Legal Question in Tax Law in California
Gift tax return
When transferring a property from A to A and B as joint tenants, where B is unrelated to A and pays no value, this is presumably a gift of 50% of the fair mkt value of said real estate. Thus, after deducting the $11K annual exemption, a gift tax return must be filed - no tax due, due to the amount of the gift. However, is filing such an informational return stnd practice? Others I know have done this and never tipped the IRS off that they were using part of their lifetime gift/estate tax exemption. What are the consequences / perils to them of failure to timely file such an informational gift tax return where no gift tax is actually presently due?
1 Answer from Attorneys
Re: Gift tax return
the primary practical issues are that an audit of the federal estate tax return filed on death could reveal the failure to file the gift tax return, which could reduce the exclusion available at death (which the estate beneficiaries expected would apply) and result in higher estate tax (and penalties and interest). this could also lead to a more intensive detailed audit of the federal estate tax return.
in addition, the statute of limitations does not begin to run until the gift tax return is filed. if there is any issue regarding the correct fair market value of the property (and with real estate there often is), the irs will be able to challenge the valuation/appraisal at any time the issue might arise in the future. this could result in more of the exclusion being used at the time of the gift and another suprise for the beneficiaries of the estate regarding the amount of the exclusion available at death.
finally, gift-splitting (use of the annual or lifetime exclusion by both a husband and wife for a gift by one of them) is not available unless a gift tax return is filed.
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