We provide here a written summary of answers provided by the Department of Revenue to the committee at periodic question and answer sessions. These documents are classified as Revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on a specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.
Q&A with the Pennsylvania Department of Revenue
Scenario: Family Owned Business (FOB) inheritance exemption
A client dies owning 49% of a Qualified Family Owned Business (FOB). The decedent’s will causes for the FOB stock to go into a Residuary Trust for his Wife and then at his wife’s death to go to his son who owns the other 51% of the business and will operate the business for many years to come.
Does this qualify for the new FOB inheritance exemption?
No. To qualify for the exemption the qualified family owned business interest must be transferred to a “qualified transferee” and, in addition to other requirements, must be owned by a “qualified transferee” for seven years following the decedent’s date of death. The definition of a qualified transferee does not include a trust. Accordingly, the transfer must be outright to a qualified transferee. Consequently, the transfer described in this question fails both the initial transfer requirement and will not satisfy the post-death ownership requirement.
If the wife disclaims and the holding goes outright to the son now, does this qualify for the FOB exemption?
Yes, provided all other statutory requirements are satisfied, and the disclaimer is effective and made within nine months after the date of the decedent’s death. Under these facts, the outright transfer to a qualified transferee, the decedent’s son, qualifies for the exemption and the son/owner must comply with the post death ownership and certification requirements to maintain the exemption.