By ARDEN DALE
Beth Shapiro Kaufman, a partner in the private-client group at law firm Caplin & Drysdale in Washington, D.C., said many tax advisers may not be aware of the IRS effort. She added that as the agency gets records from more states, “we can expect additional examinations.”
New tax rules have made big gifts to family members popular this year, as Congress raised the limit on how much a person can give in a lifetime to $5 million without having to pay gift tax. Still, any time a gift to one person exceeds $13,000, the giver is supposed to let the agency know in a filing.
Details of the IRS effort were revealed in a request to a federal judge in California for a John Doe summons for data that the agency wanted to serve on that state’s State Board of Equalization, a taxing body. The IRS said it needed the summons because the state’s Proposition 58 and Proposition 193 complicate the data the IRS maintains about real-estate transfers. This week, the judge said the IRS couldn’t serve the summons because it hadn’t shown it couldn’t get the data otherwise.
The IRS declined to comment.
A court document with the IRS filing described efforts by Josephine Bonaffini, the coordinator of an IRS state and federal gift-and-estate tax program, to find people who haven’t filed Form 709 to report U.S. gift and generation-skipping transfer taxes to the IRS.
The document, dated Dec. 21, said 323 taxpayers in the previous two years had been examined for failing to report possible gifts. Another 217 were being examined and 250 more were being considered for review. So far, Ms. Bonaffini said in the document, 97 had failed to report gifts on Form 709. Twelve cases resulted in taxes or penalties because a gift put the donor over the $1 million lifetime gift credit that applied at the time.
States that have handed over information on gift-like transactions are Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington and Wisconsin, according to the document. Ms. Bonaffini examined a sampling of data from these states and it showed “an extremely high failure-to-report rate,” the document said.
A chart in the document indicated noncompliance rates of 60% in Connecticut, 90% in Florida, 60% Nebraska, 100% in Ohio, 90% in Virginia, 80% in Washington, and 50% in Wisconsin.
Ms. Kaufman said taxpayers need to be aware that there is no special exception to the rules when making a transfer to a family member. If the property is valued at more than $13,000, a gift-tax return must be filed. Even if the transfer falls within a lifetime exemption amount—currently $5 million—it must be reported.