What is Form 709?
One of the greatest feelings in the world is to give another person a gift. But the giver (“donor”) needs to be aware that giving a gift may trigger tax-reporting requirements. In certain situations, the IRS requires a donor to report a gift and file a gift tax return. The donor, not the recipient (“donee”), is generally liable for any resulting gift taxes associated with the gift.
What is a Gift Tax?
Whenever an individual gives someone else property without receiving anything else in return or something of much lesser value, this is considered a gift, and a gift tax will be placed. Regardless of if the donor intended the transfer to be a gift or not, the tax will still be applied as long as the transfer occurred. You give a gift if you give property (including money) or the use of or income off of the said property without expecting or receiving anything of lesser value in exchange.
In the simplest of terms, a gift is any transfer from one individual to another, whether direct or indirect, where the donor does not receive full consideration in return for the gift they gave.
Filing Form 709
Generally, when a gift over $15,000 is made to one person, the donor is required to file a Form 709, United States Gift (and Generation-Skipping Tax) Tax Return. For 2018, the IRS increased the gift tax exclusion to $15,000.
In determining the now-$15,000 thresholds, the IRS looks to the total gifts made over the course of the year. A donor cannot avoid the reporting requirements by making several gifts to a person of less than $15,000 when the total gift amounts aggregate to over $15,000 in a tax year. If the taxpayer is married, however, the exclusion doubles because each spouse can gift a person $15,000. Importantly, the IRS allows a single taxpayer to exclude up to $11,180,000 ($22,360,000 for married couples) of total gifts during their lifetime. Most people do not exceed this exclusion, so few taxpayers will ever actually pay a gift tax.
About IRC § 2503
Certain exceptions apply in determining a donor’s gift tax liability. IRC § 2503. The following qualified transfers are not taxable as gifts under IRC § 2503(e) and, thus, are not required to be reported. First, a donor is not required to report the payment of tuition or educational expenses made directly to an educational organization. IRC § 2503(e)(2)(A). Additionally, a payment made to a person providing medical care to another person is not taxable. IRC § 2503(e)(2)(B). If a person waives their right to receive pension payments to another person, the transfer is not a gift for tax purposes. IRC § 2503(f). If a person plans to make a transfer that may be a qualified transfer, the person should make sure they are following the particular steps to qualify for the exceptions. Otherwise, the taxpayer may be liable for a gift tax and be required to file a gift tax return.
When a taxpayer decides to give a gift to another, they should be aware of the potential reporting requirements. Annual gifts under $15,000 (or $30,000 if married) to a single person do not require the donor to file a gift tax return. Taxpayers should also consider the qualified transfer provisions and be aware of the potential tax implications when a gift is made.
Representation in Tax Audits & Appeals
Need assistance in managing the audit process? Freeman Law’s team of attorneys and dual-credentialed attorney-CPAs regularly represents taxpayers before the IRS and Texas Comptroller. Our team also provides tax return-related representations and helps taxpayers navigate state tax laws. Our Firm offers value-driven services and provides practical solutions to complex issues. Schedule a consultation or call (214) 984-3000 to discuss our tax representation services.