Failure to Report a Taxable Gift Does Not Create A Cascade of Problems in Subsequent Gift Tax Returns

Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Administration & Probate Attorney

The following post I received from my friends at Garden State Trust which I thought you would be interested in. The subject is filing a gift tax return and the consequences of not filing a return. Generally you do not have to file a gift tax return unless you make a taxable gift. That’s really hard to do now with a federal gift tax exemption amount of over $5 million.

But in this case it appears a taxpayer made a substantial taxable gift many years ago, but never filed a gift tax return. The IRS can assess a gift tax at any time, in any subsequent year, because the statute of limitations never begins to run when no gift tax return is filed. In this case the taxpayer learned this lesson the hard way, when he had to pay a gift tax on a transfer made 40 years earlier. Normally, the IRS has only three years in which to challenge a gift tax return. That’s the statute of limitations imposed upon the IRS to challenge any taxable gifts when a gift tax return is filed.

It appears that years later the taxpayer reported a large taxable gift. In calculating the amount of gift tax due, he omitted the prior year’s transfer, and therefor, paid less gift tax than he should have. Is that a substantial omission, which would double the limitations period to six years? It is not, the IRS ruled recently. The substantial omission must be with respect to transfers made for the period covered by the gift tax return. It would take a legislative fix to close this gap, the IRS concluded.

To discuss your NJ Estate & Probate Administration matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.