Or. Admin. Code § 150-118-0115

Current through Register Vol. 63, No. 10, October 1, 2024

Section 150-118-0115 - Natural Resource Property Exemption

(1) Definitions. The following definitions apply for purposes of ORS 118.145:

(a) "Domestic partner" means an individual who has entered into a domestic partnership as defined in ORS 106.310. Per the general applicability provision of ORS 106.340, "spouse" as used in these rules includes domestic partner.

(b) "Material participation" means active management as defined by IRC 2032A(e)(12) and associated Treasury Regulations as of December 31, 2010.

(c) "Qualifying family member" means a person within the third degree of relation to the decedent, by blood, marriage, adoption, civil union, or domestic partnership, and includes:

(A) A great-grandparent, grandparent, or parent of the decedent;

(B) The spouse of the decedent;

(C) A great-grandchild, grandchild, or child of the decedent;

(D) An aunt or uncle of the decedent;

(E) A sibling, niece or nephew of the decedent; and

(F) The spouse of any family member described in paragraphs (A) or (C) to (E).

(2) Estates of decedents who die on or after July 1, 2023, may claim the exemption under ORS 118.145 only for natural resource property located in Oregon.

(3) An exemption under ORS 118.145 may be claimed for natural resource property held indirectly by a decedent or qualifying family member through a trust, partnership, LLC, or corporation. The trust, partnership, LLC or, corporation must be owned only by the decedent and any qualifying family members during the five consecutive years immediately preceding the decedent's death and during the five consecutive years beginning with the calendar year that begins immediately following the decedent's death.

(4) Transfer of ownership of natural resource property between qualifying family members does not cause natural resource property to lose its eligibility for exemption under ORS 118.145 if all other requirements of ORS 118.145 and this rule continue to be met.

(5) Material participation.

(a) To qualify under ORS 118.145, the decedent or a qualifying family member of the decedent must materially participate in the management of the business associated with the natural resource property. The duties of material participation may not be delegated to a person who is not a qualifying family member, except when the qualifying family member is an eligible qualified heir as defined by IRC 2032A(c)(7)(C), as in effect on December 31, 2010, in which case the material participation duties may be delegated to a fiduciary of the eligible qualified heir.

(b) The decedent or any qualifying family member must engage in active management in the business for at least 75 percent of the time during the calendar year when decisions described in IRC 2032A(e)(12) are ordinarily made for the farming, forestry, or fishing business.

Example 1: For 50 years, Stubb ran a fishing business, with a homeport at Newport, devoted solely to halibut fishing off the Oregon Coast. This fishing business required active management decisions to be made only during six months of the year. Stubb made all decisions described in IRC 2032A(e)(12). Ahab, Stubb's nephew, took over the fishing business after Stubb's death in January 2025 and made all active management decisions in the relevant six months of the year during each of the five calendar years immediately following the year of Stubb's death. Both Stubb and Ahab materially participated as required by ORS 118.145 and this rule because each made all the active management decisions during the six months of each calendar year that management decisions were required for the fishing business.

Example 2: Fred is a wheat farmer in Eastern Oregon. Fred's business requires active management decisions to be made throughout the calendar year. Fred makes active management decisions an average of five out of every 10 days because the conduct of Fred's wheat farming business requires active management decisions to be made only on those days. Fred meets the requirement to materially participate at least 75 percent of the time because Fred makes all active management decisions that need to be made over at least 75 percent of the calendar year.

(c) Material participation by a decedent and each qualifying family member is evaluated separately for each family member and may not be combined for purposes of determining the percentage under subsection (b) of this section. However, more than one family member may materially participate at any given time.

Example 3: Mary and Elizabeth inherit a large cattle ranch from their father Henry. The cattle ranch requires year-round decision-making. Mary makes all the management decisions for the ranch business for the first six months of the year and Elizabeth makes all the management decisions for the remaining six months of the year. Material participation requirements are not met because neither Mary nor Elizbeth make management decisions for at least 75 percent of the calendar year.

Example 4: Mary and Elizabeth generally share the decision making for the cattle ranch business during the entire calendar year, so they each independently meet the requirements for material participation. One year, Mary decides to go on vacation for six months of the year. The material participation requirements are still met because Elizabeth is making management decisions for at least 75 percent of the year.

(d) Active management decisions that demonstrate material participation include the following: inspecting growing crops, animals, on-going fishing operations, forests, or equipment; reviewing and approving annual crop plans in advance of planting; making a substantial number of the management decisions of the business operation; approving expenditures for other than nominal operating expenses in advance of the time the amounts are expended; deciding what crops to plant or how many cattle to raise; determining what fields to leave fallow; determining what kind of fish to harvest and the equipment needed to harvest the fish; determining where and when to market crops and other business products; determining how to finance business operations; and determining what capital expenditures the trade or business should make.

(6)

(a) A qualifying family member who inherits the natural resource property or who obtains an interest in the property from another qualifying family member must attest, on a form prescribed by the department, that the family member acknowledges and understands the requirements prescribed by ORS 118.145 and this rule to claim the natural resource property exemption.

(b) The qualifying family member must also agree to pay any additional tax owing if the requirements for exemption under ORS 118.145 and this rule are no longer met.

(c) A qualifying family member must file a report each year on a form prescribed by the department reporting whether the exemption requirements under ORS 118.145 and this rule continue to be met during the relevant five-year period.

Or. Admin. Code § 150-118-0115

REV 45-2024, adopt filed 08/28/2024, effective 9/1/2024

Publications: Contact the Oregon Department of Revenue for information about how to obtain a copy of the publication referred to or incorporated by reference in this rule pursuant to ORS 183.360(2) and ORS 183.355(1)(b).

Statutory/Other Authority: ORS 305.100 & 118.145

Statutes/Other Implemented: ORS 118.145