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  • Writer's pictureRandall Fisher

Gifting is not as simple as it might seem.

The Wall Street Journal has written about a new IRS effort to scrutinize gifts of real estate as a move to reduce estate taxes.

The focus of the scrutiny is that the IRS has decided to use state land-transfer records for evidence of omissions in reporting gifts of real estate to family members.

New tax rules have made big gifts to family members popular this year, as Congress raised the limit on how much a person can give in a lifetime to $5 million without having to pay gift tax. Still, any time a gift to one person exceeds $13,000, the giver is supposed to let the agency know in a filing.

The Wall Street Journal figured out what the IRS was up to by examining details of the IRS effort. That effort was exposed in a request to a federal judge in California for a John Doe summons for data that the agency wanted to serve on that state’s State Board of Equalization, a taxing body. The Journal reported that the IRS said it needed the summons because the state’s Proposition 58 and Proposition 193 complicate the data the IRS maintains about real-estate transfers. This week, the judge said the IRS couldn’t serve the summons because it hadn’t shown it couldn’t get the data otherwise.

A court document with the IRS filing described efforts by Josephine Bonaffini, the coordinator of an IRS state and federal gift-and-estate tax program, to find people who haven’t filed Form 709 to report U.S. gift and generation-skipping transfer taxes to the IRS.

The document, dated Dec. 21, said 323 taxpayers in the previous two years had been examined for failing to report possible gifts. Another 217 were being examined and 250 more were being considered for review.

States that have handed over information on gift-like transactions are Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington and Wisconsin, according to the document.

The key learning in the article is the reinforcement that taxpayers need to be aware that there is no special exception to the rules when making a transfer to a family member. If the property is valued at more than $13,000, a gift-tax return must be filed. Even if the transfer falls within a lifetime exemption amount—currently $5 million—it must be reported.

To read the entire article, check out the link below:

If you have any questions about a gift, feel free to give our office a call. Otherwise, good luck, good hunting and have a great Memorial Day weekend.

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