IMPROPER GIFT TAX RETURN DISCLOSURE CARRIES RISK

Recent word from IRS Field attorneys suggests that improper disclosures on a gift tax return equates to an indefinite period of limitations, rather than the usual three years.  Failure of a taxpayer to properly disclose gifts (transfer of interests in two partnerships) to his daughter, including the identity of one of the partnerships, and failure to provide an adequate description of the valuation methodology tripped up the taxpayer in question.

A transfer will be considered adequately disclosed only when:

  • The transferred property is described and any consideration received by the transferor is disclosed;
  • IRS is apprised of the identity of, and any relationship between, the transferor and each transferee;
  • The tax identification number of any property transferred in trust is disclosed, as well as a brief description of the trust terms is provided;
  • A detailed description of the method used to determine the fair market value of property transferred is properly disclosed; and
  • A statement describing any position taken that is contrary to any proposed, temporary or final Treasury regulation or revenue ruling is attached.