An important element of gift tax planning where valuation of the donor’s transferred property may be at question is to file a properly completed Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, so that the Statute of Limitations (generally, three years), can begin to run. Once outside that time frame, the Service has no authority to examine the return and propose any adjustments. Thus, the filing of the return is paramount to limiting exposure on transferred property via a gift.
Now the Internal Revenue Service has released information that should serve as a warning to all taxpayers of the propriety of filing the Form 709 completely, and correctly to start the Statute period to run.
The taxpayer in this Field Attorney Advice (FAA) 20152201F reported gifts of cash and interests in two partnerships consisting primarily of farmland, the value of which had been appraised by a certified appraiser. Although the donor timely filed Form 709, he provided incorrect names for both partnerships and omitted one number in the EIN for one of the partnerships. Also, the methodology used to value the gift was inadequately described.
As noted above, the Internal Revenue Service normally has three years after a gift tax return (Form 709) is filed to assess gift tax. However, if the gift is not “adequately disclosed,” the statute remains open indefinitely under Section 6501(c)(9) of the Internal Revenue Code.
According to the Internal Revenue Service Office of Chief Counsel, even though the taxpayer in the case referenced in the FAA disclosed these gifts on a timely filed Form 709, he failed to adequately disclose them. Therefore, the Service can assess gift tax based on these transfers at any time.
This FAA demonstrates the need for quality valuations and proper and “adequate” disclosure in Filing Forms 709 so that the Statute of Limitations can begin with the filing. Otherwise, the returns will be open to Internal Revenue Service scrutiny indefinitely.
Please contact Bob Grossman or Melissa Bizyak at 412-338-9308 with questions.
