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Both these taxes work on the same principle. When a person dies leaving the assets of his or her estate to an heir, the heir has to pay inheritance tax. This tax is not the tax levied on the property. Instead it is a tax that has to be paid just to assume the right to ownership. The inherited property or asset is evaluated and depending on the value and relationship of the heir with the deceased, inheritance tax has to be paid.
However, inheritance tax is not that simple. There are many exceptions and exemptions associated with it. The value of the property or monetary asset has to be over $2 million to qualify for the tax. Relatives like spouses, children, parents and grandparents are exempt from paying inheritance tax. However, if nephew were to inherit a $3.5 million mansion from his uncle, he would immediately have to pay 50 percent of the mansion value as inheritance tax. This means that the nephew would be in debt to the tune of $1 million because of the tax.
That is the reason why people are looking for ways and means to not pay inheritance tax. Many people fail to report an inheritance, file false returns, do not report their existence of the assets, deliberately undervalue the assets, claim inappropriate debts and/or deductions, or request the financial institution where a safety deposit box of the decedent is located not to notify the IRS.
The consequences of not paying inheritance tax are severe. You will be held liable if you do not file your returns for the inheritance, and may have to penalty of 25 percent of the tax ultimately found to be due or $1,000, whichever is less. If you make a false return, in addition to liability imposed, you will also be committing a third degree misdemeanor. The employee of the financial institute where the safe deposit box of the decedent is present, knowingly allows entry to the heir without informing the IRS is charged with a third degree misdemeanor. Even the person entering the safe deposit box along with heir is charged with a third degree misdemeanor.
Therefore, when it comes to inheritance tax, you have to be very careful about your failure to pay it. If you fail to pay inheritance tax, be prepared for the consequences.
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