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Next IRS target – generous relatives

Wednesday, March 30th, 2011

Generous relatives may be the next targets of IRS hunting expeditions. The IRS has asked a federal judge for a “John Doe” summons on the California Board of Equalization to force the board to turn over records of property transfers for little or no consideration. They are looking for people who have not paid gift tax on transfers of property to relatives between 2005 and 2010.

The Tax Code allows the transfer of up to $13,000 annually from one family member to another. Husband and wife can combine to give up to $26,000 a year. For each gift larger than that, the giver must file  a Form 709 gift tax return. The giver, not the recipient, is liable for gift tax. Each taxpayer enjoys a lifetime gift tax exemption of a million dollars, making gifts up to that amount free of federal tax. But cumulative gifts over a lifetime must be accounted for in the estate tax calculation of the giver. If gift tax is owed but not paid by the giver, then the liability shifts to the recipient.

Property tax records and registered deeds are public records available for viewing by anyone. The IRS has been quietly gathering compliance information for some time, assisted by many states and counties who have voluntarily disclosed their property transfer data. The summons in California is one of the boldest attempts yet in the IRS effort to ferret out non-compliant taxpayers. Over the years, gift tax audits have been few and far between, but that could change as the IRS begins matching property transfer records with taxpayers.

If you are worried about the implications this may have for your family, please contact us. We can shed light on your situation and help keep the IRS gift tax target off of you.

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