Filed: April 7, 2011

IN THE SUPREME COURT OF THE STATE OF OREGON

REBECCA GWEN FORCE,
Personal Representative of the
Estate of William R. Pierson, Deceased,

Plaintiff-Appellant,

v.

DEPARTMENT OF REVENUE,
State of Oregon,

Defendant-Respondent.

(TC 4886; SC S058252)

En Banc

On appeal from the Oregon Tax Court.

Henry C. Breithaupt, Judge.

Argued and submitted March 7, 2011.

David C. Force, argued the cause and submitted the briefs for appellant.

Douglas Adair, Senior Assistant Attorney General, Salem, argued the cause for respondent. With him on the brief was John R. Kroger, Attorney General.

LANDAU, J.

The judgment of the Tax Court is affirmed.

LANDAU, J.

At issue in this case is the inheritance tax liability of the estate of decedent, based on the value of a farm that he owned at the time of his death. Plaintiff, the personal representative of the estate, concluded that the estate owes no state inheritance tax. The Department of Revenue (department) disagreed, concluding that the estate owes $26,767, plus penalties and interest, and issued a notice of deficiency in that amount. Plaintiff then initiated this action in the Oregon Tax Court challenging the deficiency notice. The parties filed cross-motions for summary judgment based on the undisputed facts. The Tax Court granted the department's motion, denied plaintiff's, and entered judgment in favor of the department. Plaintiff appeals, seeking reversal of the judgment and a determination that the estate owes no Oregon inheritance tax. We affirm the decision of the Tax Court.

BACKGROUND

A. The Regulatory Context

To provide context for the parties' dispute, we begin with a brief summary of the applicable federal and state tax laws, before turning to the facts of this case and the Tax Court's decision.

For many years, the amount of Oregon inheritance tax that an estate was obligated to pay was determined by reference to federal estate tax law, as provided in the Internal Revenue Code (IRC) and its implementing regulations. In brief, the federal estate tax was determined by a three-step process.

First, the value of a taxable estate had to be established. IRC