Tax Type
Estate Tax
Description
Generation skipping transfer
Topic
Persons Subject to Tax
Date Issued
08-31-1993
August 31, 1993
Re: Ruling Request: Generation Skipping Tax
Dear**************
This will reply to your letter dated February 3, 1993, requesting an abatement of Virginia generation skipping transfer tax assessed against the Estate of*************(the "Taxpayer").
FACTS
The Taxpayer has paid the federal and Virginia estate taxes due on the estate. Four out of the five beneficiaries are "skip persons" (individuals two or more generations below the transferor) as defined by the Internal Revenue Code ("I.R.C."). Therefore, the Taxpayer paid federal generation skipping transfer ("GST") tax on property that had been included in the taxable estate subject to the estate tax. In January, 1993, the Taxpayer was assessed GST tax by the Department. The Taxpayer is asking the Department to abate the assessment.
RULING
Section 58.1-936 of the Code of Virginia (the "Code") imposes a tax on all generation skipping transfers where the original transferor was a resident of Virginia at the date of the original transfer. Virginia's GST tax is imposed only to the extent I.R.C. §2604 permits a credit for state legacy taxes in excess of all amounts paid in tax on the same transfer to states other than Virginia.
I.R.C. §2604 does not permit a credit for state legacy taxes where the generation skipping transfer, which occurs as a result of the death of the transferor, is a "direct skip". A direct skip is defined by I.R.C. §2612 (c) as a transfer of property to a skip person which is subject to either the federal estate tax or the federal gift tax.
Thus, if a skip person received property and the transfer was subject to the federal estate or gift tax (i.e., a direct skip transfer), the credit for state legacy taxes under I.R.C. §2604 is zero. This is the situation in the instant case. The beneficiaries, the transferor's grandchildren, are skip persons who were the recipients of a direct transfer (received property which was subject to federal estate tax). Thus, pursuant to I.R.C. §2604, Virginia is entitled to no GST tax.
Accordingly, the assessment of GST tax by the Department was incorrect and is abated.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6699L
Rulings of the Tax Commissioner