Estate Planning Newsletter – February 2016

GIFT TAX RETURNS REQUIRE ADEQUATE DISCLOSURES OF THE GIFTS OR THE THREE YEAR STATUTE OF LIMITATIONS FOR THE IRS TO AUDIT THE RETURN NEVER BEGINS

Recently, the IRS issued a Legal Advice regarding the requirements for adequate disclosure on a Gift Tax Return.  For individuals in 2015 who made gifts in excess of $14,000.00 per person per year, a Federal Gift Tax Return is required to be filed not later than April 15, 2016.  Even though no gift tax may be owed by reason of the use of the exemption from gift and estate tax, the Gift Tax Return (Form 709) still is required to be filed.  In the Legal Advice issued by field attorneys for the IRS, the facts were that a taxpayer failed to disclose gifts of two partnership interests to his daughters in a manner adequate to apprise the IRS of the nature and the amount of the gifts.  Under IRC §6501, the IRS must access the amount of any Gift Tax within three (3) years after Form 709 is filed.  However, that same Code Section establishes an exception for the IRS that the statute of limitations lasts indefinitely if a gift of property, the value of which is required to be shown on the Gift Tax Return, is not adequately disclosed on the Gift Tax Return.

The Legal Advice described the requirements for what represents adequate disclosure to the IRS for a Gift Tax Return:

1.  A description of the transferred property by the transferor.

2.  The identity of and relationship between the transferor and the transferee.

3.  If the property is transferred in trust, the trust tax identification number and a description of the terms of the trust      (or in lieu of the description, a copy of the trust).

4.  A detailed description of the method used to determine the fair market value of the property transferred, including any financial data that were utilized in determining the value of the interest, any restrictions on the transferred property that were considered in determining the fair market value, and a description of any discounts taken.

5.  A statement describing any position taken that is contrary to any Treasury Regulations or Revenue Rulings.

Yours very truly,

RAINEY, KIZER, REVIERE & BELL, P.L.C.

William C. Bell, Jr., Attorney at Law