As an estate planning attorney in Orange County, California I realize that most of us are aware that we can give away every year an annual gift tax exemption. What this means is that we can transfer every year a sum of money or its equivalent (exemption amount) to as many beneficiaries as we desire and file no gift tax return and owe no gift taxes. In 2013, because of an inflation adjustment the gift tax exemption increased from $13,000 which it had been in 2012 to the new limit of $14,000. For married couples that means that they can transfer to each beneficiary each year $28,000 without filing a gift tax return or owing any gift taxes.
What happens if you transfer more than the annual gift tax exemption?
The good news is that most people transfer less than the lifetime gift tax exclusion (in 2014 the exclusion is $5,250,000 and $10,500,000 for a married couple) and therefore no taxes are owed on the gift. Now for the bad news! While no taxes are generally owed because the amount transferred is less than the accumulative lifetime gift tax exclusion, you must file a 709 Gift Tax return. The IRS wants to keep track of your gifts in excess of the annual gift tax exemption so that they can properly tax you during your lifetime for gifts (does not apply to most people because they never transfer more that $5,250,000) or at your death for estate taxes.
Unfortunately, most people are unaware that they must file a 709 Gift Tax return even if there is no taxes owed.
If you are required to file a tax return and you fail to file it, then the law provides that there is no statute of limitations. You need to file a gift tax return when one is owed!
The Chairman of the Board of Viacom, Inc. and CBS is finding out the hard way about no statute of limitions. The IRS is currently seeking penalties and interest from Sumner Redstone for a transfer that occured in 1972 over 42 years ago. Billionaire Redstone is claiming that the transfer was not a gift but a settlement to a court proceeding. The real point is that no one keeps records going back 42 years but the IRS is seeking interest and penalties. When in doubt, file your gift tax returns.For more info contact us now.