What happens when inheritance tax is paid late

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Q. Our aunt died in New Jersey on Feb. 3, 2017. It took time to clean out her home, and we sold it in February 2018. Our sister did not pay the inheritance tax on time because the home wasn’t sold. They were finally paid, with interest, in April 2018. Could our sister have used a guesstimate for the value of the home or pay the inheritance tax on time or could she have asked for an extension? Could we do an amended return?
— Niece

A. We’re sorry to hear about your aunt.

The New Jersey inheritance tax return is due and the tax is required to be paid eight months after the death.

“An extension of time to file the return may be obtained for up to four months with another two month extension without explanation, but the tax must still be paid or interest accrues at the rate of 10 percent per annum,” said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

She said interest could have been avoided by obtaining a market analysis from a real estate agent in order to value the home. Then, each of the beneficiaries could have paid their estimated share of the tax from their personal funds, assuming there were insufficient liquid assets in the estate to pay the tax.

“If the beneficiaries were not willing to do so, and there were insufficient liquid funds in the estate to pay the tax until the house was sold, it may be the fiduciary had no other options but to let interest accrue until funds were available to pay the tax,” Romania said.

She said not every expense that is paid by an estate is available as a deduction on the inheritance tax return, but if the deductions that are available were not taken on the original return, an amended return can be filed prior to a Notice of Assessment or other such notice being received from the Division of Taxation, which closes the matter.

“Appeals and applications for refunds thereafter may be made but limited time periods and certain procedures apply,” she said. “ Nonetheless, even if available, the cost of preparing and filing such return, and the risk of the taxing authority deciding to audit the new return after not auditing the first return should be weighed against the savings to be obtained.”

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This story was originally published on April 24, 2019.

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