Don’t Overlook Filing Gift Tax Returns for Your Estate Planning

You might need to file a gift tax return for your Estate Planning, even when no taxes are due. It might seem like a technicality, but the IRS penalizes people for not filing returns even when no tax was due. It’s been searching public records in some states, such as real estate title records, and comparing those with gift tax returns.

If the IRS doesn’t catch the estate planning failure to file during your lifetime, it can impose the penalty on your estate. And the penalty and interest will accrue from the date the gift tax return should have been filed.

In a recent opinion from the IRS Chief Counsel (IRM 201249015), the taxpayer made a gift and didn’t file a return. The gift would have been tax-free, because of the lifetime estate and gift tax credit. He made a gift the following year and filed a return, using all of the lifetime credit. The first gift was discovered after the owner passed away and the estate tax return was being prepared. The IRS assessed tax plus interest on the first gift, with interest dating from when the return should have been filed.

Don’t assume that no gift tax return is due because a gift isn’t taxable. Consult an estate planner or go to the IRS web site at www.irs.gov and take a look at Form 709 and its instructions to see if you need to file a return.

RW February 2013.