Original Notice.

     Preproposal statement of inquiry was filed as WSR 02-12-122.

     Title of Rule: Chapter 458-57 WAC, Estate and Transfer Tax Act. Amending WAC 458-57-005 Nature of estate tax, definitions, 458-57-015 Valuation of property, property subject to estate tax, how to calculate the tax, 458-57-025 Determining the tax liability of nonresidents, 458-57-035 Washington estate tax return to be filed -- Penalty for late filing -- Interest on late payments -- Waiver or cancellation of penalty -- Application of payment and 458-57-045 Administration of the tax -- Releases, amended returns, refunds, heirs of escheat estates; and new section WAC 458-57-017 Property subject to generation-skipping tax, how to calculate the tax, allocation of generation-skipping transfer exemption.

     Purpose: These rules clarify the application of Washington's estate tax imposed by chapter 83.100 RCW.

     Statutory Authority for Adoption: RCW 83.100.200.

     Statute Being Implemented: Chapter 83.100 RCW.

     Summary: These rules explain the nature of the estate tax, how property is valued, what property is subject to estate tax, how to calculate the tax, how to determine the tax liability of nonresidents, how to file the estate tax return and remit payment of the tax, and how the tax is administered.

     Reasons Supporting Proposal: Chapter 83.100 RCW, Estate and Transfer Tax Act, relies heavily on the federal estate and gift tax statutes and refers to several sections of the Internal Revenue Code (IRC). When these rules were last adopted, Washington's estate tax statutes reflected the current IRC. In June 2001, congress amended the IRC making significant changes to the federal estate tax program. These significant changes include the reduction of the graduated state death tax credit by 25% per year starting in 2002 and different filing thresholds. The federal credit for state death taxes is eliminated for deaths occurring after December 31, 2004. Although the Washington's estate tax statutes have historically been updated to reflect the current IRC, they have not been revised to reflect the changes congress made to the IRC in June 2001.

     Name of Agency Personnel Responsible for Drafting: Cindy Evans, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6134; Implementation: Alan Lynn, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6125; and Enforcement: Russell Brubaker, 1025 Union Avenue S.E., Suite #400, Olympia, WA, (360) 570-6131.

     Name of Proponent: Department of Revenue, governmental.

     Rule is not necessitated by federal law, federal or state court decision.

     Explanation of Rule, its Purpose, and Anticipated Effects: Chapter 458-57 WAC clarifies the application of Washington's estate tax imposed by chapter 83.100 RCW. The department is considering revising chapter 458-57 WAC to clarify:

•     When an estate tax return must be filed with Washington but not with the federal government;

•     The due date for a state tax return and under what conditions an extension of such due date is available when an estate is required to file a state estate return but not a federal estate return;

•     That under Washington law 100% of the state death tax credit is to be collected; and

•     What property is subject to the generation-skipping transfer tax and the calculation of the tax.

     Proposal Changes the Following Existing Rules: The department is proposing to revise chapter 458-57 WAC, as explained above.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. A small business economic impact statement is not required because the rule and proposed amendments do not impose any requirements or burdens upon small businesses that are not already required by statute.

     RCW 34.05.328 does not apply to this rule adoption. These are interpretive rules as defined in RCW 34.05.328.

     Hearing Location: Capital Plaza Building, 4th Floor, Large Conference Room, 1025 Union Avenue S.E., Olympia, WA, on August 27, 2002, at 9:30.

     Assistance for Persons with Disabilities: Contact Sandy Davis no later than ten days before the hearing date, TTY 1-800-451-7985 or (360) 570-6175.

     Submit Written Comments to: Cindy Evans, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, fax (360) 664-0693, e-mail CindyEV@dor.wa.gov, by August 22, 2002.

     Date of Intended Adoption: August 30, 2002.

July 22, 2002

Alan R. Lynn

Rules Coordinator

Legislation and Policy Division

OTS-5848.1

AMENDATORY SECTION(Amending WSR 99-15-095, filed 7/21/99, effective 8/21/99)

WAC 458-57-005   Nature of estate tax, definitions.   (1) Introduction. This rule describes the nature of Washington state's estate tax as it is imposed by chapter 83.100 RCW (Estate and Transfer Tax Act). It also defines terms that will be used throughout chapter 458-57 WAC (Washington Estate and Transfer Tax Reform Act Rules).

     (2) Nature of Washington's estate tax. The estate tax is neither a property tax nor an inheritance tax. It is a tax imposed on the transfer of the entire taxable estate and not upon any particular legacy, devise, or distributive share. ((Washington's estate tax is structured so that if an estate does not exceed the unified credit allowed by the Internal Revenue Service (IRS), it will not owe any estate tax to the state of Washington. The state tax effectively shifts a portion of the federal estate tax obligation to the state. Details of the federal estate tax can be found in part 20, subchapter B, chapter I, title 26, Code of Federal Regulations (or chapter 11 of subtitle B of the Internal Revenue Code).))

     (a) The state of Washington operates under RCW 83.100.020, which references the Internal Revenue Code (IRC) as it existed January 1, 2001. Federal estate tax law changes enacted after January 1, 2001, do not apply to the reporting requirements of Washington's estate tax. For deaths occurring January 1, 2002, and after, Washington has different estate tax reporting requirements than those of the federal government. There will be estates that must file an estate tax return with the state of Washington, even though they are not required to file with the federal government. Washington will continue to collect 100% of the available state death tax credit under the 2001 IRC for all estates that must file a Washington return. The Washington State Estate and Transfer Tax Return and the instructions for completing the return can be found on the department's website at http://www.dor.wa.gov/ under the heading titled forms. The return and instructions can also be obtained by calling the estate tax section at 360-753-5547 or 360-753-7518 or by writing to the following address:

     State of Washington

     Department of Revenue

     Special Programs Division

     P.O. Box 448

     Olympia, WA 98507-0448

     (b) The estate tax does not apply to completed absolute lifetime transfers. Section 2035(d) of the 2001 Internal Revenue Code generally exempts such transfers. To the extent permitted by this provision, lifetime transfers are not subject to Washington estate tax. The state of Washington does not have a gift tax.

     (3) Definitions. The following terms and definitions are applicable throughout chapter 458-57 WAC:

     (a) "Decedent" means a deceased individual;

     (b) "Department" means the department of revenue, the director of that department, or any employee of the department exercising authority lawfully delegated to him by the director;

     (c) "Escheat" of an estate means that whenever any person dies, whether a resident of this state or not, leaving property in an estate subject to the jurisdiction of this state and without being survived by any person entitled to that same property under the laws of this state, such estate property shall be designated escheat property and shall be subject to the provisions of RCW 11.08.140 through 11.08.280.

     (d) "Federal credit" means the maximum amount of the credit for state taxes allowed by section 2011 of the 2001 Internal Revenue Code. This credit is calculated using an "adjusted taxable estate" figure, which is simply the taxable estate, less sixty thousand dollars. However, when the term "federal credit" is used in reference to a generation-skipping transfer (GST), it means the maximum amount of the credit for state taxes allowed by section 2604 of the 2001 Internal Revenue Code;

     (e) "Federal return" means any tax return required by chapter 11 (Estate tax) or chapter 13 (Tax on generation-skipping transfers) of the 2001 Internal Revenue Code;

     (f) "Federal tax" means tax under chapter 11 (Estate tax) of the 2001 Internal Revenue Code. However, when used in reference to a GST, "federal tax" means the tax under chapter 13 (Tax on generation skipping transfers) of the 2001 Internal Revenue Code;

     (g) "Generation-skipping transfer" or "GST" means a "generation-skipping transfer" as defined and used in section 2611 of the 2001 Internal Revenue Code;

     (h) "Gross estate" means "gross estate" as defined and used in section 2031 of the 2001 Internal Revenue Code;

     (i) "Internal Revenue Code" or "IRC" means the United States Internal Revenue Code of 1986, as amended or renumbered on January 1, ((1995)) 2001;

     (j) "Nonresident" means a decedent who was domiciled outside Washington at the time of death;

     (k) "Person" means any individual, estate, trust, receiver, cooperative association, club, corporation, company, firm, partnership, joint venture, syndicate, or other entity and, to the extent permitted by law, any federal, state, or other governmental unit or subdivision or agency, department, or instrumentality thereof;

     (l) "Person required to file the federal return" means any person required to file a return required by chapter 11 or 13 of the 2001 Internal Revenue Code, such as the personal representative of an estate, a transferor, trustee, or beneficiary of a generation-skipping transfer, or a qualified heir with respect to qualified real property, as defined and used in section 2032A(c) of the 2001 Internal Revenue Code;

     (m) "Person responsible," means the person responsible for filing the federal and state returns and is the same person described in subsection (l) above;

     (n) "Property," when used in reference to an estate tax transfer, means property included in the gross estate. However, when used in reference to a generation-skipping transfer, "property" means all real and personal property subject to the federal tax;

     (o) "Resident" means a decedent who was domiciled in Washington at time of death;

     (p) "State return" means the Washington Estate Tax Return required by RCW 83.100.050;

     (q) "Transfer" means "transfer" as used in section 2001 of the 2001 Internal Revenue Code, or a disposition or cessation of qualified use as defined and used in section 2032A of the 2001 Internal Revenue Code; and

     (r) "Trust" means "trust" under Washington law and any arrangement described in section 2652 of the 2001 Internal Revenue Code.

[Statutory Authority: RCW 83.100.200. 99-15-095, § 458-57-005, filed 7/21/99, effective 8/21/99.]

     (2) Valuation. The value of every item of property in a decedent's gross estate is its fair market value. However, the personal representative may elect to use the alternate valuation method under section 2032 of the 2001 Internal Revenue Code (IRC), and in that case the value is the fair market value at that date, including the adjustments prescribed in that section of the IRC.

     The valuation of certain farm property and closely held business property, properly made for federal estate tax purposes pursuant to an election authorized by section 2032A of the 2001 IRC, is binding for state estate tax purposes.

     (3) Property subject to estate tax. The estate tax is imposed on transfers of the taxable estate, as defined in section 2051 of the 2001 IRC.

     (a) The first step in determining the value of the decedent's taxable estate is to determine the total value of the gross estate. The value of the gross estate includes the value of all the decedent's tangible and intangible property at the time of death. In addition, the gross estate may include property in which the decedent did not have an interest at the time of death. A decedent's gross estate for federal estate tax purposes may therefore be different from the same decedent's estate for local probate purposes. Sections 2031 through 2046 of the 2001 IRC provide a detailed explanation of how to determine the value of the gross estate. The following are examples of items that may be included in a decedent's gross estate and not in the probate estate:

     (i) Certain property transferred by the decedent during the decedent's lifetime without adequate consideration;

     (ii) Property held jointly by the decedent and others;

     (iii) Property over which the decedent had a general power of appointment;

     (iv) Proceeds of certain policies of insurance on the decedent's life annuities; and

     (v) Dower and curtesy of a surviving spouse or a statutory estate in lieu thereof.

     (b) The value of the taxable estate is determined by subtracting the authorized exemption and deductions from the value of the gross estate. Under various conditions and limitations, deductions are allowable for expenses, indebtedness, taxes, losses, charitable transfers, and transfers to a surviving spouse. Sections 2051 through 2056A of the 2001 IRC provide a detailed explanation of how to determine the value of the taxable estate.

     (4) Imposition of Washington's estate tax. A tax in an amount equal to the federal credit is imposed by RCW 83.100.030 upon the taxable estate of every decedent. Washington's estate tax is due in every case in which the ((federal)) gross estate tax exceeds the unified credit as specified in section 2010 of the 2001 IRC, and there is credit available to be taken, with the exception that all applicable federal estate tax credits are to be applied to the estate's ((federal)) tax liability before the state estate tax liability is computed. ((In no event will an estate pay more than the amount of the credit available to be taken.))

     (a) The following tables ((is)) are taken from the 2001 IRC. ((It)) They show((s)) the maximum amount of federal credit available for state death taxes. The amount of federal credit computed is also the amount of Washington estate tax due.

     (i)

     (ii)

(A) -- Taxable estate, equal to or more than...	(B) -- and, Taxable estate, less than...	(C) -- Base credit on amount in column (A)		(D) -- Rate of credit on excess over amount in column (A) (AS A PERCENT)
$ 0	$ 40,000	$	0	0.0
$ 40,000	$ 90,000	$	0	0.8
$ 90,000	$ 140,000	$	400	1.6
$ 140,000	$ 240,000	$	1,200	2.4
$ 240,000	$ 440,000	$	3,600	3.2
$ 440,000	$ 640,000	$	10,000	4.0
$ 640,000	$ 840,000	$	18,000	4.8
$ 840,000	$ 1,040,000	$	27,600	5.6
$ 1,040,000	$ 1,540,000	$	38,800	6.4
$ 1,540,000	$ 2,040,000	$	70,800	7.2
$ 2,040,000	$ 2,540,000	$	106,800	8.0
$ 2,540,000	$ 3,040,000	$	146,800	8.8
$ 3,040,000	$ 3,540,000	$	190,800	9.6
$ 3,540,000	$ 4,040,000	$	238,800	10.4
$ 4,040,000	$ 5,040,000	$	290,800	11.2
$ 5,040,000	$ 6,040,000	$	402,800	12.0
$ 6,040,000	$ 7,040,000	$	522,800	12.8
$ 7,040,000	$ 8,040,000	$	650,800	13.6
$ 8,040,000	$ 9,040,000	$	786,800	14.4
$ 9,040,000	$ 10,040,000	$	930,800	15.2
$ 10,040,000	. . . . . . . .	$	1,082,800	16.0

     (b) The following are examples of how the estate tax is applied. These examples should be used only as a general guide. The tax status of other situations must be determined after a review of all of the facts and circumstances.

     (((i) A married woman dies, leaving her husband and children surviving. Her taxable estate, computed after allowance of the marital deduction, is $700,000. The adjusted taxable estate is $640,000 ($700,000 - $60,000). The Washington state estate tax due is $18,000 (the base credit shown in column (C) on the first $640,000).

     (ii) A married man dies with all of his property passing to his wife, outright under a community property agreement. His marital deduction under section 2056 of the IRC reduces his federal taxable estate to zero. Because his taxable estate is zero, no Washington estate tax is due.

     (iii) The federal taxable estate of a recent decedent is $100,000. The adjusted taxable estate is $40,000 ($100,000 - $60,000). No Washington estate tax is due. Section 2011 of the IRC provides for no credit unless the adjusted taxable estate exceeds $40,000.

     (iv) One year before a widower's death, he makes an absolute transfer of almost all of his property to his son. The widower's federal tax liability was computed on the basis of an "adjusted taxable gifts" value of $750,000 (the amount of the transfer to the son) and a taxable estate of $3,000 (the remainder of the widower's estate). Since no federal credit is available on an estate valued at $3,000, no Washington estate tax is due, and there is no Washington gift tax.

     (v) A widow dies, leaving a taxable estate of $290,000. The amount of tax payable to the state of Washington, equivalent to the federal death tax credit, is computed as follows: Taxable estate of $290,000, less $60,000, equals an adjusted taxable estate of $230,000. The unified credit (IRC Section 2011) on the first $140,000 is $1,200. The credit for the $90,000 increment ($230,000 - $140,000) is $2,160 (2.4% of $90,000). The total Washington estate tax liability is $3,360 ($1,200 + $2,160).

     (vi) A widower dies, leaving a taxable estate of $678,000. The amount of tax payable to the state of Washington, equivalent to the federal credit for state death taxes (section 2011 of the IRC), is computed as follows: Taxable estate of $678,000, less $60,000, equals an adjustable taxable estate of $618,000. The table in subsection (4)(a) of this rule shows that the federal credit for state death taxes on the first $440,000 is $10,000. The credit for the $178,000 increment ($618,000 - $440,000) is $7,120 (.04 x $178,000). The total Washington estate tax liability appears to be $17,120 ($10,000 + $7,120).

     However, when the person responsible calculates the federal estate tax and files the federal estate tax return for this widower's estate, he/she is able to apply other applicable federal estate tax credits before any of the credit for state death taxes is applied. In the end, only $10,360 of the credit for state death taxes is applied to the federal estate tax, which leaves no payment due on the federal return. Since the amount of state estate tax liability cannot exceed the amount of state death tax credit actually applied to the federal tax, the amount of state estate tax due on the state return is limited to $10,360.)) (i) A married woman dies in the year 2002, leaving her husband and children surviving. Her taxable estate, computed after allowance of the marital deduction, is $900,000. The adjusted taxable estate is $840,000 ($900,000 - $60,000). The Washington state estate tax due is $27,600 (the base credit shown in column (C) on the first $840,000).

     (ii) A married man dies with all of his property passing to his wife, outright under a community property agreement. His marital deduction under section 2056 of the 2001 IRC reduces his federal taxable estate below the applicable exclusion amount. Because his taxable estate is below the applicable exclusion amount, no Washington estate tax is due.

     (iii) The federal taxable estate of a decedent is $100,000 (before gifts are added, which place the estate into a taxable category). The adjusted taxable estate is $40,000 for state estate tax purposes ($100,000 - $60,000). No Washington estate tax is due because section 2011 of the 2001 IRC provides for no credit unless the adjusted taxable estate exceeds $40,000. *Gifts can push an estate into a taxable category.

     (iv) A widow dies in 2003, leaving a taxable estate of $725,000. The amount of tax payable to the state of Washington is computed as follows: Taxable estate of $725,000 less $60,000 equals an adjusted taxable estate of $665,000. The state death tax credit (2001 IRC section 2011) on the first $640,000 is $18,000. The state death tax credit for the $25,000 increment ($665,000 -$640,000) is $1,200 (4.8% of $25,000). The total Washington estate tax liability is $19,200 ($18,000 + $1,200) however, the state estate tax cannot exceed the adjusted gross estate tax (line 14) which in this case would be $9,250. Therefore, the state estate tax would be $9,250 because it is the lower of the two. This occurs in a small window over the applicable exemption threshold amount.

[Statutory Authority: RCW 83.100.200. 99-15-095, § 458-57-015, filed 7/21/99, effective 8/21/99.]

     (2) Property subject to generation-skipping transfer tax. If real or tangible personal property subject to federal GST tax, as defined and used in section 2611 of the 2001 IRC, is located in this state or if the trust has its principal place of administration in this state at the time of the generation-skipping transfer, a tax in an amount equal to the federal credit provided by section 2604 of the 2001 IRC is imposed on every generation-skipping transfer.

     (3) Calculation of the tax. The allowable Washington credit equals the federal GST tax on the transfer multiplied by 5% (.05). If state GST tax credit was paid to another state(s), the taxpayer must attach evidence of the credit paid to the Washington return. The Washington State Estate and Transfer Tax Return and the instructions for calculating the GST tax can be found on the department's website at http://www.dor.wa.gov/ under the heading titled forms. The return and instructions can also be obtained by calling the estate tax section at 360-753-5547 or 360-753-7518 or by writing to the following address:

     State of Washington

     Department of Revenue

     Special Programs Division

     P.O. Box 448

     Olympia, WA 98507-0448

     (4) Allocation of generation-skipping transfer exemption. The allocation(s) of the GST exemption for Washington purposes will be the same as the allocation(s) made for federal GST exemption purposes up to the amount allowed by section 2631 of the 2001 IRC.

[]

     (2) Nonresident decedents and Washington's estate tax. If any decedent has tangible personal property and/or real property located in Washington state at the time of death, that property is subject to Washington's estate tax.

     (a) The reciprocity exemption. A nonresident decedent's estate is exempt from Washington's estate tax if the nonresident's state of domicile exempts the property of Washington residents from estate, inheritance, or other death taxes normally imposed by the domicile state. The nonresident decedent must have been a citizen and resident of the United States at the time of death. Also, at the time of death the laws of the domicile state must have made specific reference to this state, or must have contained a reciprocal provision under which nonresidents of the domicile state were exempted from applicable death taxes with respect to property or transfers otherwise subject to the jurisdiction of that state.

     In those instances where application of this provision results in loss of available federal credit which would otherwise be allowed for federal tax purposes, Washington will absorb that proportional share which is applicable to property within the jurisdiction of this state. Application of this provision will not act to increase the total tax obligation of the estate.

     (b) Property of a nonresident's estate which is located in Washington. A nonresident decedent's estate may have either real property or tangible personal property located in Washington at the time of death.

     (i) All real property physically situated in this state, with the exception of federal trust lands, and all interests in such property, are deemed "located in" Washington. Such interests include, but are not limited to:

     (A) Leasehold interests;

     (B) Mineral interests;

     (C) The vendee's (but not the vendor's) interest in an executory contract for the purchase of real property;

     (D) Trusts (beneficial interest in trusts of realty); and

     (E) Decedent's interest in jointly owned property (e.g., tenants in common, joint with right of survivorship).

     (ii) Tangible personal property of a nonresident decedent shall be deemed located in Washington only if:

     (A) At the time of death the property is situated in Washington; and

     (B) It is present for a purpose other than transiting the state.

     (iii) For example, consider a nonresident decedent who was a construction contractor doing business as a sole proprietor. The decedent was constructing a large building in Washington. At the time of death, any of the decedent's equipment that was located at the job site in Washington, such as tools, earthmovers, bulldozers, trucks, etc., would be deemed located in Washington for estate tax purposes. Also, the decedent had negotiated and signed a purchase contract for speculative property in another part of Washington. For estate tax purposes, that real property should also be considered a part of the decedents' estate located in Washington.

     (c) Formula to calculate Washington's estate tax for nonresident decedents. The amount of tax payable to Washington for a nonresident decedent equals the amount of federal credit multiplied by a fraction, the numerator of which is the value of the property located in Washington, and the denominator of which is the value of the decedent's gross estate. Restated: Federal Credit x (Gross Value of Property in Washington/Decedent's Gross Estate) = Amount of Washington Estate Tax Due. This formula uses the gross value determined for ((federal)) estate tax purposes of any property located in Washington. No reduction will be allowed for any mortgages, liens, or other encumbrances or debts associated with such property except to the extent allowable in computing the gross estate for ((federal)) estate tax purposes.

[Statutory Authority: RCW 83.100.200. 99-15-095, § 458-57-025, filed 7/21/99, effective 8/21/99.]

     Olympia, WA 98507-0448

     (2) Filing the state return -- Payment of the tax due. The Washington estate tax return (state return) referred to in RCW 83.100.050 and a copy of the federal estate tax return (federal return), if one must be filed ((on or before the date that the federal return is required to be filed)), is due nine months from the date of the decedent's death. The tax due with the state return must be paid on or before the due date ((that the federal estate tax is required to be paid)).

     (a) Section 6075 of the 2001 Internal Revenue Code (IRC) requires that the federal return be filed within nine months after the date of the decedent's death. In the case of any estate for which a federal return must be filed under the current IRC, a state return must be filed with the Washington state department of revenue (department) on or before the date on which the federal return is required to be filed. (This may include a federally granted extension of time for filing. See subsection (2)(b).)

     (b) Extensions to file or extensions for payment of tax for estates that must file a federal estate tax return.

     (i) Section 6081 of the 2001 IRC permits the granting of a reasonable extension of time for filing the federal return, generally not to exceed six months from the original due date. If a federal extension of the time to file is granted, the personal representative is required to file a true copy of that extension with the department on or before the original due date, or within thirty days of the issuance of the federal extension, whichever is later. RCW 83.100.050(2). If the personal representative fails to do so, the department may require the personal representative to file the state return on the date that the federal return would have been due had the federal extension not been granted.

     (((c))) (ii) When the personal representative obtains an extension of time for payment of the federal tax, or elects to pay that tax in installments, the personal representative may choose to pay the state estate tax over the same time period and in the same manner as the federal tax. The personal representative is required to file a true copy of that extension with the department on or before the original due date, or within thirty days of the issuance of the federal extension, whichever is later. RCW 83.100.060(2). If the personal representative fails to do so, the department may require the personal representative to pay the state tax on the date that the federal tax would have been due had the federal extension not been granted.

     (c) Extensions to file for estates that are not required to file a federal estate tax return. For those estates that are not required to file a federal return, the personal representative may request a one-time automatic six-month extension to file. The request must be in writing and acknowledge that interest will begin to accrue from the original due date of the state return. The written request for the extension must be made prior to the date the state return is due.

     (d) Extension to pay tax owed for estates that are not required to file a federal estate tax return. For those estates that are not required to file a federal return, the personal representative may request an extension of time for paying the tax owed when payment of the tax would cause an undue hardship upon the estate or for a payment plan for closely held businesses. The granting of an extension of time to pay the tax owed or for a payment plan for closely held business will not operate to prevent the running of interest. RCW 83.100.070.

     (i) Hardship extensions to pay.

     (A) In any case in which the department finds that payment, on the due date prescribed, or any part of a deficiency would impose undue hardship upon the estate, the department may extend the time for payment for a period or periods not to exceed one year for any one period and for all periods not to exceed four years from the original due date of payment.

     (B) The extension will not be granted upon a general statement of hardship. The term "undue hardship" means more than an inconvenience to the estate. It must appear that a substantial financial loss, for example, due to the sale of property at a sacrifice price, will result to the estate from making payment of the tax owed at the date payment is due. If a market exists, a sale of property at the current market price is not ordinarily considered as resulting in an undue hardship. No extension will be granted if the deficiency is due to negligence or intentional disregard of rules and regulations or to fraud with intent to evade the tax.

     (C) An application for such an extension must be in writing and must contain, or be supported by, information in a written statement declaring that it is made under penalties of perjury showing the undue hardship that would result to the estate if the extension were refused. The application, with the supporting information, must be filed with the department. When received, it will be examined, and, if possible, within thirty days will be denied, granted, or tentatively granted subject to certain conditions of which the personal representative will be notified. The department will not consider an application for such an extension unless it is applied for on or before the due date for payment. If the personal representative desires to obtain an additional extension, it must be applied for on or before the date of the expiration of the previous extension.

     (D) The amount of tax owed for which an extension is granted, along with interest as determined by RCW 83.100.070, shall be paid on or before the expiration of the period of extension without the necessity of notice and demand from the department.

     (ii) Payment plans for closely held businesses. The department will abide by the provisions of section 6166 of the 2001 IRC for the granting of payment plans for closely held businesses.

     (e) The department shall issue a release when Washington's estate tax has been paid. Upon issuance of a release, all property subject to the tax shall be free of any claim for the tax by the state. RCW 83.100.080.

     (3) The late filing penalty. If the state return is not filed by the due date, or any extension of the state return's due date, the person required to file the ((federal)) return may be subject to a late filing penalty.

     (a) When does the penalty apply? This penalty applies if the person required to file the ((federal)) return has not timely filed the state return with the department prior to being notified by the department, in writing, of the necessity to file the state return. The late payment penalty is equal to five percent of the tax due for each month during which the state return has not been filed, not to exceed the lesser of twenty-five percent of the tax or one thousand five hundred dollars. RCW 83.100.070.

     (((a))) (b) How is the penalty computed? The penalty is the equivalent of five percent for each month, but is accrued on a daily basis for those periods less than a month. For any portion of a month, it is calculated by taking the five percent monthly rate and dividing it by the number of days from the beginning of the month through the date the return is filed, including the filing date.

     For example, assume a state return is due on February 3rd but is not filed until April 20th of the same year. The state return is delinquent starting with February 4th. The amount of tax due with the state return is $10,000.

     (i) The penalty should be computed as follows:

Feb 4-Mar 3	$10,000 tax at 5% per month	$500.00
Mar 4-Apr 3	$10,000 tax at 5% per month	$500.00
Apr 4-Apr 20	$10,000 tax at .1667% x 17 days	$283.39
Total delinquent penalty due on April 20th filing date		$1,283.39

     (ii) In this example, the first two calendar months are complete and incur the full five percent penalty. The last portion of a month is a total of seventeen days, including both April 4th and April 20th. Since April has thirty days total, the five percent monthly rate is divided by the thirty days in April to arrive at a daily rate of .001667 (or.1667 percent). The daily rate is then multiplied by the seventeen days of penalty accrual to arrive at the total percentage of penalty due for that portion of a month (.001667 x 17 days = .028339 or 2.8339 percent).

     (((b) If a federal extension of the due date is requested, the penalty provided for late filing of the state return will be imposed if the state return is filed after the due date and the federal extension is ultimately denied.))

     (4) Interest is imposed on late payment. The department is required by law to impose interest on the tax due with the state return if payment of the tax is not made on or before the due date. RCW 83.100.070. Interest applies to the delinquent tax only, and is calculated from the due date until the date of payment. Interest imposed for periods after December 31, 1996, will be computed at the annual variable interest rate described in RCW 82.32.050(2). Interest imposed for periods prior to January 1, 1997, will be computed at the rate of twelve percent per annum.

     (5) Waiver or cancellation of penalties. RCW 83.100.070(3) authorizes the department to waive or cancel the penalty for late filing of the state return under limited circumstances.

     (a) Claiming the waiver. A request for a waiver or cancellation of penalties should contain all pertinent facts and be accompanied by such proof as may be available. The request must be made in the form of a letter and submitted to the department's special programs division. The person responsible bears the burden of establishing that the circumstances were beyond the responsible person's control and directly caused the late filing. The department will cancel or waive the late filing penalty imposed on the state return when the delinquent filing is the result of circumstances beyond the control of the person responsible for filing of the state return. The person responsible for filing the state return is the same person who is responsible for filing the federal return.

     (b) Circumstances eligible for waiver. In order to qualify for a waiver of penalty the circumstances beyond the control of the person responsible for filing the state return must directly cause the late filing of the return. These circumstances are generally immediate, unexpected, or in the nature of an emergency. Such circumstances result in the person responsible not having reasonable time or opportunity to obtain an extension of their due date (see subsection (2)(b)) or to otherwise timely file the state return. Circumstances beyond the control of the responsible person include, but are not necessarily limited to, the following:

     (i) The delinquency was caused by the death or serious illness of the person responsible for filing the state return or a member of the responsible person's immediate family. In order to qualify for penalty waiver, the death or serious illness must directly prevent the person responsible from having reasonable time or opportunity to arrange for timely filing of the state return. Generally, the death or serious illness must have occurred within sixty days prior to the due date, provided that a valid state return is filed within sixty days of the due date.

     (ii) The delinquency was caused by an unexpected and unavoidable absence of the person responsible. Generally, this absence must be within sixty days prior to the due date, provided that a valid state return is filed within sixty days of the due date. "Unavoidable absence of the person responsible" does not include absences because of business trips, vacations, personnel turnover, or personnel terminations.

     (iii) The delinquency was caused by the destruction by fire or other casualty of estate records necessary for completion of the state return.

     (iv) An estate tax return was timely filed, but was filed incorrectly with another state due to an issue of the decedent's domicile.

     (v) A Washington estate tax return was properly prepared and timely filed, but was sent to the location for filing of the federal estate tax return.

     (6) Waiver or cancellation of interest. Title 83 RCW (Estate Taxation) does not provide any circumstances that allow for waiver of the interest, even though penalty may be waived under limited circumstances (see subsection (5)).

     (7) Application of payment towards liability. The department will apply taxpayer payments first to interest, next to penalties, and then to the tax, without regard to any direction of the taxpayer.

[Statutory Authority: RCW 83.100.200. 00-19-012, § 458-57-035, filed 9/7/00, effective 10/8/00; 99-15-095, § 458-57-035, filed 7/21/99, effective 8/21/99.]

     (2) Releases. When the state estate taxes have been paid in full, the department will issue a release to the personal representative upon request. The request will include a completed state return and a copy of the completed federal return, if one was filed. The final determination of the amount of taxes due from the estates that have filed federal returns is contingent on receipt of a copy of the final closing letter issued by the Internal Revenue Service (IRS). The department may require additional information to substantiate information provided by ((the)) those estates that are not required to file federal returns. The release issued by the department will not bind or estop the department in the event of a misrepresentation of facts.

     (3) Amended returns. An amended state return must be filed with the department within five days after any amended federal return is filed with the IRS and must be accompanied by a copy of the amended federal return. For those estates that are not required to file a federal return, an amended estate tax return must be received within three years from the date the original estate tax return was filed or within two years of paying the tax, whichever is later.

     (a) Any time that the amount of federal tax due is adjusted or when there is a final determination of the federal tax due the person responsible must give written notification to the department. This notification must include copies of any final examination report, any compromise agreement, the state tax closing letter, and any other available evidence of the final determination.

     (b) If any amendment, adjustment or final determination results in additional state estate tax due, interest will be calculated on the additional tax due at the annual variable interest rate described in RCW 82.32.050(2).

     (4) Refunds. Only the personal representative or the personal representative's retained counsel may make a claim for a refund of overpaid tax. If the application for refund, with supporting documents, is filed within four months after an adjustment or final determination of tax liability, the department shall pay interest until the date the refund is mailed. If the application for refund, with supporting documents, is filed after four months after the adjustment or final determination, the department shall pay interest only until the end of the four-month period. Any refund issued by the department will include interest at the existing statutory rate defined in RCW 82.32.050(2), computed from the date the overpayment was received by the department until the date it is mailed to the estate's representative. RCW 83.100.130(2).

     (5) Heirs of escheat estates. Heirs to an estate may be located after the estate escheats to Washington. The personal representative of an escheat estate or a claimed heir must provide the department with all information and documentary evidence available that supports the heir's claim. All supporting documents must be in the English language when submitted to the department. The English translation of any foreign document shall be authenticated as reasonably required by the department.

     (a) In all cases where there is a court hearing or the taking of a deposition on the question of a claimed heir, the personal representative shall give the department twenty days' written notice of such hearing or matter.

     (b) The personal representative must give the department at least twenty days' written notice of the hearing on the final account and petition for distribution.

     (c) The department has no statutory authority to pay interest on escheat refunds.

[Statutory Authority: RCW 83.100.200. 00-19-012, § 458-57-045, filed 9/7/00, effective 10/8/00; 99-15-095, § 458-57-045, filed 7/21/99, effective 8/21/99.]

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