ARC 0228D

ARC 0228D

REVENUE DEPARTMENT[701]

Notice of Intended Action

Proposing rulemaking related to fiduciary income tax
and providing an opportunity for public comment

    The Revenue Department hereby proposes to rescind Chapter 700, “Fiduciary Income Tax,” Iowa Administrative Code, and to adopt a new Chapter 700 with the same title.

Legal Authority for Rulemaking

    This rulemaking is proposed under the authority provided in Iowa Code sections 421.14, 422.14(1)“d” and 422.68.

State or Federal Law Implemented

    This rulemaking implements, in whole or in part, Iowa Code chapter 452A and sections 421.2, 421.4, 421.60, 422.3, 422.6, 422.8, 422.12, 422.14, 422.16, 422.21, 422.23, 422.25, 422.26 through 422.28, 422.30, 422.70, 422.73, 633.352, 633.425, 633.471, 633.477 and 633.479.

Purpose and Summary

     The purpose of this proposed rulemaking is to rescind and readopt Chapter 700. This chapter contains rules focused on the administration of fiduciary income in the application of the State’s tax imposed on estates and trusts under Iowa Code section 422.6. After review, the Department determined the rules aid the public’s understanding of this topic and provide guidance and direction to the public of fiduciary obligation in the application of these taxes. The Department proposes revisions to the text of the rules for clarification and organization and removal of portions of the rules that the Department determined are unnecessary, obsolete, or duplicative of statutory language.

Regulatory Analysis

    A Regulatory Analysis for this rulemaking was published in the Iowa Administrative Bulletin on March 4, 2026. A public hearing was held on the following date(s):

     ?   March 24, 2026

    No public comments on the Regulatory Analysis were received at the hearing or in writing. No changes have been made to the text since publication of the Regulatory Analysis.

Fiscal Impact

     This rulemaking has no fiscal impact to the State of Iowa.

Jobs Impact

    After analysis and review of this rulemaking, no impact on jobs has been found.

Waivers

    Any person who believes that the application of the discretionary provisions of this rulemaking would result in hardship or injustice to that person may petition the Department for a waiver of the discretionary provisions, if any, pursuant to rule 701—3.7(99G,123,421,17A).

Public Comment

     Any interested person may submit written or oral comments concerning this proposed rulemaking, which must be received by the Department no later than 4:30 p.m. on May 19, 2026. Comments should be directed to:

Public Hearing

    Public hearings at which persons may present their views orally or in writing will be held as follows:

    Persons who wish to make oral comments at a public hearing may be asked to state their names for the record and to confine their remarks to the subject of this proposed rulemaking.

     Any persons who intend to attend a public hearing and have special requirements, such as those related to hearing or mobility impairments, should contact the Department and advise of specific needs.

Review by Administrative Rules Review Committee

    The Administrative Rules Review Committee, a bipartisan legislative committee which oversees rulemaking by executive branch agencies, may, on its own motion or on written request by any individual or group, review this rulemaking at its regular monthly meeting or at a special meeting. The Committee’s meetings are open to the public, and interested persons may be heard as provided in Iowa Code section 17A.8(6).

    The following rulemaking action is proposed:

    ITEM 1.  Rescind 701—Chapter 700 and adopt the following new chapter in lieu thereof:

TITLE VIII

FIDUCIARY INCOME TAX

CHAPTER 700

FIDUCIARY INCOME TAX

701—700.1(422) Administration.

    700.1(1) Definitions. For purposes of this chapter, words and phrases have the same meaning as defined in Iowa Code sections 422.3 and 422.4. In addition, as used in this chapter, the following definitions apply:

    “Gross income” includes any and all income prior to any deductions as set forth on the Iowa fiduciary return of income.

    “Personal representative” means the executor, administrator, or trustee of a decedent’s estate.

    “Tax” means the income tax imposed on estates and trusts under Iowa Code section 422.6.

    “Taxable income” includes the income of the estate or trust and also includes distributions to beneficiaries as set forth on the Iowa fiduciary return of income.

    “Taxpayer” includes the executor, administrator, or other personal representative of a decedent’s estate required to file a return for the estate and the decedent under Iowa Code sections 422.14 and 422.23. “Taxpayer” may also include the trustee of a trust subject to tax under 26 U.S.C. Section 641 and required to file a return under 26 U.S.C. Section 6012(b), as well as the trustee of the bankruptcy estate of an individual under Chapter 7 or 11 of Title 11 of the United States Code.

    700.1(2) Delegation of authority. The director delegates to the division administrator of or a bureau chief within the compliance section division, subject always to the supervision and review of the director, the authority to issue the certificate of acquittance authorized by Iowa Code section 422.27.

    700.1(3) Authority of federal court cases, regulations and rulings. The director has the responsibility to enforce and interpret the law relating to the taxes the department is obligated to administer, including those portions of the Internal Revenue Code that impact Iowa taxable income under Iowa Code section 422.4(15).

    a.  Federal regulations may be interpreted by Iowa courts for state tax purposes.

    b.  While federal court cases, regulations and rulings interpreting the Internal Revenue Code will be accorded every consideration, the department has the right to make its own interpretation of the Internal Revenue Code as to what constitutes taxable income for Iowa tax purposes, consistent with Iowa statutes and court decisions. Rule 701—303.2(422) provides more information.

    700.1(4) Publication references.

    a.  References to the following Internal Revenue Code Sections are those in effect as of December 31, 2025: 26 U.S.C. Sections 61, 164, 170, 213, 611, 641, 642, 671 through 679, 691, 1011, 1014, 1223, 2032, 2032A, 2053, 2054, and 6012.

    b.  References to the following federal regulation sections are those in effect as of December 31, 2025: 26 CFR Sections 1.61-9, 1.167, 1.170A-10, 1.1014-1, and 1.1223-1.

This rule is intended to implement Iowa Code sections 17A.6, 421.2, 421.4, 422.6, 422.23, 422.25, 422.26, 422.27, and 422.73.

701—700.2(422) Documentation.

    700.2(1) Documents to be filed.

    a.  Estates of Iowa decedents. A copy of the inheritance tax return (for decedents dying before January 1, 2025) and probate inventory required by Iowa Code section 633.361 and a copy of the decedent’s will in testate estates shall be filed with the first fiduciary return of income unless previously filed with the department for inheritance tax purposes.

    b.  Nonresident decedents—ancillary administration. If ancillary administration has been opened for the estate of a nonresident decedent, a copy of the inheritance tax return (for decedents dying before January 1, 2025) and probate inventory and a copy of the decedent’s will in testate estates shall be filed with the department, subject to the same conditions and requirements in estates of resident decedents. If ancillary administration has not been opened for a nonresident decedent with Iowa taxable income, a copy of the inventory filed in the primary estate, or the portion of the inventory listing the property generating the Iowa income and the decedent’s will in testate estates, must be filed with the department with the first fiduciary return of income.

    c.  Inter vivos trusts.

    (1)  Inter vivos trusts with a situs in Iowa and inter vivos trusts with a situs outside Iowa with Iowa taxable income shall submit to the department with the first fiduciary return the following:

    1.  A copy of the trust instrument;

    2.  A list of the trust assets (those generating Iowa taxable income in case of trusts with a situs outside Iowa); and

    3.  An estimate of the fair market value of each asset.

    (2)  If the trust instrument is amended or additional assets are added to the trust corpus, a copy of the amended items must be submitted to the department with the first fiduciary return of income following the change.

    d.  Testamentary trusts. If the estate was not reported for inheritance tax purposes, a copy of the decedent’s will and a list of assets in the trust corpus in testamentary trusts with a situs both within and without Iowa must be submitted to the department with the first fiduciary return of income.

    700.2(2) Reserved.

This rule is intended to implement Iowa Code sections 422.25, 422.27, 422.28, and 422.73.

701—700.3(422) Situs of trusts.

    700.3(1) Testamentary trusts. The situs of a testamentary trust for tax purposes is the state of the decedent’s residence at the time of death until the jurisdiction of the court in which the trust proceedings are pending is terminated. If jurisdiction is terminated and the trust remains open, the situs of the trust is governed by the same rules as pertain to the situs of inter vivos trusts.

    700.3(2) Inter vivos trusts.

    a.  Court reporting. If an inter vivos trust is created by order of court or makes an accounting to the court, its situs is the state where the court having jurisdiction is located until the jurisdiction is terminated. The situs of an inter vivos trust subject to the grantor trust rules under 26 U.S.C. Sections 671 through 679 is the state of the grantor’s residence, or the state of residence of the person other than the grantor deemed the owner, to the extent the income of the trust is governed by the grantor trust rules.

    b.  Non-court reporting. If an inter vivos trust (other than a trust subject to the grantor trust rules in 26 U.S.C. Sections 671 through 679) is not required to make an accounting to and is not subject to the control of a court, its situs depends on the relevant facts of each case.

    (1)  Relevant facts include but are not limited to the residence of the trustees or a majority of them, the location of the principal office where the trust is administered, and the location of the evidence of the intangible assets of the trust (e.g., stocks, bonds, bank accounts).

    (2)  The residence of the grantor of a trust, not subject to the grantor trust rules under 26 U.S.C. Sections 671 through 679, is not a controlling factor as to the situs of the trust unless the person is also a trustee. A statement in the trust instrument that the law of a certain jurisdiction shall govern the administration of the trust is not a controlling factor in determining situs. The residence of the beneficiaries of a trust is also not relevant in determining situs.

    700.3(3) Part-year trust. A trust that has its situs part of the year within Iowa and part of the same year outside of Iowa is to report its income on IA 1041. In order to claim a nonresident or part-year resident tax credit, the trust must complete the computation of nonresident/part-year resident tax credit portion of the form.

This rule is intended to implement Iowa Code sections 422.6, 422.8, and 422.14.

701—700.4(422) Fiduciary returns and payment of the tax.

    700.4(1) Use of prescribed forms. Returns shall, in all cases, be made by residents and nonresidents on forms prescribed by the department of revenue. Iowa Code section 422.14 provides the requirements for when fiduciary returns must be filed electronically.

    700.4(2) Copy of federal fiduciary income tax return. Estates of Iowa decedents, trusts with a situs in Iowa, nonresident estates with Iowa taxable income, and trusts with situs outside Iowa with Iowa taxable income must submit a complete copy of the federal fiduciary income tax return with the Iowa return, including any applicable schedules.

    700.4(3) Accounting period—tax year. The Iowa fiduciary return must use the same accounting period that was used for federal income tax purposes.

    700.4(4) Minimum filing requirements. A fiduciary return of income must be filed if the taxable income of the estate or trust for the taxable year is $600 or more, regardless of any tax liability. However, a final fiduciary return must be filed for the taxable year the estate or trust is closed, regardless of the amount of gross income, if an income tax certificate of acquittance is requested.

    700.4(5) Amended returns. An amended return must be filed if there is a change in income or deductions that results in a tax or additional tax due or in a change in income, deductions, or credits distributable to a beneficiary. An amended return may be filed in lieu of a claim for refund when a change in reportable income or deductions results in a tax overpayment. 701—subrules 305.3(8) and 305.3(15) provide additional information on the period of time for making a claim for a refund of excess tax paid.

    700.4(6) Return due date. The fiduciary return must be filed with the department and the tax due paid in full on or before the last day of the fourth month following the end of the taxable year.

    700.4(7) Duties of the taxpayer.

    a.  Income of the estate or trust. The executor, administrator, or other personal representative must timely file a fiduciary return if the minimum filing requirements specified in subrule 700.4(4) are met. The department is not required to file a claim for taxes in the estate proceedings and have the claim allowed before the tax is paid. The personal representative of an estate must pay the tax on income from property in the personal representative’s possession prior to applying the income to estate obligations.

    b.  Decedent’s final individual income tax return.

    (1)  The executor, administrator, or other personal representative of the decedent’s estate must file an individual income tax return for the decedent for the year of the decedent’s death if the gross income attributable to the decedent for the part of the taxable year ending with death equals or exceeds the minimum filing requirements. 701—subrules 301.1(1) through 301.1(3) and 301.1(5) provide more information on the minimum filing requirements for individual income tax.

    (2)  If the surviving spouse of a decedent has not remarried during the balance of the taxable year and has the same taxable year as the decedent, the personal representative of the decedent’s estate may file a joint return with the surviving spouse for the taxable year of death. In the event of such an election, the joint return must include the surviving spouse’s income for the entire taxable year and the decedent’s income for the portion of the taxable year ending with death.

    (3)  Income attributable to property owned by the decedent and the decedent’s rights to income received after the day of the decedent’s death are income of the decedent’s estate or the persons succeeding to the property or rights to income. Iowa Code sections 633.350 through 633.353 provide more information on the circumstances under which the estate is charged with the income from the decedent’s property or the decedent’s rights to income.

    (4)  Income from property held by the decedent and others in joint tenancy received after the decedent’s death is charged to the surviving joint tenants, not to the decedent’s estate.

    (5)  The final income tax return of the decedent, if the minimum filing requirements are met, must be filed prior to the time an income tax certificate of acquittance is requested.

    c.  Decedent’s prior year returns. The personal representative has the duty to file any required returns that were not previously filed. This includes any additional tax owed that becomes due by reason of an audit. The personal representative’s duty to pay the tax, or additional tax, is limited to the probate property subject to the jurisdiction of the court. The probate property must be applied to the payment of the decedent’s tax liability according to the order specified in Iowa Code section 633.425.

    d.  Composite return requirement. The personal representative of a decedent’s estate and the trustee of a trust are subject to the composite return filing and tax payment obligations under Iowa Code section 422.16B and 701—Chapter 405 if the estate or trust has nonresident beneficiaries.

    e.  Beneficiary’s share of income, deductions and credits. After the final distribution of income for the taxable year, the personal representative of an estate and the trustee of a trust shall furnish each beneficiary receiving a distribution from an estate or trust a written statement specifying the amount and types of income subject to Iowa tax and the kinds and amounts of the deductions and credits against the tax. For estates and trusts, other than grantor trusts, the written statement shall be an IA 1041, Schedule K-1.

    f.  Liability of a personal representative and trustee. A personal representative of a decedent’s estate and the trustee of a trust shall be personally liable for the amount of Iowa composite tax required to be paid under Iowa Code section 422.16B and 701—Chapter 405 as well as any penalty and interest due if the composite tax liability attributable to a nonresident beneficiary is not paid within the time prescribed by law.

This rule is intended to implement Iowa Code sections 422.6, 422.8, 422.16, 422.21, 422.23, 422.25, 422.27, 633.352, and 633.425.

701—700.5(422) Extension of time to file.

    700.5(1) Automatic extension of time to file.

    a.  Qualification. No application for extension is required from the taxpayer if the taxpayer has paid at least 90 percent of the tax required to be shown due by the due date and has not filed a return by the due date. In such circumstances, the director will consider that the taxpayer has requested an extension of time to file the return and will automatically grant an extension of up to six months to file the return. However, if the taxpayer wants to make a tax payment to ensure that at least 90 percent of the tax has been paid on or before the due date, the payment can be made by:

    (1)  Making a payment through Modernized eFile (MeF).

    (2)  Contacting taxpayer services and requesting an Iowa Fiduciary Income Tax Payment Voucher.

    (3)  Accessing GovConnectIowa to either make a payment or print a voucher and make a payment.

    b.  Determination. To determine whether or not at least 90 percent of the tax was paid on or before the due date, the aggregate amount of tax credits applicable on the return plus the tax payments made on or before the due date are divided by the tax required to be shown due on the return. The tax required to be shown on the return is the sum of the income tax, lump-sum tax, and the trust portion of the ESBT tax. The tax credits applicable are the credits set out in Iowa Code chapter 422, subchapter II, and Iowa Code section 422.111. Tax payments to be considered for purposes of determining whether 90 percent of the tax was paid include withholding tax payments, estimated payments, composite tax payments, and payments made with the Iowa Fiduciary Income Tax Payment Voucher Form.

    c.  Penalty and interest. If the aggregate of the tax credits and the tax payments is equal to or greater than 90 percent of the tax required to be shown due, the taxpayer will have met the “90 percent” test and no penalty will be assessed. However, the taxpayer will still be subject to statutory interest on any tax due when the return is filed.

    700.5(2) Extension of time to file due to illness, death, absence, or other legitimate reason. The taxpayer is required to file the taxpayer’s fiduciary income tax return on or before the due date of the return with payment in full of the amount required to be shown due with the return. However, in any instance where the taxpayer is unable to file the return by the due date because of illness or death in the taxpayer’s immediate family, unavoidable absence of the taxpayer, or other legitimate reason within 30 days of the due date, the director may grant a six-month extension of time to file the return.

    700.5(3) Extension of time for the decedent’s final tax return. 701—subrule 301.2(4), which provides for extensions of time to file individual income tax returns, applies to the decedent’s final tax return.

This rule is intended to implement Iowa Code section 422.21.

701—700.6(422) Reportable income and deductions.

    700.6(1) Reportable income in general—Iowa estates and trusts. Estates of Iowa resident decedents and trusts with a situs in Iowa must report all income received from sources within and without Iowa, regardless of whether the income is from real, personal, tangible, or intangible property.

    700.6(2) Reportable income in general—foreign situs estates and trusts. Estates and trusts with a situs outside Iowa must report all income received from sources within and without Iowa, regardless of whether the income is from real, personal, tangible, or intangible property. Foreign situs estates and trusts must also report that portion of the income which is from Iowa sources. Examples of Iowa source income include but are not limited to income from real and tangible personal property with a situs in Iowa, such as a farm and from a business located in Iowa; the capital gain portion of an installment sale contract of Iowa situs property; and wages, salaries and other compensation for services performed in Iowa but received after the death of the decedent. Iowa source income would not include income from intangible personal property, such as annuities, interest on bank deposits, and dividends, unless the income was derived from a business, trade, profession, or occupation carried on in Iowa.

    700.6(3) Income from property subject to the jurisdiction of the probate court.

    a.  Probate property subject to possession by the personal representative. Income received on probate property after the decedent’s death is chargeable to the estate or to the person succeeding to the decedent’s property depending on whether the personal representative has the right to, or has taken possession of, the probate property producing the income. If the personal representative has taken possession of or has the right to possession of a specific item of probate property, the income from this property is estate income. The personal representative is charged with the income from this property for each taxable year until the property is distributed or otherwise disposed of. Iowa Code section 633.351 prescribes the personal representative’s responsibilities for taking possession of and handling the decedent’s property. In addition, Iowa Code section 633.386 (probate code) gives the personal representative authority to lease real estate, and therefore to take possession, in order to pay the debts and charges of the estate.

    b.  Income charged to the heir or beneficiary. Under Iowa law, title to probate property, both real and personal, passes instantaneously on death to the heir or beneficiary. If property is not subject to the personal representative’s right of possession under Iowa Code section 633.351 and the personal representative has not exercised the right to sell, lease, mortgage, or pledge real and personal property to pay debts and charges under Iowa Code section 633.386, the income from this probate property is not estate income. It is income to the person succeeding to the property.

    700.6(4) Income from nonprobate property. Income from property not subject to the jurisdiction of the probate court is charged to the beneficiary or other person succeeding to the property. Examples of income from nonprobate property include but are not limited to property held in joint tenancy, annuity payments, pension and retirement plans not payable to the estate, and income from certain trusts created by the grantor-decedent.

    700.6(5) Gross income of an estate.

    a.  In general. 26 U.S.C. Section 641(b) provides that the taxable income of an estate or trust shall be computed in the same manner as the taxable income of an individual, except as modified in Subchapter J of the Internal Revenue Code. Paragraphs 700.6(5)“d” through “q” provide a nonexhaustive list of common types of taxable income to an estate or trust.

    b.  Definition of the period of administration. The income charged to the decedent’s estate is reportable by the personal representative for each taxable year during the period of the administration of the decedent’s estate if the minimum filing requirements are met. The period of administration for Iowa income tax purposes is determined by applying federal tax law to Iowa estates because Iowa taxable income is the same as federal taxable income, subject to the adjustments provided in Iowa Code sections 422.7 and 422.9. It is the period actually required by the personal representative to perform the ordinary duties of administration, such as the collection of assets and the payment of debts, taxes, legacies, and bequests, whether the period required is longer or shorter than the period specified under the probate code. An estate will be considered terminated for income tax purposes when all of the assets have been distributed, except for a reasonable amount set aside in good faith for the payment of unascertained or contingent liabilities and expenses. If the period of administration is terminated for income tax purposes, the heir or beneficiary is charged with the income.

    c.  The estate’s first return—special considerations.

    (1)  Death terminates the decedent’s taxable year. Income received the day of the decedent’s death is to be reported on the decedent’s final individual return.

    (2)  The taxable year of a decedent’s estate begins the day after the decedent’s death. Income received after the decedent’s death is chargeable either to the decedent’s estate or to the person succeeding to the property producing the income.

    (3)  Income the decedent had a right to receive prior to death, but did not receive before death, is not the decedent’s income but is income in respect of a decedent and is chargeable either to the decedent’s estate when received or to the person succeeding to the right to income. 26 U.S.C. Section 691(a) and applicable federal regulations provide more information on what constitutes income in respect of a decedent.

    (4)  Trade or business expenses, interest, taxes and expenses for the production of income owing by the decedent at death but unpaid, and the allowance for depletion on income not received at death are not deductible on the decedent’s final return. These are deductible by the estate or the person succeeding to the property when paid.

    (5)  Medical expenses incurred by the decedent, but unpaid at death, are not deductible by the estate. These are deductible on the decedent’s individual return for the year the expenses were incurred if paid within one year after the decedent’s death and if the medical expense is not claimed as a deduction for federal estate tax purposes under 26 U.S.C. Section 2053. 26 U.S.C. Section 213(d) and federal regulations thereunder provide more information relating to deductible medical expenses of a decedent.

    (6)  Funeral expense is not a deductible item for income tax purposes.

    (7)  Unused ordinary and capital losses remaining after the decedent’s income tax liability for the year of death has been determined are not carried forward to the decedent’s estate. The unused losses terminate with death, except to the extent they may be used by the decedent’s surviving spouse.

    d.  Dividends. All income classified as dividends under 26 U.S.C. Section 61 and 26 CFR Section 1.61-9, received or constructively received, during the taxable year constitutes gross income to the estate or trust. However, some income labeled as dividends is for tax purposes classified as interest. For example, income from cooperative banks, credit unions, domestic building and loan associations, domestic savings and loan associations, federal savings and loan associations, and mutual savings banks are considered interest and not dividends.

    e.  Interest. All interest received or constructively received during the taxable year, with the exception of interest but not capital gain, from federal securities and from certain bonds issued by the state of Iowa and its political subdivisions listed in rule 701—302.3(422) is income to the estate or trust. Interest from securities issued by a state and its political subdivisions or from foreign securities is included in gross income for Iowa tax purposes, even though the interest may be exempt from federal income tax, except for those bonds listed in rule 701—302.3(422).

    f.  Partnerships and other estates and trusts.

    (1)  If a partnership in which the decedent had an interest is not terminated at death, the deceased partner’s share of the partnership income is considered to be all received at the end of the partnership taxable year. As a result, none of the partnership income is chargeable to the deceased partner unless the day of the partner’s death coincides with the day the partnership year ends. Partnership income is chargeable to the deceased partner’s estate or the person succeeding to the partner’s interest, notwithstanding the fact the deceased partner may have withdrawn most or all of the deceased partner’s share of the partnership income prior to death.

    (2)  In general, if an estate or trust and its beneficiaries have different taxable years, the beneficiary is required to report the income from the estate or trust as if it were all paid on the last day of the taxable year of the estate or trust. However, if the beneficiary dies during the taxable year of an estate or trust, the taxable income of the beneficiary’s estate includes only the portion of the income of the other estate or trust that was required to be distributed to the beneficiary but was not in fact distributed to the beneficiary before death. The income that was in fact distributed by the other estate or trust prior to the beneficiary’s death is properly included in the beneficiary’s final income tax return.

    g.  Rents and royalties.

    (1)  Income received after death for the use or occupancy of the decedent’s real and personal property is the income of the decedent’s estate or the income of the person succeeding to the property. If the rental income was accrued, but unpaid at death, the accrued rent is income in respect of a decedent and is to be included as income, either by the estate or the person succeeding to the right to the income, in the taxable year when payment is received.

    (2)  Rent is not limited to payments in cash. It includes but is not limited to crop share rental payments when the decedent was a nonparticipating landlord.

    (3)  Income from the sale of grain and livestock in the estate of a participating landlord that was on hand at death is classified as income from a farm or business and not rental income.

    (4)  Income from royalties includes but is not limited to payment for rights in books, plays, copyrights, trademarks, formulas, and patents and from the exploitation of natural resources.

    h.  Farm and business income—in general. The death of the decedent does not alter the rules under which business and farm income is computed for income tax purposes. However, the decedent’s estate as a new taxpayer may adopt a taxable year or accounting method that is different from the decedent’s. The rules for determining a gain or loss from the sale or exchange of assets in the decedent’s estate are the same as those for an individual. However, paragraphs  700.6(5)“i” and “j” contain more information on the basis for gain or loss from the sale or exchange of property acquired from a decedent and 700.6(5)“l” for depreciation rules for property acquired from a decedent.

    i.  Basis for gain or loss—the stepped-up basis. Property acquired from a decedent receives a new basis for determining gain or loss when the property is sold or exchanged. This rule does not apply to property classified as income in respect of a decedent and certain other property designated in 26 U.S.C. Section 1014(b) and (c) and the federal regulations thereunder. The basis of property acquired from a decedent is either (1) its fair market value at the time of death or the alternative value when it has been elected for federal estate tax purposes under 26 U.S.C. Section 2032 or (2) its special use value when the property has been valued for federal estate tax purposes under 26 U.S.C. Section 2032A. The decedent’s basis in the property is not relevant.

If an estate files a federal estate tax return, the basis is governed by the federal estate tax value determination.

EXAMPLE: Decedent A died July 1, 2025, owning a 160-acre Iowa farm that the decedent purchased in 1985 for $1,000 per acre, or $160,000. At the time of A’s death, the farm had a fair market value of $12,000 per acre, or $1,920,000. In 1995, A and surviving spouse B purchased a residence for $80,000 in joint tenancy. Surviving spouse B, a school teacher, contributed one-half of the purchase price of the residence; therefore, one-half of the residence is excluded from A’s gross estate. At the time of A’s death, the residence had a fair market value of $250,000. Surviving spouse B received the entire estate and did not elect the alternative or special use valuation.

B’s basis for gain or loss in the farm and residence is computed as follows:

Since the entire farm was acquired from A, its basis is 100 percent of the fair market value at death. Only one-half of the residence was acquired from A; therefore, only one-half of the residence receives a new basis on A’s death. The new basis in the residence for B is $165,000, calculated as follows: ½ of the fair market value on the date of death ($250,000 × ½) = $125,000, plus ½ of the original purchase price ($80,000 × ½) = $40,000.

    j.  No new basis—income in respect of a decedent.

    (1)  Property or rights to income, classified as income in respect of a decedent under 26 U.S.C. Section 691, do not receive a new basis upon the decedent’s death. It is a special exception to the stepped-up basis rule. 26 U.S.C. Section 1014(c) and 26 CFR Section 1.1014-1(c) provide more information.

    (2)  Examples of income with respect to a decedent include but are not limited to the following:

    1.  Wages, salary, or other compensation for personal services earned that are unpaid at death.

    2.  Interest accrued on obligations, such as bank accounts, certificates of deposit, bonds, and promissory notes.

    3.  Accrued interest and unpaid capital gain on real and personal property installment contracts.

    4.  Federal income tax refunds if claimed as a deduction on an Iowa income tax return.

    5.  Accounts receivable if the decedent was on a cash accounting basis.

    6.  Crop share rent if the decedent was a nonparticipating landlord on a cash basis. This also includes growing crops, which are to be valued at the time of the decedent’s death or alternate valuation date.

    (3)  The basis for gain or loss for property classified as income with respect to a decedent is the decedent’s basis in the property at the time of death.

    k.  Gain or loss—holding period. For the purpose of determining whether the sale or exchange of property is a long- or short-term gain or loss, the holding period of property acquired from a decedent begins the day after the decedent’s death, regardless of how long the property was held by the decedent. 26 U.S.C. Section 1.1223 and 26 CFR Section 1.1223-1(j) provide more information. If the property acquired from a decedent is sold or otherwise disposed of within one year of the decedent’s death, it will be considered to have been held over one year. In general, this is a sufficiently long holding period to qualify the sale or exchange as a long-term gain or loss transaction.

    l.  Depreciation—property acquired from a decedent. Property acquired from a decedent that is subject to the allowance for depreciation receives the same value for depreciation purposes as its basis for gain or loss in a sale or exchange, regardless of its basis or remaining useful life in the hands of the decedent. 26 U.S.C. Sections 167(g) and 1011 and 26 CFR Section 1.167(g)-1 provide more information. For the purpose of determining the life of an asset subject to the allowance for depreciation, the property is treated as if it were acquired the day after the decedent’s death. More information can be found in 26 CFR Section 1.167(a)-10. The decedent’s estate or other person acquiring depreciable property from the decedent may adopt a depreciation method different from that used by the decedent for the depreciable asset. Additional information can be found in 26 CFR Section 1.167(a)-7.

    m.  Recognition of gain—installment sale contracts.

    (1)  Death of the holder. If, as a result of the death of the holder of an installment sale obligation (usually the seller), the installment sale obligation is transferred to the debtor (usually the purchaser), or it is cancelled by the personal representative, the remaining gain from the installment sale contract not previously reported is recognized by the holder’s estate as if the remaining balance due had been immediately paid in full. The merger of the asset with the debt is treated as a taxable transfer by the estate of the holder (seller) of the obligation and is income in respect of a decedent realized by the holder’s estate.

    (2)  Held by trust. If the obligation was held by a person other than the seller, such as a trust, the cancellation of the obligation will be treated by that person as a taxable transfer immediately after the seller’s death. In the absence of some act of canceling the obligation, such as by distribution or notation that results in cancellation under Iowa Code chapter 554 (Uniform Commercial Code), the disposition is considered to occur no later than the time the period of administration of the estate is ended.

    (3)  Related parties. For gain recognition purposes, if the seller and the debtor were related parties, the value of the installment contract is considered to be not less than full face value, regardless of its value for Iowa inheritance tax (for decedents dying before January 1, 2025) or federal estate tax purposes. A related party includes but is not limited to the spouse, child (including an adopted child), grandchild, or parent of the seller; an estate in which the seller is a beneficiary; a partnership in which the seller is a partner; a corporation in which the seller owns 50 percent or more of the stock; and a trust where the seller is a beneficiary or is treated as the owner.

    (4)  Additional shares. If the debtor inherits the obligation to pay or another share of the estate and the debtor’s share of estate equals or exceeds the face value of the contract, the personal representative of the holder’s estate must set off the contract of sale to the debtor when satisfying the debtor’s share of the estate. In this case, the entire contract is canceled and all of the unreported gain is income in respect of a decedent to the estate. If the debtor’s share of the estate is less than the face value of the contract of sale, the contract of sale is canceled only to the extent of the debtor’s share of the estate and only a like percentage of the unreported gain is considered income in respect of a decedent received immediately by the estate. Iowa Code section 633.471 provides information on  the right of retainer and setoff.

    n.  Nonresident aliens—sales of Iowa real estate. Nonresident aliens and estates and trusts with a situs outside the United States must include the gain from the sale or exchange of Iowa real estate as taxable income, even though the real estate was not effectively connected with a trade or business carried on in the United States. Any gain paid or distributed to a nonresident alien or an estate or trust with a situs outside the United States is subject to Iowa income composite tax unless the gain has been previously accumulated and any tax due paid. Paragraph 700.4(7)“d” and 701—Chapter 405 contain more information on the requirement to pay Iowa composite tax on distributions to nonresident beneficiaries and individuals.

    o.  Miscellaneous income. Miscellaneous income includes those items of income that are subject to Iowa income tax under Iowa Code section 422.6 that are not classified as dividends, interest, rent and royalties, income from partnerships and other fiduciaries, business or farm income, and gain or loss from the sale or exchange of assets. Miscellaneous income also includes but is not limited to wages and salaries earned by the decedent that are unpaid at death and distributions to the estate from an employee’s pension or retirement plan if subject to Iowa income tax.

    p.  Grantor trusts. If the income of a trust is subject to the grantor trust rules under 26 U.S.C. Sections 671 through 679, the grantor of the trust or other person specified in the trust instrument, and not the trust, is considered the owner of the income. Therefore, the income is properly reportable on the Iowa individual income tax return of the grantor or other individual treated as the owner. The fiduciary income tax return of a grantor trust is an informational return only. Items of income, deductions, and credits of a grantor trust should be reported on a separate statement attached to the fiduciary return of income. The taxable year of a grantor trust must be the same as the taxable year of either the grantor or the other individual considered the owner of the income for tax purposes.

    q.  “Equity trusts”—assignment of future wages and salaries. The assignment of future wages, salaries, or other compensation for future services by a grantor to a trust (commonly called “equity” or “family estate” trust) does not shift the tax burden on this income from the grantor to the trust. The trust is subject to the grantor trust rules under 26 U.S.C. Sections 671 through 679. The income of the trust is to be reported by the grantor on an Iowa individual income tax return.

    r.  Adjustments to federal taxable income. Iowa Code section 422.4(15) provides that the Iowa taxable income of estates and trusts is federal taxable income, without the deduction for the personal exemption, subject to the specific adjustments set forth in Iowa Code section 422.7 and the modifications relating to federal and state income tax specified in Iowa Code section 422.9. The modifications have these results:

    (1)  The federal exemption allowed to estates and trusts under 26 U.S.C. Section 642(b) (i.e., $600 for an estate, $300 for simple trust, and $100 for a complex trust) is not deductible for Iowa income tax purposes.

    (2)  Interest and dividends from federal securities, but not capital gain or loss, are exempt from Iowa income tax and, therefore, are not part of the Iowa taxable income of estates and trusts.

    (3)  Interest and dividends from securities of a state and its political subdivisions and from foreign securities are included in Iowa taxable income in the year received, regardless of whether such interest and dividends are exempt from federal income tax. However, rule 701—302.3(422) and paragraph 700.6(5)“e” contain more information on the exemption for certain bonds issued by the state of Iowa and its political subdivisions that are not included in Iowa taxable income.

    700.6(6) Deductions from gross income.

    a.  In general. The deductions allowable in computing taxable income of estates and trusts are generally those relating to a trade or business and the expenses attributable to investment income.

    (1)  The important distinction between the deductions allowable in computing federal adjusted gross income and itemized deductions for individual income tax has only limited application in determining the taxable income of estates and trusts.

    (2)  Many deductions in computing the taxable income of an individual have no application to the deductions allowable in computing the taxable income of an estate or trust, due to the nature of estates and trusts and the sources of their income. For example, medical expense and moving expense deductions are applicable only to individuals, but taxes and interest expenses can be incurred by both individuals and estates and trusts.

    b.  Interest expense. Interest paid on obligations secured by property subject to the personal representative or trustee’s right of possession is a deduction from gross income in the year paid. Interest on debts or charges that the personal representative or trustee is obligated to pay is also a deduction against gross income in the year paid. Interest on obligations secured by property, not subject to the personal representative’s right of possession, is not deductible from the gross income of the estate but is a deduction for the person succeeding to the encumbered property. No distinction is made between business and nonbusiness interest. Iowa Code section 633.278 contains more information on circumstances when the personal representative of the decedent’s estate is required to pay the debt and interest on encumbered property, even though the property is not subject to the personal representative’s right of possession.

    c.  Taxes. The taxes deductible against the gross income of an estate or trust are limited to the taxes deductible for individual income tax purposes under 26 U.S.C. Section 164, meaning, for tax years beginning on or after January 1, 2023, state taxes deductible for federal purposes are also allowed for Iowa purposes. Also, federal income tax is not allowed as a deduction for Iowa purposes. Real estate and personal property taxes, including the taxes due but unpaid at death, are only deductible by the estate on the decedent’s property that is subject to the personal representative’s right of possession.

    d.  Depreciation and depletion—allocation. If the personal representative of a decedent’s estate has the right to the possession of property eligible for the depreciation allowance, the depreciation is a deduction from the estate’s gross income when the income for the taxable year is accumulated by the estate. If all or part of the income for the year is distributed to the beneficiaries, the deduction for depreciation is apportioned between the estate and the beneficiaries on the basis of the income allocated to each. In the case of an estate, the deduction for depreciation follows the income.

    (1)  The same depreciation rules apply to simple and complex trusts, with the exception that if the trustee has the right to maintain a reserve for depreciation, and in fact does so, the deduction for depreciation is allocated to the trust to the extent of the reserve maintained, regardless of whether the income is accumulated or distributed.

    (2)  The rules governing the allowance for depreciation are also the rules to be applied to the allowance for depletion under 26 U.S.C. Section 611.

    e.  The charitable deduction. The charitable deduction allowed estates and trusts under 26 U.S.C. Section 642(c) is not subject to the percentage of income limitation applicable to individual taxpayers under 26 U.S.C. Section 170(b). The allowable deduction is governed by the terms of the will or trust instrument, which can provide for unlimited payments for charitable purposes. However, an unused charitable contribution carryover of the decedent remaining after the decedent’s individual income tax liability for the year of death is determined is not available to the estate. The unused carryover terminates at death, except to the extent it may be used by the surviving spouse. More information can be found in Federal Regulation Section 1.170A-10(d)(4)(iii). The deduction is limited to payments of gross income or amounts permanently set aside for charitable uses. A simple pecuniary bequest to charity in the decedent’s will does not qualify for the charitable deduction from the estate’s income. It is a payment from the corpus of the estate.

    f.  Other deductions. The category of other deductions includes those deductions allowable in computing taxable income not receiving special itemized treatment on the Iowa fiduciary return of income. Expenses of administration include but are not limited to a reasonable fee and the necessary expenses of the attorney employed by the personal representative of an estate or the trustee of a trust, a reasonable fee and the necessary expenses of the personal representative of an estate or the trustee of a trust, accounting fees, court costs, and interest paid on federal estate tax during an extension of time to pay.

    g.  The no double deduction rule. Expenses of administration, certain debts of the decedent like medical expenses incurred prior to death, and losses during the period of administration are proper deductions in computing both the taxable income of an estate or trust (or on the decedent’s individual return in case of medical expenses) and the taxable estate for federal estate tax purposes under 26 U.S.C. Sections 2053 and 2054.

    (1)  The no double deduction rule only applies to trusts when the trust assets are included for federal estate tax purposes. 26 U.S.C. Section 642(g) prohibits the double deduction of those items that qualify as deductions for both taxes.

    (2)  To prevent the double deduction, the fiduciary return needs to be accompanied with a statement waiving the right to claim all or a portion of the item as a deduction on the federal estate tax return. This waiver is irrevocable. However, unless the waiver has been filed, the decision to claim the deduction or portion of the deduction on the federal estate tax return can be changed anytime prior to the time the item or portion of the item is finally allowed for federal estate tax purposes.

    (3)  The waiver requirement has no application to estates and trusts not required to file a federal estate tax return.

    (4)  The no double deduction rule has no application to deductions in respect of a decedent, such as deductions relating to trade or business expenses, interest, taxes, expenses for the production of income, and the allowance for depletion, which are deductible both for income tax purposes and federal estate tax purposes.

    h.  The net operating loss deduction.

    (1)  Generally, Iowa Code section 422.9 provides for carryovers of Iowa net operating losses.

    (2)  However, estates and trusts with a situs outside Iowa are allowed a deduction only for a carryover net operating loss, which was incurred prior to January 1, 2023, and attributable to a trade or business activity carried on in the state of Iowa.

    i.  Capital loss deduction. The capital loss deduction of an estate or trust is computed in the same manner as the capital loss deduction for individual taxpayers. However, it is a deduction only for the estate or trust and is not distributable to a beneficiary, except in the year the estate or trust terminates. Capital losses do not enter into the computation of the deduction for income required to be distributed currently to beneficiaries. During the period of administration of the estate or trust, capital losses can be used only to offset capital gain for simple trusts required to distribute income currently. However, beneficiaries may derive immediate benefit from capital losses when capital gain is required or permitted to be distributed to beneficiaries prior to closure of the estate or trust since the losses can be used to offset gain before distribution.

    j.  The distribution deduction. Estates and trusts are allowed to deduct the amounts of income required to be distributed currently and also other amounts properly paid, credited, or required to be distributed to the extent of the distributable net income for the year. For income tax purposes, an estate of a decedent is treated as a complex trust because normally, the personal representative of an estate has the discretion of whether to distribute current income. Therefore, most distributions of income from a decedent’s estate fall under the category of “other amounts properly paid, credited, or required to be distributed.”

    (1)  For purposes of a distribution deduction under this chapter, an estate or trust shall receive a distribution deduction only for income taxable to Iowa. For example, municipal interest will be included in the distribution deduction because it is taxable to Iowa. U.S. government interest would not be included because it is not taxable to Iowa. IA 1041, Schedule B, is used to calculate the Iowa income distribution deduction.

    (2)  The distribution deduction allowed is limited to the distributable net income of the estate or trust for the taxable year. If amounts in excess of distributable net income are distributed to a beneficiary of a decedent’s estate, the excess does not constitute taxable income to the beneficiary. Income distributed to a beneficiary of an estate or trust retains the same character in the hands of the beneficiary as it had in the estate or trust, with the exception of unused capital loss distributed on closure to a corporation, in which case the loss is treated as a short-term loss, regardless of its character in the estate or trust. In addition, unless the will or trust instrument specifically provides otherwise, a distribution to beneficiaries is considered to be a proportionate distribution of the different kinds of income composing the distributable net income of the estate or trust. The same character and proportionate distribution rule is illustrated by the following example.

EXAMPLE: Decedent A, a resident of Iowa, died February 15, 2024. Under the terms of the will, all the decedent’s property was devised in equal shares to beneficiary B, a resident of Phoenix, Arizona, and beneficiary C, a resident of Cedar Rapids, Iowa. The estate adopted a calendar year as its taxable year. For calendar year 2024, the estate had distributable net income of $50,000, which is composed of:

On December 20, 2024, the estate distributed $12,500 to beneficiary B, and $12,500 to beneficiary C. Beneficiaries B and C have received a distribution for 2024 as follows:

The estate is entitled to a deduction of $25,000 against gross income in 2024 for the distribution to beneficiaries B and C and owes Iowa income tax on the $25,000 income retained in the estate. Since the interest income of the estate is 20 percent of the distributable net income, 20 percent of the distribution to beneficiaries B and C is considered interest income. Likewise, 10 percent of the estate’s distributable net income is dividends and 70 percent farm income. The distribution to B and C consists of a corresponding percentage of dividends and farm income. Beneficiary C, a resident of Iowa, must report the entire distribution of $12,500 on a 2024 Iowa individual income tax return. Beneficiary B, a resident of Arizona, is only required to report the farm income portion of the distribution ($8,750) on a 2024 nonresident individual income tax return because dividends and interest are income from intangible personal property and were not derived from a business, trade, profession or occupation carried on within Iowa by the nonresident. 701—subrule 302.16(5) provides more information.

    700.6(7) The final return—special considerations.

    a.  General rule.

    (1)  In the year of closure, all income received by the estate or trust is considered “other amounts properly paid or credited or required to be distributed” and must be distributed to the beneficiaries according to the terms of the governing instrument. 26 U.S.C. Section 642(h) provides for an exception to the general rule that net operating and capital losses are only available to the taxpayer incurring the loss. Therefore, in the year of closure, any capital loss and net operating loss carryover that remains unused by the estate or trust is passed through the estate or trust and is allowed as a deduction to the beneficiaries succeeding to the property.

    (2)  If the estate or trust in the year of termination has incurred deductions in excess of gross income that do not qualify for treatment as a net operating or capital loss, such as administration expenses, the excess deductions are passed through the estate or trust and are available to the beneficiaries. They are available only for the year the estate or trust terminates and only as an itemized deduction in the case of an individual beneficiary.

    b.  Exception to the general rule. If in the year of termination an Iowa ancillary estate makes the required distribution of its income to the primary estate that is not being terminated, instead of to the beneficiaries of the estate, it is proper in the year of closure to treat the income as if it were accumulated by the Iowa ancillary estate. This exception to the general rule relieves the primary estate from the obligation of filing a second fiduciary return, which it would be required to do except for this special rule.

    700.6(8) Computation of the tax due. The tax due on the taxable income of an estate or trust is computed by using the same tax rate used for computing the individual income tax liability. The provisions of the Iowa Code relating to the maximum net income of an individual before a tax liability is incurred have no application to the tax liability of an estate or trust. The taxable income of a short taxable year is not required to be annualized for the purpose of computing the tax liability. The tax due is to be paid in full within the time prescribed by law, not in installments.

    700.6(9) Credits against the tax.

    a.  The personal exemption credit. The estate of a decedent and a trust, whether simple or complex, is allowed the same $40 credit against the tax as allowed for individual taxpayers. The personal exemption credit is not prorated for short taxable years.

    b.  Credit for tax paid to another state or foreign country. Iowa Code section 422.8 grants Iowa situs trusts and estates of Iowa resident decedents, which have income derived from sources in another state or foreign country, a credit against the Iowa tax for the income tax paid to the state or foreign country where the income was derived. The credit is computed in the same manner as a full-year resident under rules 701—304.6(422) and 701—304.7(422). Foreign situs trusts and estates of foreign decedents are not allowed a credit against the Iowa tax for the income tax paid another state or foreign country on Iowa source income. Rule 701—304.6(422) as applied to an Iowa situs trust or estate is illustrated by the following example.

EXAMPLE: Decedent A died a resident of Webster City, Iowa, on February 15. Decedent A at the time of death owned income-producing property in both Iowa and Missouri. For the short taxable year ending December 31, A’s estate had the following income and expenses:

A’s estate paid $413 of income tax to the state of Missouri on the $10,000 Missouri farm income. This is A’s tentative credit.

The maximum credit on the foreign source income is $604.20, computed as follows:

*$1,311 is the Iowa computed tax less the $40 personal credit.

The allowable out-of-state tax credit is $299.06 because the $413 of income tax paid to Missouri (tentative credit) is more than the maximum credit of $299.06. If the Missouri tax paid had been less than the maximum credit, the allowable credit would have been the amount of income tax paid to the state of Missouri.

    c.  Motor vehicle fuel tax credit.

    (1)  An estate or trust incurring Iowa motor vehicle fuel tax expense attributable to nonhighway uses may, in lieu of obtaining an Iowa motor vehicle fuel refund, claim as a credit against its Iowa income tax liability the Iowa motor vehicle fuel taxes paid during the taxable year.

    (2)  A copy of the Iowa motor vehicle fuel tax credit form IA 4136 must be submitted with the fiduciary return of income to substantiate the claim for credit. Any credit in excess of the income tax due shall be refunded to the estate or trust, subject to the right of offset against other state taxes owing.

    d.  Nonresident/part-year resident credit. The nonresident/part-year resident credit is available for part-year trusts described in subrule 700.3(3) and trusts whose situs is outside Iowa. Rule 701—304.5(422) provides more information on the computation of the nonresident/part-year resident credit allowed for individuals who are either part-year residents of Iowa or nonresidents of Iowa.

    e.  Other tax credits. All other tax credits set forth in Iowa Code chapter 422, division II, are also available for any estate or trust that meets the criteria for claiming these tax credits. Estates and trusts with a situs in Iowa that are shareholders in S corporations that carry on business within and without Iowa may use the apportionment provisions for S corporation income set forth in 701—Chapter 403. The criteria to determine whether an S corporation is carrying on business within and without Iowa is set forth in 701—subrule 503.1(4).

This rule is intended to implement Iowa Code sections 422.3 through 422.12, 422.14, 422.23, and 633.471 and chapter 452A.

701—700.7(422) Audits, assessments and refunds. Rules 701—305.1(422) through 701—305.3(422) governing the audit of individual income tax returns, the assessment for tax or additional tax due, and the refund of excessive tax paid also govern the audit of the fiduciary income tax return and the assessment and refund of fiduciary income tax.

This rule is intended to implement Iowa Code sections 422.16, 422.25, 422.30, 422.70, and 422.73.

701—700.8(422) The income tax certificate of acquittance.

    700.8(1) In general. Iowa Code section 422.27 requires the income tax obligation of an estate or trust to be paid prior to approval of the final report by the court. Iowa Code section 422.27 refers only to the report of the executor, administrator or trustee. In addition, the statute makes reference only to a trustee’s final report that is approved by a court. A trust that does not report to and is not subject to the supervision of a court will not be issued a certificate of acquittance. However, the statute’s reference to a trustee who must report to the court would also include but not be limited to a referee in partition and the trustee of the estate of an individual bankrupt under Chapter 7 or 11 of Title 11 of the United States Code. What constitutes a trust is a matter of the trust law of the state of situs.

    700.8(2) The application for certificate of acquittance. The final fiduciary return of income serves as an application for an income tax certificate of acquittance. For a certificate of acquittance to be received, the appropriate box on the final fiduciary return must be checked to request the certificate.

    700.8(3) Requirements for a certificate of acquittance. The issuance of an income tax certificate of acquittance is dependent upon full payment of the income tax liability of the estate or trust for the period of administration. This includes the obligation to pay composite return tax on distributions of nonresident beneficiaries’ Iowa-source income from the estate or trust. In the case of an estate, the income tax liability of the decedent both for prior years and the year of death must be paid to the extent of the probate property subject to the jurisdiction of the court. The probate property must be applied to the payment of the decedent’s income tax liability according to the order of payment of an estate’s debts and charges specified in Iowa Code section 633.425. If the probate property of the estate is insufficient to pay the decedent’s income tax obligation in full, the department, in lieu of a certificate of acquittance, shall issue a certificate stating that the probate property is insufficient to pay the decedent’s income tax liability and that the department does not object to the closure of the estate. In the event the decedent’s income tax obligation is not paid in full, the closure of the decedent’s estate does not release any other person who is liable to pay the decedent’s income tax obligation.

    700.8(4) The extent of the certificate. An income tax certificate of acquittance is a statement from the department certifying that all income taxes due from the estate or trust have been paid in full to the extent of the income and deductions reported to the department. The certificate fulfills the statutory requirements of Iowa Code section 422.27 and the Iowa income tax portion of the requirements of Iowa Code sections 633.477 and 633.479. Providing all other closure requirements are met, the certificate permits the closure of the estate or trust by the court. However, the certificate of acquittance is not a release of liability for any income tax or additional tax that may become due, such as the result of an audit by the Internal Revenue Service or because of additional income not reported. 701—subrule 300.2(1) provides more information on limitations on the period of time to conduct income tax audits.

    700.8(5) Appeals to the director. A denial of a request for an income tax certificate of acquittance may be appealed. An appeal to the director must be in writing and must be made within 60 days of the denial. 701—Chapter 7 provides more information and governs these appeals to the director.

This rule is intended to implement Iowa Code chapter 17A and sections 421.60, 422.27, 422.28, 633.425, 633.477, and 633.479.