In recent years, have you made a gift of real estate to your children or
grandchildren or, for that matter, anyone? If you have, you need to read
The Law. Transfer of real estate (or anything of value) from one person (donor)
to another (donee) for less than fair market value is considered a gift
for gift tax purposes. This is considered a separate tax system from our
income tax system. Any gift in excess of $13,000 per year (per donee)
must be reported to the IRS on a gift tax return (Form 709). From 2001
until 2011, the lifetime gift tax exemption was $1 million. Beginning
in 2012, every individual has a lifetime gift tax exemption of $5 million.
So, gifts of less the $5 million will be tax-free! (The value of the gift
is based on the
date of the gift not
the date the return is filed).
The IRS Program. The Internal Revenue Service (IRS) has discovered that many gifts of real
estate have gone unreported to the IRS. This is potentially a loss of
significant revenue for the IRS. As a result, the IRS has initiated a
project where they are reviewing real estate transactions in large metropolitan
areas against gift tax returns filed. This can be an innocent trap for
an unknowing family. Unfortunately, the IRS will not reduce taxes, penalties
and interest for taxpayers who claim ignorance of (an admittedly little
known and less understood) law. Further, and most importantly, if the
taxpayer files the back returns before the IRS catches up to them, serious
penalties and problems can be avoided (though not necessarily entirely).
This is not a time or place to bury one’s head in the sand or play
the audit lottery!
If you made a gift of real estate at any time in the past (or an interest
in a land trust or any significant gift of any type of property at all)
and the gift was not reported to the IRS on Form 709, you need to consult
with a knowledgable estate and gift tax attorney to ascertain: whether
or not you have to file, what if anything you have to do, and what, if
any, are the potential consequences. There is no statute of limitations. Failure to file a gift tax return could
affect your heirs significantly upon your death. As a result, this is
a subject that requires immediate attention.
A gift tax return can be filed at any time. There may or, in many cases,
may not be tax due. The IRS has three years to audit the return once appropriately
filed. Otherwise, if it is filed in accordance with various IRS rulings
concerning appropriate valuation, appraisal and disclosure, the values
on the return are deemed accepted by the IRS. Thus, the return needs to
be filed by an experienced estate and gift tax attorney.
If you have made a gift – particularly of a real estate interest
– and have not reported it to the IRS, pick up the phone and get
advice about what to do – now.