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Gift Tax Returns

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In a recent Legal Advice Issued by IRS Field attorneys, the period of limitations on assessing gift tax remained open for the years the donor failed to file any Forms 709, United States Gift (and Generation-Skipping Transfer) Tax Return. IRS also found that, for another year, the period of limitations remained open because the Form 709 that was filed neither described the transferred property nor provided a description of the method used to determine its value.

If the gift of property is not adequately disclosed on a gift tax return, or in a statement attached to the return, filed for the calendar period in which the transfer occurs, then any gift tax on the transfer may be assessed, or a proceeding in court for the collection of the appropriate tax, may begin without assessment at any time.

A gift is not adequately disclosed unless it is “reported in a manner adequate to apprise [IRS] of the nature of the gift and the basis for the value so reported.” To adequately disclose a gift on a gift tax return, the following information must be provided: 

  1. A description of the transferred property and any consideration received by the transferor;
  2. The identity of, and relationship between, the transferor and each transferee;
  3. If the property is transferred in trust, the trust’s tax identification number and a brief description of the terms of the trust, or in lieu of a brief description of the trust terms, a copy of the complete trust instrument;
  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 of the property and a description of any discounts, such as discounts for blockage, minority or fractional interests and lack of marketability, claimed in valuing the property. Alternately, a donor can provide an appraisal in lieu of this information; and
  5. A statement describing any position taken that is contrary to any proposed, temporary or final Treasury regulations or revenue rulings published at the time of the transfer.

If you have any questions, contact your Somerset advisor at 317-472-2200 or info@somersetcpas.com.