BY CHRISTOPHER YUGO

Q: My mother passed away in April. How long do we have before we have
to pay the inheritance tax?

A: An Indiana inheritance tax return must be filed within nine months
of the date of death. If you are unable to file the return within the
nine-month time frame, you can seek an extension.

An extension may be granted by the probate court if it determines that
an "unavoidable delay" made it impossible for the inheritance tax
return to be filed timely. It has been my experience that the probate
courts interpret an "unavoidable delay" pretty liberally. If it is
possible to justify an extension, the courts generally side with the
taxpayer and grant the extension.

If you fail to file the return timely and you don't obtain an
extension, a late filing penalty can be imposed. However, the late
filing penalty tends to be pretty insignificant. A taxpayer can be
fined 50 cents per day with a maximum penalty of $50. Fifty bucks is a
lot of money, but it's probably not going to break anybody.

Although the tax return must be filed within nine months of the date
of death, the actual inheritance tax does not have to be paid until 12
months following the date of death. Think about that for a minute.
Although you have to have the inheritance tax return on file within
nine months, the tax doesn't have to be paid until 12 months following
the date of death.

If you file the return in a timely fashion but fail to pay the tax at
that time, the Indiana Department of Revenue will review the return.
But it won't issue a closing letter until the tax is actually paid.

If you fail to pay the tax within 12 months of the date of death, you
could be subject to interest on the unpaid tax of up to 10 percent
annually. The interest due on the unpaid tax accrues from the date of
death, not the date the tax is due. So if you pay the tax one day
late, you could be subject to a full year's interest because it runs
from the date of death. The court can reduce the interest rate to as
low as 6 percent, but it doesn't have to.

Finally, although the actual tax isn't due for 12 months, Indiana
offers you an incentive to pay it sooner. If you pay the inheritance
tax within nine months of the date of death, Indiana will give you a 5
percent reduction in the tax due.

Since it is not unusual for an estate to need additional time to file
an inheritance tax return, it is common for the estate to pay what it
thinks it will owe within the nine-month period to obtain the 5
percent discount. By paying estimated inheritance tax, the estate can
take advantage of the 5 percent discount while it deals with the
reporting delays. Also, the court might consider the fact that you
prepaid the inheritance tax when it determines to waive late filing
penalties and or reducing the interest rate on any unpaid taxes.

Unfortunately, it isn't enough to ask when the tax is actually due.
Although the inheritance tax isn't due for 12 months, the return is
due within nine months. With that in mind, I usually work with an eye
on the nine-month deadline. By assuming everything is due within nine
months, I know that I'll get the tax paid early enough to obtain the
discount, even if I can't get the return completed. But that's just me.

http://www.nwitimes.com/articles/2008/10/27//business/business/docdc14cee66ec2b2\
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