Taxation & Estate Planning

So you gave some property to a relative and didn?t file a gift tax return. The IRS is coming.

By michael

This comes to us from Forbes.com today…

As part of a new national hunt for gift tax evaders, the Internal Revenue Service has asked a federal court for permission to order a California state tax agency to hand over its computer database of everyone who transferred real estate to relatives for little or no consideration from 2005 to 2010.

If granted, the sweeping request could expose many Californians?especially those who didn?t file federal gift tax returns?to audits as well as penalties or even substantial back taxes.

The little-known lawsuit, called ?In the Matter of the Tax Liabilities of John Does,? was filed in December on behalf of the IRS in federal court in Sacramento, the state capital. That?s the home of the California Board of Equalization, which oversees property tax issues across the state. No action has been taken yet on the request.

From Professor Berry:

The IRS nearly admits that it is going on a fishing trip for John Does. However, it considers it to be in well-stocked waters as evidenced by the widespread noncompliance in 15 other states that have already been targeted. Gift tax returns were filed 0% of the time in Ohio and 10% of the time in Virginia and Florida. Other states that gave up this data include: Connecticut, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin.

It may not amount to much in the way of dollars to the government giving the rise in the federal estate tax exemption during the targeted years and because of the way the estate and gift taxes are linked but audits are terrible.  So, if you want to transfer some property, contact a qualified estate planning attorney in your area to advise you on the gift tax consequences of doing so and on the propriety of doing so generally.

Full post as published by The Ohio Trust & Estate Blog on March 26, 2011 (boomark / email).