuation of life estate and remainder interests—in general. Life or term estates and remainders in property cannot be valued separately for inheritance tax purposes without reference to the value of the property in which the life or term estate and remainder exists. The first valuation step is to determine the value of the property as a whole. This rule applies equally to fair market value in the ordinary course of trade, whether it be valued at death or on the alternate valuation date six months after death, or at its special use value under Iowa Code chapter 450B. The second step is to apply the life estate-remainder or term tables in rule 701—86.7(450) to the whole value of the property in which the life estate-remainder or term exists. Iowa Code section 450.51 requires that value of annuities, life or term, deferred or future estates in property be computed on the basis that the use of the property is worth a return of 4 percent per year. The life estate-remainder tables in rule 701—86.7(450) make no distinction between the life expectancy of males and females. See City of Los Angeles v.	Manhart, 435 U.S. 702, 98 S.Ct.	1370, 55 L.Ed.	657 (1978) and Arizona Governing Committee for Tax Deferred Annuity and Deferred Compensation Plans v.	Norris, 51 U.S. Law Week 5243, 77 L.Ed.2d 1238 (1983) for the requirement that retirement annuities must not discriminate on the basis of sex. However, the actual life expectancy of the particular person receiving the life estate is not relevant in determining the value of the life estate for inheritance tax purposes. In re Estate of Evans, 255 N.W.2d 99 (Iowa 1977), appeal dismissed, 434 U.S. 805, 98 S.Ct.	34, 54 L.Ed.2d 62.
	86.11(2) Single life estate and remainder. The value of a single life estate and remainder in property is computed by first determining the value of the property as a whole. The life estate is then computed by multiplying the value of the property as a whole by the life estate factor in rule 701—86.7(450) for the age of the life tenant. The value of property remaining after the value of the life estate is subtracted is the value of the remainder interest in the property.
The computation of the value of a single life estate and remainder in property is illustrated by the following:
Example: Decedent A, by will, devised to surviving spouse B, aged 68, a life estate in a 160-acre farm, with the remainder at B’s death to niece C. Special use value and the alternate value were not elected. The 160-acre farm at the time of the decedent’s death had a fair market value of $2,000 per acre, or $320,000.
COMPUTATION OF B’s LIFE ESTATE: The life estate factor for a life tenant aged 68 under 701—86.7(450) is .43306; that is, the use of the $320,000 for life at the statutory rate of return of 4 percent is worth 43.306 percent of the value of the farm. Niece C’s remainder factor is .56694. The life estate-remainder factors when combined equal 100 percent of the value of the property. It is the age of the life tenant which governs the value of the remainder. The age of the person receiving the remainder is not relevant.

Value of B’s Life Estate	$320,000 × .43306 =	$138,579.20	
Value of C’s Remainder	$320,000 × .56694 =	$181,420.80	
Total Value	 	$320,000.00	
	86.11(3) Joint and succeeding life estates. If property includable in the gross estate is subject to succeeding or joint life estates, the following general rules shall govern their valuation:
	a. 	There can be no greater value assigned to all of the life estate interests than the value of the life estate of the youngest life tenant. The value of the life estate of the youngest life tenant fixes the value of the remainder interest in the property.
	b. 	If two or more persons share in a life estate, the life tenants are presumed to share equally in the life estate during the life of the older life tenant, unless the will or trust instrument specifically directs that the income or use may be allocated otherwise.
	c. 	The age of a life tenant alone determines the value of that life tenant’s interest in the property. The life tenant’s state of health is not relevant to valuation. In re Estate of Evans, 225 N.W.2d 99 (Iowa 1977), appeal dismissed, 434 U.S. 805, 98 S.Ct.	34, 54 L.Ed.62. As a result, if a succeeding life tenant is older than the preceding life tenant, the value of the succeeding life estate is zero. These general rules can be illustrated by the following examples:
Example 1. Decedent A, by will, devised a 160-acre farm to surviving spouse B, aged 68, for life, and upon B’s death, to daughter C, aged 45, for life, and the remainder upon C’s death to nephews D and E in equal shares. The 160-acre farm had a fair market value at A’s death of $320,000. Neither the alternate valuation date nor special use value was elected.

COMPUTATION OF THE SUCCEEDING LIFE ESTATES AND REMAINDER	
1.	Value of B’s Life Estate:	 	 	
 	Life estate factor for age 68 is .43306	 	 	
 	$320,000 × .43306 =	 	$138,579.20	
2.	Value of C’s Succeeding Life Estate	 	 	
 	Life estate factor for age 45 is .71463	 	 	
 	$320,000 × .71463 =	$228,681.60	 	
 	Less: B’s life estate	$138,579.20	 	
 	Value of C’s life estate	 	$ 90,102.40	
3.	Value of D’s ½ remainder	 	 	
 	Remainder factor for a life tenant aged 45 is .28537	 	 	
 	as ½ of $320,000 × .28537 =	 	$ 91,318.40	
4.	Value of E’s ½ remainder	 	 	
 	½ of $320,000 × .28537	 	$ 91,318.40	
Total Value — life estates and remainders	 	$320,000.00	
Note: In this example, the value of C’s succeeding life estate is reduced by the value of B’s preceding life estate because C does not have the use of the farm during B’s lifetime. The value of the remainder to D and E is fixed by the age of C, the succeeding life tenant.
Example 2: Joint and survivorship life estates and remainder. In this example, the estate elected both the alternate valuation date and special use value. This is permitted by Federal Revenue Ruling 83-31 (1983) if the gross estate and the real estate are otherwise qualified.
Decedent A, a widow, by will devised her 240-acre Iowa farm to her nephew, B, aged 52, and the nephew’s wife, C, aged 48, for their joint lives and for the life of the survivor, with the remainder to D and E in equal shares. The farm had a fair market value at death of $2,200 per acre, or $528,000; the alternate value of the farm six months after death was $2,100 per acre, or $504,000. Its special use value is $1,000 per acre or $240,000. The life estates and the remainder are computed on the basis of the special use value of $240,000.

COMPUTATION OF JOINT LIFE ESTATE — REMAINDER VALUES	
1.	B’s share of joint life estate.	 	 	
 	$240,000 × .64086 (life estate factor, age 52) =	$153,806.40	 	
 	½ as B’s share =	 	$ 76,903.20	
2.	C’s share of joint life estate.	 	 	
 	$240,000 × .68468 (life estate factor, age 48) =	$164,323.20	 	
 	Less: ½ value of life estate for B’s life	$ 	76,903.20	$ 87,420.00	
3.	Value of the remainder.	 	 	
 	The value of the remainder is computed by using the remainder factor at the age of the youngest life tenant. In this example, it is .31532, based on C’s age of 48.	
 	D’s share of the remainder.	 	 	
 	½ $240,000 × .31532 =	 	$ 37,838.40	
 	E’s share of the remainder.
Same as D’s	 	$ 37,838.40	
Total value of joint life estates and the remainder	 	$240,000.00	
Note:  In this example, B and C share equally in the life use of the farm during the life of B, who is the eldest. As a result, each life tenant’s share during B’s life is worth $76,903.20. Since C is younger than B, the difference between the value of the life estates for B and C is set off to C alone. The age of the youngest life tenant (C in this example) fixes the value of the remainder interest in the farm.
	86.11(4) Fixed sum annuity for life or for a term of years. The value of an annuity for a fixed sum of money, either for the life of the annuitant or for a specific period of time, shall be computed by determining the present value of the future annuity payments using the 4 percent annuity tables in rule 701—86.7(450). A fixed sum annuity, either for life or for a term of years, is to be distinguished from a life estate and remainder in property. A life estate in property is the use of property, and the present value of the life use cannot exceed the value of the property in which the life estate-remainder exists, regardless of the rate of return used to determine the life estate factor. A fixed sum annuity on the other hand is different. The amount of the annuity does not necessarily bear any relationship to the earning capacity or value of the property which funds the annuity. The fixed sum annuity may be for an amount larger than the 4 percent used to compute a life estate. As a result, the present value of the fixed sum annuity, computed at the statutory rate of 4 percent per year, may exceed the value of the property which funds the fixed annuity. In this case, the present value of the future annuity payments cannot exceed the value of the property which funds the annuity. The remainder in this situation has no value for inheritance tax purposes.
This subrule is illustrated by the following examples:
Example 1. Decedent A devises a 240-acre farm to daughter B, with the provision that B pay the sum $5,000 per year to C for life. The farm is subject to a lien as security for the payment of the annuity. C, the annuitant, is 54 years old. The fair market value of the farm at A’s death is $2,000 per acre, or $480,000. Neither special use value nor the alternate valuation date was elected.

COMPUTATION OF THE VALUE OF THE $5,000 ANNUITY AND THE REMAINDER REVERSION TO B. Under rule 701—86.7(450), the 4 percent annuity factor for life at age 54 is 15.436 for each dollar of the annuity received. Therefore, C’s life annuity is computed as follows:	
C’s Annuity	 	 	
$5,000 × 15.436 =	 	$ 77,180	
B’s Reversionary — Remainder Interest	 	 	
Value of farm	$480,000	 	
Less: C’s annuity	$ 	77,180	$402,820	
Total annuity and reversion — Remainder	 	$480,000	
Note: In this example, the $5,000 annuity is worth less than a life estate in the farm. A life estate would be worth $273,499.20 because the use of $480,000 at 4 percent per year would return $19,200 per year, which is much greater than the $5,000 annuity.
Example 2: Decedent A, by will, directed that the sum of $100,000 be set aside from the residuary estate to be held in trust to pay $500 per month to B for life, and upon B’s death, the remaining principal and income, if any, are to be paid to C and D in equal shares. B, the annuitant, was 35 years old at the time of A’s death.
Under rule 701—86.7(450), the annuity factor for a person 35 years of age is 19.946 for each dollar of the annuity. The annuity factor is multiplied by the annual amount of the annuity, which in this case is $6,000 per year.
COMPUTATION OF THE PRESENT VALUE OF B’s $6,000 ANNUITY
$500.00 × 12 = $6,000 × 19.946 = $119,676, which exceeds the value of the property funding the annuity. As a result, the value for inheritance tax purposes is $100,000, the maximum amount allowed by subrule 86.11(4). The remainder to C and D has no value for inheritance tax purposes.
	86.11(5) Valuation of remainder interests. Iowa Code section 450.51 and rule 701—86.7(450) require the value of a remainder interest in property to be computed by subtracting the present value of the preceding life or term estate from the total value of the property in which the remainder exists. Since age or time is the controlling factor in valuing life or term estates in property, the time when the preceding life or term estate is valued is crucial for determining the value of the remainder interests in the property. Iowa Code sections 450.6, 450.44 and 450.52 provide three alternative dates for valuing a remainder, or other property interest in future possession or enjoyment, for inheritance tax purposes. Each of the three dates requires valuing the preceding life or term estate on the date selected, thus in effect, valuing the remainder interest at the same time. The value of the remainder interest is based on the value of the property on the date elected for payment. In re Estate of Wickham, 241 Iowa 198, 40 N.W.2d 469 (1950). The remainder or term factor in rule 701—86.7(450) which is based on the age of the life tenant, or the number of years remaining in the term on the date of payment, is then applied to the value of the property to determine the value of the remainder interest. In re Estate of Millard, 251 Iowa 1282, 105 N.W.2d 95 (1960). Therefore, the remainder, or other future property interest, shall be valued by the following general rules.
	a. 	If the tax on a remainder or other future property interest is paid within 9 months after the decedent’s death (12 months for estates of decedents dying prior to July 1, 1981), the tax is to be based on the value of the property at the time of the decedent’s death (whether it is fair market value or special use value) or the alternate value, 6 months after death, if elected. The age of the life tenant at the time of the decedent’s death (the youngest life tenant in case of succeeding or joint life estates), or the term of years specified in the will or trust instrument, must be used to determine the value of the life estate or term estate in computing the tax on the remainder or other future property interests.
	b. 	If the tax is paid after nine months from the date of the decedent’s death (one year for estates of decedents dying prior to July 1, 1981), but before the termination of the previous life or term estate, the tax on the remainder or other future property interest shall be computed on the fair market value of the property at the time of payment using the life estate or term factor based on the life tenant’s age or term of years remaining at the time the tax is paid. Neither the alternate value nor special use value can be used to value the property after nine months from the date of the decedent’s death.
	c. 	If the tax on the remainder or other future property interest is not paid under paragraphs “a” and “b,” the tax must be paid within nine months (one year for future property interests created prior to July 1, 1981) after the termination of the prior estate. In this case, the tax is based on the fair market value of the property and the life estate remainder or term factor corresponding with the time the prior estate is terminated. If the prior estate is terminated due to the death of the life tenant, or due to the expiration of the term of years, the remainder factor is 100 percent of the value of the property. If the prior estate terminates during the life of the life tenant or during the term of years, the tax is computed in the same manner as provided in paragraph “b.” If the tax is not paid within nine months (one year for future property interests created prior to July 1, 1981) after the termination of the prior estate, the tax owing is delinquent and is subject to penalty and interest as provided by law. For information regarding interest rate, see 701—Chapter 10. However, in this case the value of the remainder interest is not modified to reflect any change in the fair market value of the property or the life or term estate factor that may occur due to the lapse of time between the due date of the tax and the date the tax is paid.
	d. 	Iowa Code section 450.52 provides that the tax may be paid at any time on the present worth of the future property interest. The term “present worth” means the value of the future property interest at the time the tax is paid. Therefore, if the tax on the remainder or other future property interest is not paid within nine months after the decedent’s death (one year for future property interests created prior to July 1, 1981), the estate or the beneficiary receiving the future interest cannot pay the tax on a delinquent basis using a value and a life estate or term factor which does not reflect the present worth of the future interest at the time of payment. In this situation, the tax must be computed under paragraph “b” or “c” of this subrule, whichever applies. In this respect, failure to pay the tax within nine months after the decedent’s death (one year for future property interests created prior to July 1, 1981) operates as a deferral of the tax on the future property interest. In re Estate of Dwight E. Clapp, Probate No.	7251, Clay County Iowa District Court, July 2, 1980.
	e. 	If an alternative valuation date is chosen, a liability must be currently owed by the estate to be deductible.
	f. 	Tax rates in effect at the date of the decedent’s death are the rates applicable for computation of the tax owed. In re Estate of Wickham, 241 Iowa 198, 40 N.W.2d 469 (1950).
These rules can be illustrated by the following examples:
For an example of computing remainder interests, see Examples 1 and 2 in subrule 86.11(3).
Example 1: Decedent A died July 1, 2009, and, by will, devised all of her personal property to her surviving spouse, B, and her 240-acre Iowa farm to B for his life with the remainder at B’s death to two nephews, C and D, in equal shares. The surviving spouse, B, was 74 years of age when A died. The fair market value of the 240-acre farm was $2,000 per acre, or $480,000 on the date of A’s death. Neither the alternate valuation date nor special use value was elected by the estate. On March 15, 2010, the tax on B’s life estate was paid. The tax on the remainder to C and D was therefore deferred, to be paid no later than nine months after the death of B, the life tenant. However, on October 15, 2011, due to adverse economic circumstances, B, C, and D voluntarily sold the 240-acre farm at public auction to an unrelated person for $2,100 per acre, or $504,000. B’s life estate was not preserved in the sale proceeds. The tax on the remainder in this fact situation must be computed under subrule 86.11(5), paragraph “b,” when the life estate is terminated before the life tenant’s death. The sale price of the farm and the life estate remainder factor reflecting B’s age on October 15, 2011, (B’s age is now 76) control the value of the remainder.
COMPUTATION OF THE REMAINDER INTEREST OF C AND D
The remainder factor in rule 701—86.7(450) for a life tenant aged 76 is .68249.

C’s ½ remainder interest	½ ($504,000 × .68249) =	$171,987.48	
D’s ½ remainder interest	same as C’s		171,987.48	
Total value of remainder	 	$343,974.96	
Note: In this example, the value of C’s and D’s remainder interest in the sale proceeds is greater than the value of the remainder at the time of A’s death due to the increase in the remainder factor because of B’s increased age and the increase in the fair market value of the farm. However, if B’s life estate had been preserved in the sale proceeds, the tax could continue to be deferred on C’s and D’s remainder interest. C and D cannot be required to pay the tax on their remainder until they come into possession or enjoyment of the property.
Example 2: Decedent A at the time of her death on July 1, 2005, owned a vested remainder in a 240-acre Iowa farm, which was subject to the life use of her mother, B, who was 87 years old when A died. A’s ownership of the remainder interest was not discovered until after life tenant B’s death on October 15, 2007. The fair market value of the farm was $2,000 per acre or $480,000 on July 1, 2005, and $2,200 per acre or $528,000 on October 15, 2007. Neither the alternate valuation date nor special use valuation can be used in this fact situation. See rule 701—86.10(450) and subrule 86.8(4), paragraph “c.” A’s estate was reopened to include the omitted remainder in the 240-acre farm. An amended inheritance tax return was filed December 10, 2007, basing the tax on the fair market value and the remainder factor corresponding with the life tenant’s age (87) on July 1, 2005. In this fact situation, the tax on A’s remainder is not computed correctly, even if A’s estate has offered to pay a penalty and interest on the tax due. The tax must be computed on the basis of a fair market value of $2,200 per acre and a remainder factor of 100 percent of the value of the farm. No penalty or interest would be assessed if the correct tax is paid prior to July 15, 2008, which is nine months after the life tenant’s death. The life tenant’s age at death is not relevant.
	86.11(6) Valuation of contingent property interests. Contingent remainders, succeeding life estates and other contingent property interests must be valued as if no contingency exists. Factors to be considered to determine if a contingency interest exists include, but are not limited to, the interest is generally a future interest, it is not a vested interest, and vesting of the interest depends upon the occurrence of a specific event or condition being met. As a result, subrule 86.11(5) applies equally to the valuation of vested and contingent property interests. The tax on a contingent property interest may be deferred until such time as it can be determined who will come into possession or enjoyment of the property. By deferring the tax under Iowa Code sections 450.44 to 450.49, a person does not have to speculate as to who will be the probable owner of the contingent interest. As a result, no one is required to pay tax on a property interest to which a vested right has not been received. Therefore, if a person exercises the right to pay the tax during the period of the contingency, that person cannot obtain a tax advantage by asserting that the value should be reduced due to a contingency, when the person would not be entitled to a reduction in value if the tax had been deferred until the ownership is determined.
This rule is illustrated by the following example.
Comprehensive Example:	Decedent A, by will, devised a 240-acre Iowa farm to B for life and upon B’s death, then to C for life and the remainder after C’s death to D and E in equal shares. In this example, C’s succeeding life estate is contingent upon surviving B, the first life tenant. If C elects to pay the tax on the succeeding life estate within nine months after A’s death, the tax is computed according to Example 1 in subrule 86.11(3) with no discount for the contingency that C may not survive B. However, C may defer the tax to be paid no later than nine months after B’s death. In this case, if C does not survive B, the succeeding life estate lapses, and D and E, who own the remainder, will come into possession or enjoyment of the 240-acre farm. No tax will be owing on the succeeding life estate because C receives nothing. D and E will owe tax on the remainder within nine months after the death of B, if the tax was not previously paid.
For another example of computing a contingent remainder interest see In re Estate of Schnepp, 258 Iowa 33, 138 N.W.2d 886 (1965).
	86.11(7) Valuation of growing crops owned by the decedent. Valuation of growing crops owned by the decedent is determined by using a proration formula. Based on the formula, the cash value of the actual crop realized in the fall of the year is prorated by attributing a portion of the value to the period before death and a portion after death. The portion attributed to the period before death is the value for Iowa inheritance tax purposes. The numerator of the ratio expresses the number of days the decedent lived during the growing season. In Iowa, the growing season for corn and beans is generally considered to be from May 15 through October 15, or 153 days. This 153-day period is the denominator of the ratio. This ratio should then be multiplied by the number of bushels realized in the fall, and then multiplied by the local elevator price at the time of maturity. However, if the estate sells the crop within a reasonable time after harvest, and the sale is an “arm’s-length transaction,” then the sale price of the crop can be used as a fair market value basis.
Example: The decedent grew crops consisting of corn and beans. The decedent died August 15. The decedent lived 92 days of the growing season. In the fall of the year, 2,000 bushels of corn were harvested by the estate and sold to the local elevator for $3.10 per bushel. The value of the crop for the purpose of Iowa inheritance tax purposes is calculated as follows:

92		<fo:wrapper font-size="10pt">×</fo:wrapper>	2,000
bushels	<fo:wrapper font-size="10pt">×</fo:wrapper>	$3.10 per bushel	=	$3,728.10	
153							
	86.11(8) Valuation of cash rent farm leases. If the decedent at the time of death owns farm property that was subject to lease, or if the decedent rents such property, the value of the cash rent farm for inheritance tax purposes must be determined. The formula to be used is the total cash rent for the entire rental period prorated over the entire year. The proration percentage is the number of days the decedent lived during the rental period, divided by 365 days. This percentage shall then be applied to the total cash rent for the entire year. Deductions from the resulting sum are allowed for rent payments made prior to the death of the decedent. If the deduction results in a negative amount, no refund or credit is allowed.
This valuation formula is to be utilized whether the decedent is the lessor or lessee of such property.
Examples:	The decedent has a cash rent farm lease agreement (beginning March 1 through the end of February of the next year) with farmer X for automatic yearly rentals. The rent is due in two installments: $10,000 on March 1 and $10,000 on September 1.
1. Decedent dies February 1, 2011. $20,000 × 338/365 = $18,520.55. Farmer X had paid his two installments in 2010. His next installment is due March 1, 2011, for the new farm rental year. Farmer X has overpaid by $1,479.45 ($18,520.55 – $20,000 = -$1,479.45). No refund or credit is allowed.
2. Decedent dies April 20, 2011. $20,000 × 51/365 = $2,794.52. Farmer X has paid his March 1 installment of $10,000. Farmer X has overpaid by $7,205.48 ($2,794.52 – $10,000 = -$7,205.48). No refund or credit is allowed.
3. Decedent dies October 10, 2011. $20,000 × 224/365 = $12,273.97. Farmer X paid his March installment but has not paid his September installment. Farmer X has underpaid at the date of death. $12,273.97 – $10,000 = $2,273.97. This amount must be reported as an asset. It is an accounts receivable due at date of decedent’s death.
This rule is intended to implement Iowa Code sections 450.44 to 450.49, 450.51 and 450.52.
[ARC 1137C, IAB 10/30/13, effective 12/4/13]
701—86.12(450) The inheritance tax clearance.
	86.12(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).
	86.12(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.
	86.12(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 subrule 86.12(2), paragraph “a,” for the limitation on clearances if the estate elected the special use valuation under Iowa Code chapter 450B.
	86.12(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 86.12(2).
	86.12(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 86.8(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.
	86.12(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.
Rules 86.9(450) to 86.12(450) are intended to implement Iowa Code chapter 17A and sections 450.1 as amended by 1999 Iowa Acts, chapter 152, section 32, 450.7 as amended by 1999 Iowa Acts, chapter 151, section 45, 450.27 as amended by 1999 Iowa Acts, chapter 152, section 33, and Iowa Code sections 450.5, 450.58, 450.64, 450B.2, 450B.3, 450B.6, 633.477, and 633.479.
701—86.13(450) No lien on the surviving spouse’s share of the estate. Effective for estates of decedents dying on or after January 1, 1988, no inheritance tax lien is imposed on the share of the decedent’s estate passing to the surviving spouse. In addition, effective for estates of decedents dying on or after July 1, 1997, no inheritance tax lien is imposed on the share of the decedent’s estate passing to the decedent’s parents, grandparents, great-grandparents, and other lineal ascendants, children (including legally adopted children and biological children entitled to inherit under the laws of this state), grandchildren, great-grandchildren, and other lineal descendants and stepchildren.
This rule is intended to implement Iowa Code sections 450.7(1) and 450.12 as amended by 1997 Iowa Acts, Senate File 35.
701—86.14(450) Computation of shares. The following areas of the law should be applied when computing the shares of an estate for the purpose of Iowa inheritance tax:
	86.14(1) Right to take against the will. In the event that a decedent dies with a will, a surviving spouse may elect to take against the will and receive a statutory share in real and personal property of the decedent as designated by statute. If a surviving spouse elects to take against the will, this election nullifies gifts to the surviving spouse set forth in the decedent’s will. For details regarding this election and statutory share, see Iowa Code sections 633.236 to 633.259 and In the Matter of Campbell, 319 N.W.2d 275, 277 (Iowa 1982).
	86.14(2) Family settlements. Beneficiaries of an estate may contract to divide real or personal property of the estate, or both, in a manner contrary to the will of the decedent. The court of competent jurisdiction may approve the settlement contract of the beneficiaries. However, the department is not a party to the contract and is not bound to compute the shares of the estate based on the settlement contract. Instead, the department must compute the shares of the estate based upon the terms of the decedent’s will, unless a court of competent jurisdiction determines that the will should be set aside. See In re Estate of Bliven, 236 N.W.2d 366 (Iowa 1975).
	86.14(3) Order of abatement. Shares to be received by the beneficiaries of an estate are subject to abatement for the payment of debts, charges, federal and state estate taxes in the order as provided in Iowa Code section 633.436.
	86.14(4) Contrary order of abatement. An order of abatement contrary to that provided in Iowa Code section 633.436 is provided by statute. For instance, if a provision of a will, trust or other testamentary instrument explicitly directs an order of abatement contrary to Iowa Code section 633.436 or a court of competent jurisdiction determines order of abatement due to a devise that would result in an order of abatement contrary to Iowa Code section 633.436, then the order of abatement indicated is to be followed. For additional information regarding contrary provisions of abatement, see Iowa Code section 633.437. For details regarding marital share and contrary order of abatement see, Estate of Lois C. Olin, Docket No.	92-70-1-0437, Letter of Findings (June 1993).
	86.14(5) “Stepped-up” basis. If a decedent’s will provides that taxes are to be paid from the residue of the estate and not the respective beneficial shares, a “stepped-up” basis will be utilized when computing the shares which will result in the appropriate beneficiaries’ shares to include the tax obligation that was paid as an additional inheritance. A “stepped-up” basis is based on gifts prior to the residual share; shares paid out of the residue are not stepped-up.
Example:  Decedent’s will gives $1,000 to a nephew and directs that the inheritance tax on this bequest be paid from the residue of the estate. The stepped-up share is computed as follows:
Tax: $1,000 × 10% = $100. Divide the tax by the difference between the tax rate and 100 percent (90 percent in this example): $100 divided by 90% = $111.11. Add the stepped-up tax of $111.11 to the original bequest of $1,000. This results in a stepped-up share of $1,111.11, which allows the nephew to keep $1,000 after the tax is paid.
	86.14(6) Antilapse provision and the exception to the antilapse statute. Iowa Code sections 633.273 and 633.274 set forth guidance on the allocation of property in situations in which a lapse in inheritance may occur. Iowa Code section 633.273 provides that when a devisee predeceases a testator, the issue of the devisee inherits the property, per stirpes, unless from the terms of the will, the intent is clear and explicit to the contrary. However, Iowa Code section 633.274 is an exception to Iowa Code section 633.273. If the spouse of the testator predeceases the testator, the inheritance shall lapse, unless the terms of the will clearly and explicitly provide to the contrary. For details regarding the provisions, please see the cited statutes.
	86.14(7) Disclaimer. A person who is to succeed to real or personal property may refuse to take the property by executing a binding disclaimer which relates back to the date of transfer. Unless the transferor of the property has otherwise provided, disclaimed property passes as if the disclaimant has predeceased the transferor. To be valid, a disclaimer must be in writing and state the property, interest or right being disclaimed, the extent the property, right, or interest is being disclaimed, and be signed and acknowledged by the disclaimant. The disclaimer must be received by the transferor or the transferor’s fiduciary not later than nine months after the later of the date in which the property, interest or right being disclaimed was transferred or the date the disclaimant reaches 18 years of age. A disclaimer is irrevocable from the date of its receipt by the transferor or the transferor’s fiduciary. For additional details regarding disclaimers, please see Iowa Code Supplement chapter 633E.
Effective for estates with decedents dying on or after July 1, 2004, disclaimers are to be filed in compliance with the Iowa uniform disclaimer Act, Iowa Code Supplement chapter 633E. This Act sets forth new requirements for valid disclaimers. Criteria will be based on the type of property or the interest being disclaimed. General criteria for disclaimers have not changed. To be valid, a disclaimer must be in writing or be stored in electronic record or other medium that is retrievable, declare the disclaimer, describe the interest or power disclaimed, be signed by the person making the disclaimer, and be filed. A partial disclaimer may be expressed as a fraction, percentage, monetary amount, term of years, limitation of a power, or any other interest in property of the estate.
A disclaimer becomes irrevocable when it is delivered, filed, or when it becomes effective, whichever occurs later. Delivery of a disclaimer may generally be made by personal delivery, first-class mail, or any other method likely to result in its receipt. However, specific interests being disclaimed require specific means of delivery. For explicit information regarding delivery of a disclaimer based on interest being disclaimed, see Iowa Code Supplement section 633E.12.
	86.14(8) Right of retainer. If a distributee of an estate is indebted to the estate, whether the decedent dies testate or intestate, the personal representative has the right to offset the distributee’s share in the estate against the amount owed to the estate by the distributee. For additional information regarding this right of offset and retainer, see Iowa Code section 633.471.
	86.14(9) Deferred life estates and remainder interest. A deferred estate generally occurs as the result of a decedent granting a life estate in property to one person with remainder of the property to another. In such cases, the determination of the tax on the remainder interest to be received by the remainderman may be deferred until the determination of the previous life estate pursuant to Iowa Code section 450.46. Tax on a remainder interest that has been deferred is valued pursuant to Iowa Code section 450.37, with no reduction based on the previous life estate. Tax due on a deferred interest must be paid before the last day of the ninth month from the date of the death of life tenant pursuant to Iowa Code section 450.46. Penalty and interest is not imposed if the tax is paid before the last day of the ninth month from the date of the death of life tenant. If the death of the decedent occurred before July 1, 1981, the tax due on a deferred interest must be paid before the last day of the twelfth month from the date of the death of life tenant. Deferment may be elected due to the fact that the remainder interest is contingent and because the value of the remainder interest may be significantly altered from the time of the decedent’s death until the death of the life tenant. A request for deferment may be made on a completed department form and the completed form, with any required documentation, may be filed with the department on or before the due date of the inheritance tax return. Failure to file a completed department form requesting a deferral of tax on the remainder interest with the inheritance tax return will allow the department to provide an automatic deferral for qualifying remainder interests.
If deferral is chosen, an inheritance tax clearance cannot be issued for the estate. Expenses cannot be used to offset the value of the deferred remainder interest. Based upon Iowa Code section 450.12, deductible expenses must be expenses paid by the estate. Expenses incurred by a deferred remainder interest would not qualify based on Iowa Code section 450.12 as deductible expenses. Pursuant to Iowa Code section 450.52, the owner of a deferred remainder interest may choose to pay the tax on the present value of the remainder interest and have the lien on such an interest removed prior to the termination of the previous life estate. If early termination of the deferred remainder interest occurs, the value of the remainder interest will be reduced by the value of remaining previous life estate.
If the tax on an estate is deferred, a bond may have to be filed with the proper clerk of the district court. This bond must remain effective until the tax on the deferred estate is paid. Failure to maintain or properly renew the bond will result in the bond’s being declared forfeited, and the amount collected. For additional details regarding obtaining a bond, see Iowa Code sections 450.49 and 450.50.
	86.14(10) Credit on prior transfers. A credit is allowed for inheritance tax paid by certain beneficiaries that have received shares from a prior estate. The credit can be claimed only by the brother, sister, son-in-law and daughter-in-law of the decedent. The decedent in whose estate the credit is to be used must have died within two years of the death of the decedent in whose estate the tax for which the credit is requested was paid and the property inherited. The credit is subject to two limitations:
	a. 	The maximum credit allowed cannot exceed the amount of the prior inheritance tax that was paid on the property in the prior estate. In other words, the inheritance tax the present decedent paid on the property in the prior estate must be prorated on the basis such property bears to the total property inherited in the prior estate; and
	b. 	The amount of the credit cannot exceed the tax generated in the current estate on the property which was inherited from the prior estate. This means that the tax in the current estate must be apportioned on the basis the prior estate property bears to the total property inherited by the beneficiary in the second estate. The credit cannot exceed this apportioned amount.
Example 1:	Limitation—maximum credit allowed cannot exceed the amount of the prior inheritance tax that was paid on the property in the prior estate.

First decedent, Sister, has two siblings. Her property passes to two brothers (A and B). Her property includes:	
 	 	 	 	 	
 	Real estate	$400,000	 	 	
 	Cash, etc.	$250,000	 	 	
 	Expenses	$150,000	 	 	
 	 	 	 	 	
Each brother inherits $250,000. The tax due from each brother is $21,375.	
 	 	 	 	 	
Brother B dies one year and two months after Sister. He leaves everything to Brother A.	
 	 	 	 	 	
Brother B’s property includes:	 	
 	½ interest in Sister’s real estate (current value)	$225,000	
 	Full interest in his own real estate	$500,000	
 	½ interest in Sister’s cash, etc.	$ 50,000	
 	Full interest in his own cash, etc.	$500,000	
 	Expenses	$200,000	
 	 	 	 	 	
Brother A inherits $1,075,000 with a current tax due of $103,875. Reduce the current tax due, $103,875, by the amount of tax paid in the prior estate, $21,375. The result is $82,500.	
 	 	 	 	 	
Percentage of Brother A’s tax of $103,875 generated by Sister’s property included in Brother B’s estate:	
 	$275,000/$1,075,000 = 25.58%	
 	$103,875 × 25.58% = $26,571.23	
 	 	 	 	 	
Maximum credit cannot be more than the tax paid in the prior estate, $21,375. The tax due in this estate is $82,500.	
Example 2:	Limitation—amount of credit cannot exceed the tax generated in the current estate on the property which was inherited from the prior estate.

First decedent, Sister, has two siblings. Her property passes to two brothers (A and B). Her property includes:	
 	 	 	 	 	
 	Real estate	$400,000	 	 	
 	Cash, etc.	$250,000	 	 	
 	Expenses	$150,000	 	 	
 	 	 	 	 	
Each brother inherits $250,000. The tax due from each brother is $21,375.	
 	 	 	 	 	
Brother B dies one year and two months after Sister. He leaves everything to Brother A.	
 	 	 	 	 	
Brother B’s property includes:	 	
 	½ interest in Sister’s real estate (current value)	$225,000	
 	Full interest in his own real estate	$500,000	
 	½ interest in Sister’s cash, etc.	$ 50,000	
 	Full interest in his own cash, etc.	$500,000	
 	Expenses	$200,000	
 	 	 	 	 	
Brother A inherits $1,075,000 with a current tax due of $103,875. Reduce the amount of the current tax due, $103,875, by the tax paid in the prior estate, $21,375. The result is $82,500.	
 	 	 	 	 	
$1,075,000 less prior estate properties worth $275,000 equals $800,000. Tax would equal $76,375.	
 	 	 	 	 	
The greater of the two computations ($82,500 v. $76,375) is the tax due in the estate. $82,500 would be due.	
Example 3:	Two-year requirement.	Same facts as above, except that Brother B dies two years and two months after the date of death of Sister. Tax is $103,875 with no reduction since it is over the two-year limitation.
Example 4:	Multiple beneficiary issues.	Same facts as above, except that beneficiaries of Brother B have changed. If there are multiple beneficiaries in the second estate, only the beneficiaries that are brother, sister, son-in-law, or daughter-in-law relationships to the prior decedent can utilize the credit. The credit is then determined by the property value passing in this estate that can be identified as being inherited by this decedent from a prior estate.
Brother B dies one year and two months after his Sister. He leaves his real estate to Brother A and the residual assets to his two nieces.
Brother B’s share of prior decedent’s (Sister’s) estate equals $725,000. Tax equals $68,875. Reduce the current tax due, $68,875, by the tax paid in the prior estate, $21,375. The result is $47,500.
Niece 1’s share equals $175,000. Tax equals $22,250.
Niece 2’s share equals $175,000. Tax equals $22,250.
Total tax for Brother B’s estate with no reductions equals $113,375.
Total tax with Brother B’s reduced tax is $92,000.
Computation without the prior decedent’s (Sister’s) property that passes to a qualified heir:
Brother B’s share would be $500,000. Tax equals $46,375.
Niece 1’s share remains the same since she is not a qualified heir. Tax equals $22,250.
Niece 2’s share remains the same since she is not a qualified heir. Tax equals $22,250.
Total tax for this computation is $90,875.
The greater of the two computations is $92,000. $92,000 would be due.
	86.14(11) Prorated cash bequests. If the distribution of an estate includes pecuniary legacies with an estate with property located in and outside Iowa, or the estate includes specific bequests from a fund containing property located in and outside Iowa, then the Iowa inheritance tax liability for those legacies or bequests will be based on the pro rata portion of the property of the estate located in Iowa. For further details see Estate of Dennis M.	Billingsley, Iowa District Court of Emmet County, Case No.	13394 (July 15, 1982).
This rule is intended to implement Iowa Code chapter 450, Iowa Code Supplement chapter 633E, and 2005 Iowa Acts, chapter 38.
[ARC 1137C, IAB 10/30/13, effective 12/4/13]
701—86.15(450) Applicability. Any references made within Chapter 86 of these rules to Chapter 87 of these rules, “Iowa Estate Tax,” are applicable only for deaths that occurred prior to January 1, 2005.
This rule is intended to implement 2014 Iowa Acts, House File 2435, section 25.
[ARC 1545C, IAB 7/23/14, effective 8/27/14]
[Filed 4/10/81, Notice 3/4/81—published 4/29/81, effective 6/3/81]
[Filed 12/31/81, Notice 11/25/81—published 1/20/82, effective 2/24/82]
[Filed 5/7/82, Notice 3/31/82—published 5/26/82, effective 6/30/82]
[Filed 9/23/82, Notice 8/18/82—published 10/13/82, effective 11/17/82]
[Filed 1/14/83, Notice 10/27/82—published 2/2/83, effective 3/9/83]
[Filed 12/16/83, Notice 11/9/83—published 1/4/84, effective 2/8/84]
[Filed 10/19/84, Notice 9/12/84—published 11/7/84, effective 12/12/84]
[Filed 12/28/84, Notice 11/21/84—published 1/16/85, effective 2/20/85]
[Filed 1/10/85, Notice 12/5/84—published 1/30/85, effective 3/6/85]
[Filed 8/23/85, Notice 7/17/85—published 9/11/85, effective 10/16/85]
[Filed 8/22/86, Notice 7/16/86—published 9/10/86, effective 10/15/86]
[Filed 9/5/86, Notice 7/30/86—published 9/24/86, effective 10/29/86]
[Filed emergency 11/14/86—published 12/17/86, effective 11/14/86]
[Filed 2/19/88, Notice 1/13/88—published 3/9/88, effective 4/13/88]
[Filed 9/29/89, Notice 8/23/89—published 10/18/89, effective 11/22/89]
[Filed 8/16/90, Notice 7/11/90—published 9/5/90, effective 10/10/90]
[Filed 1/4/91, Notice 11/28/90—published 1/23/91, effective 2/27/91]
[Filed 10/11/91, Notice 9/4/91—published 10/30/91, effective 12/4/91]
[Filed 10/9/92, Notice 9/2/92—published 10/28/92, effective 12/2/92]
[Filed 9/24/93, Notice 8/18/93—published 10/13/93, effective 11/17/93]
[Filed 11/18/94, Notice 10/12/94—published 12/7/94, effective 1/11/95]
[Filed 5/5/95, Notice 3/29/95—published 5/24/95, effective 6/28/95]
[Filed 2/7/97, Notice 1/1/97—published 2/26/97, effective 4/2/97]
[Filed 5/16/97, Notice 4/9/97—published 6/4/97, effective 7/9/97]
[Filed 8/6/97, Notice 7/2/97—published 8/27/97, effective 10/1/97]
[Filed 12/12/97, Notice 11/5/97—published 12/31/97, effective 2/4/98]
[Filed 6/22/99, Notice 5/5/99—published 7/14/99, effective 8/18/99]
[Filed 9/17/99, Notice 8/11/99—published 10/6/99, effective 11/10/99]
[Filed 12/10/99, Notice 11/3/99—published 12/29/99, effective 2/2/00]
[Filed 10/26/01, Notice 9/19/01—published 11/14/01, effective 12/19/01]
[Filed 1/18/02, Notice 12/12/01—published 2/6/02, effective 3/13/02]
[Filed 3/26/04, Notice 2/18/04—published 4/14/04, effective 5/19/04]
[Filed 7/28/06, Notice 6/21/06—published 8/16/06, effective 9/20/06]
[Filed 10/19/06, Notice 8/30/06—published 11/8/06, effective 12/13/06]
[Filed 12/17/08, Notice 11/5/08—published 1/14/09, effective 2/18/09]◊
[Filed ARC 7761B (Notice ARC 7632B, IAB 3/11/09), IAB 5/6/09, effective 6/10/09]
[Filed ARC 0251C (Notice ARC 0145C, IAB 5/30/12), IAB 8/8/12, effective 9/12/12]
[Filed ARC 1137C (Notice ARC 1002C, IAB 9/4/13), IAB 10/30/13, effective 12/4/13]
[Filed ARC 1545C (Notice ARC 1469C, IAB 5/28/14), IAB 7/23/14, effective 8/27/14]
[Filed ARC 2633C (Notice ARC 2546C, IAB 5/25/16), IAB 7/20/16, effective 8/24/16]
◊	Two or more ARCs