why file gift tax returns

Key tips and advice the working tax pro can use.
#1
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Elderly elderly mom never plays Powerball and otherwise her taxable estate is a fraction of the exemption, and has never made a gift that used up any of the lifetime exemption, she has no desire to set up a generation skipping trust.

She wants to donate a piece of real estate that has no debt to her daughter. 800k

Her daughter does not perform any services for mom other than bring her to doctor's appointments.

Other than starting the statue of limitations timer on IRS challenge to the valuation, why should she file a gift tax return?
 

#2
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Bigger question is what is mom's basis? Is it above FMV?
 

#3
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excellent question. it's in SF so if it was purchased at least two years, fmv is greater than cost. In this case 4 x what cost was 12 years ago.

Shoulda asked, but implication was that daughter plans to sell well before elderly mom plans to depart from this earth. Mom would not qualify for Medicaid even if the property were excludable. I'll point that out. Thanks.
 

#4
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I guess the calculus now, if daughter is set on selling before mom passes, is: is it better for (1) mom to sell and gift proceeds to daughter, or (2) gift building to daughter and daughter sells.

But to your original question:

lenraphael wrote:Other than starting the statue of limitations timer on IRS challenge to the valuation, why should she file a gift tax return?


She has to if the building/gift is more than the annual exclusion correct? Seems like a gift tax return here would be required no matter what route she takes, unless she gifts daughter the exact amount of annual exclusion each year.
 

#5
HowardS  
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Elderly elderly mom

If she's that old she should just let her daughter inherit and benefit from the step-up in basis.
Retired, no salvage value.
 

#6
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as usual, the facts aren't what i was first told. seems daughter has been reporting items of income and loss re an interest in the property right from date of original purchase. Daughter taken off title only to make it easier to refi about 10 years ago. So Prop 13 reassessement issue is bigger than any gift tax or even partial gift/sale issue.

So there shouldn't be a step up when mom dies.

in past situations where wealthy relatives were on title to facilitate financing, but "real owners" contributed the down and reported the income/income consistently, the Assessor's Office usually allows the transfer without a prop 13 change. Don't recall but I think without transfer tax also.

BUt even if it weren't that fact pattern, other than possible part sale/gift because of mortgage, I don't see what penalties IRS would impose other if no gst involved and the mother never comes close to lifetime gift exemption.
 

#7
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Do you typically let the likelihood of penalties drive the decision to file otherwise required reporting forms?
~Captcook
 

#8
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not typically, but the cost of compliance for a gift tax return is not minor. If a client asks me what happens if they don't file, I tell them and warn them of what we don't know might happen to them. (btw, client decided they wanted to file a 709)

but gift tax area for 99% of taxpayers is unusual. Not like say an income tax return where the client is 120% sure they were overpaid before the original filing date, positive they had no elections to timely make, no foreign tax reporting forms etc, and too busy to get their tax return data to their tax person till after the extended due date. And then 2 years later the partnership that sent them a k1 with $10 of income on it, gets an audit adjustment creating a 10 Mill income item resulting in massive late filing penalties.

It's not the same, but deciding on compliance based on cost/risk is not that different from telling a client it's not worth amending an income tax return for an immaterial item of income. How many of us have moved items of income discovered a year later, onto the next year if not material? More than a few I"d guess. The fisc was not harmed
 


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