Appeal from the Order of the Court of Common Pleas of Chester County in the case of Estate of Irvin G. Engle, Deceased, No. 15-84-1085.
M. Elvin Byler, with him, Samuel A. Goodley, Jr., for appellant.
John J. Butchar, Deputy Attorney General, with him, LeRoy S. Zimmerman, Attorney General, for appellee.
Judges Doyle, Palladino and Smith, sitting as a panel of three. Opinion by Judge Palladino. Dissenting Opinion by Judge Doyle.
[ 125 Pa. Commw. Page 244]
The estate of Irvin G. Engle (Appellant) appeals a decision of the Court of Common Pleas of Chester County, Orphans' Court Division (orphans' court), which affirmed a decision of the Department of Revenue that Appellant's inheritance tax return was not in compliance with the requirements of the Inheritance and Estate Tax Act, 72 Pa. C.S. §§ 1701-1796. We affirm.
Irvin G. Engle died on October 10, 1984. In his will, Engle made pecuniary bequests of $16000 to eight charities. The will directed that the residue of his estate be converted into cash and distributed one-half to eleven charities and one-half to individual beneficiaries who were subject to taxation. The majority of the residue was real property -- six tracts of farmland and two other parcels. On the original and a supplemental inheritance tax return*fn1 (returns), Appellant elected to value the farmland
[ 125 Pa. Commw. Page 245]
at less than fair market value as permitted by 72 Pa. C.S. § 1722. This valuation is termed a "preferred use value." The six tracts of farmland at the time of Engle's death had a preferred use value of $417,721.80 and a fair market value of $961,380.00. Two other parcels of land, not eligible for section 1722 valuation, had a fair market value of $391,920. The farmland was sold for $842,395.
The estate value reported on the returns reflected the preferred use value of the farmland. The projected amount of cash distributions reflected the actual amount received from the sale of all the property. On the returns, approximately one-half of this projected amount of cash, the amount to be distributed to the charities, was deducted from the estate value. Because the estate value reflected the preferred use value, the estate value reported as subject to inheritance tax was approximately one-fourth of the total estate value rather than the one-half indicated in Engle's will.*fn2
The Pennsylvania Department of Revenue (Department) allowed the preferred use value for the farmland's value in valuation of the estate. The Department disallowed almost half of the reduction of the estate value resulting from the projected distribution to charities of the proceeds from the sale of the farmland. The Department
[ 125 Pa. Commw. Page 246]
allowed only a reduction for the distribution to the charities that reflected one-half of the preferred use value of the farmland rather than one-half of the actual amount received for the farmland when sold. This disallowance would result in approximately $20,000 additional inheritance tax being imposed. Appellant appealed the disallowance of the charitable reduction to the orphans' court, which ...