USA January 24 2013
Many of our clients made gifts during 2012 to utilize the $5,120,000 lifetime exemption from gift tax that was scheduled to be reduced to $1 million after December 31, 2012. If you made gifts in excess of $13,000 per donee, you are required to file a gift tax return on Form 709 even if no gift tax is due because the gifts were within the available exemptions. Gift tax returns are due April 15, 2013, although the filing date (but not the payment of gift tax if due) may be extended up to October 15, 2013. You can obtain an extension of time to file your gift tax return by filing Form 8892 on or before April 15, 2013. You can also obtain an automatic extension of time to file your gift tax return if you obtain an extension of time to file your 2012 federal income tax return, by filing form 4868 on or before April 15, 2013.
If you made gifts of property other than money and marketable securities, you must have the property appraised and include a copy of the appraisal when filing the gift tax return. If you don’t attach the appraisal to the gift tax return, your likelihood of audit increases because the Internal Revenue Service has no way of knowing on what basis the value was reported. If you attach an appraisal, the person reviewing the gift tax return on behalf of the IRS may conclude that the reported value is reasonable based on the appraisal and not audit the return. In any event, the burden is on you, the taxpayer, to prove the value, so whether you attach the appraisal or not, you should have an appraisal to back up the reported value. The appraisal should be a “qualified appraisal,” an appraisal prepared by an independent person who is in the business of appraising assets. Other technical requirements exist for a qualified appraisal, but any reputable appraiser
should know the rules for preparing an appraisal that qualifies for submission to the IRS. We suggest that you check with your accountant well before April 15, 2013, so that he or she can tell you what documents must be obtained in order to file a complete gift tax return.
In order for a gift tax return to begin the running of the statute of limitations, you must adequately disclose the gift on Form 709 (or an attached statement) filed for the year of the gift. In general, a gift will be considered adequately disclosed if the return or statement includes the following: i) a full and complete Form 709; ii) a description of the transferred property and any consideration received by the donor; iii) the identity of, and relationship between, the donor and donee; iv) if the property was transferred to a trust, the trust’s employer identification number (EIN) and a brief description of the terms of the trust (or a copy of the trust instrument in lieu of the description); and v) either a qualified appraisal or a detailed description of the method used to determine the fair market value of the property that was the subject of the gift. In most cases, an appraisal will be preferable.
If you made the transfer to a multigenerational trust, your gift tax return must also allocate a generation-skipping transfer tax exemption so that distributions from the trust in the future are not subject to this separate transfer tax.
You may need to complete other follow-up tasks for some kinds of gift transfers. For example, if you transferred any kind of insured property, such as real property or works of art, you should contact the insurance company to take the required steps to ensure that the new owner of the property will be covered by the insurance, including obtaining an appropriate endorsement for any title insurance policies for real property so there is no lapse in coverage.