Inheritance tax problem

State: PENNSYLVANIA

My girlfriend's grandfather passed away sever years ago, leaving her his house. She did not pay the tax right away, and when she had her tax preparer prepare the inheritance tax form, she was slapped with a hefty penalty and interest. The tax service prepared the form, told her to sign it, write the check, and mail it in the already-prepared envelope.

Now, close to a year later, she gets a letter from the PA Dept of Revenue telling her that because she is listed as a "great-niece", the tax rate is 15% instead of the 12% that she paid already. Upon looking back on the original document that she signed and mailed in, yes, she is listed as a great-niece. So therefore the new form shows how much more money she owes, and the interest and penalties are more than SIX TIMES the actual difference between the 12% and 15%.

Here are the questions we are faced with:

Is there some reason that the tax preparer would have identified her as a "great-niece" instead of a "granddaughter"? Maybe he thought he would be saving her money by some legal loophole, or was this just a mistake?
If a great-niece is taxed at 15%, would a granddaughter be more or less?
If this can be corrected, does she have a right to force the accountant to fix it free of charge, or is she to blame because she signed it?

I'm afraid that if we contact the PA Department of revenue, knowing that they are going to say, "Well you need to contact your accountant," we might then call the accountant who tells us there was a reason he did that, and we actually wind up paying even MORE! Please help, because we are having a fit here. Thanks much!

Is there some reason that the tax preparer would have identified her as a "great-niece" instead of a "granddaughter"? Maybe he thought he would be saving her money by some legal loophole, or was this just a mistake?

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None that I can think of. Mistake is most likely.

If a great-niece is taxed at 15%, would a granddaughter be more or less?

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Oh, just a tad less. If the date of death was on or after 7/1/2000, the rate for lineal descendants is 4.5%. For deaths from 1/1/1995 to 7/1/2000, it was 6%.

I don't see any reason not to contact the PA Dept of Revenue first. Here's what the Department's FAQ says:

If the estate has received the Department's notice of assessment, then the estate should submit a letter within 60 days of the notice outlining the errors and requesting that the Department review the record for possible administrative correction. Errors which can be corrected include obvious clerical or calculation mistakes - e.g., addition or multiplication errors, transposition of figures, etc.

If the error cannot be corrected administratively, the letter will be forwarded to the Board of Appeals as a "protest" of the assessment notice.

If the 60-day appeal period has passed and the "error" is not within the guidelines for an administrative correction, the estate will have to file a petition for refund -- providing the estate is paid in full -- with the Board.

If the return was only recently filed and the notice of assessment has not been issued - the estate should contact the Department by phone (717-787-8327) or in writing to request that we correct the information prior to the issuance of our notice. The mailing address is:
PA Department of Revenue
Bureau of Individual Taxes
Inheritance Tax Division
PO Box 280601
Harrisburg, PA 17128-0601

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"Oh, just a tad less. If the date of death was on or after 7/1/2000, the rate for lineal descendants is 4.5%. For deaths from 1/1/1995 to 7/1/2000, it was 6%."

Well that's a big deal! The accountant prepared the tax at a rate of 12%! Since the death was after 2000, she's due a refund of 7.5%, plus all the interest and penalties!?!?! Is that what we're saying here?

Critical Mass said:

"Oh, just a tad less. If the date of death was on or after 7/1/2000, the rate for lineal descendants is 4.5%. For deaths from 1/1/1995 to 7/1/2000, it was 6%."

Well that's a big deal! The accountant prepared the tax at a rate of 12%! Since the death was after 2000, she's due a refund of 7.5%, plus all the interest and penalties!?!?! Is that what we're saying here?

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I just changed my mind. This goes beyond a simple mistake. The accountant is incompetent. Not only did he/she get the relationship wrong, but he/she used the wrong rate. The 12% rate applies to assets inherited by siblings. If the accountant truly believed your girlfriend was a grand niece, the rate used should have been 15%. (And I apologize for not picking up on that "...12% that she paid already" in your original post.)

It's her choice, but I think that I would still try the PA Department of Revenue first to see if she can handle the correction herself. Or consulting with another competent accountant. But, even if that works, I would contact the accountant to ask "What in blazes were you doing? I want my fee back!" I certainly would not trust the original accountant to fix it.

anteater said:

I just changed my mind. This goes beyond a simple mistake. The accountant is incompetent. Not only did he/she get the relationship wrong, but he/she used the wrong rate. The 12% rate applies to assets inherited by siblings. If the accountant truly believed your girlfriend was a grand niece, the rate used should have been 15%.

It's her choice, but I think that I would still try the PA Department of Revenue first to see if she can handle the correction herself. Or consulting with another competent accountant. But, even if that works, I would contact the accountant to ask "What in blazes were you doing? I want my fee back!" I certainly would not trust the original accountant to fix it.

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I agree that she should not trust the original account to fix it. However, the PA Department of Revenue may not make this easy to resolve if she tries to do it herself. I would strongly recommend that she use another, truly competent, professional.

Thank you SO much for your help. Yes, I'm in full agreement with you about the accountant firm.

She called the PA DoR and got someone very nice on the phone who is in agreement with you. We typed up a letter and he is going to work on it for her.

Again, thanks a lot. You not only saved her (us) some money, you helped get back even more.