I think we'v been over this before, but I just can't find it. Assume a couple with about $800K in assets gives $50K to an adult child. They have never made gifts exceeding the threshold in any prior years. They file an income tax return, but fail to file a gift tax return for the year. Unless current estate tax rules change, there will never be any estate tax issues. What are the potential consequences of failing to file the 709?
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Last edited by JohnH; 07-04-2014, 11:40 AM."The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith -
I am no expert on form 709 having filed only a handful. I believe the min. penalty is $100 for failure to file when no tax is due. In your example the excess will reduce the life time exclusion amount so no taxes are due currently but there is a requirement to file 709 if the gift exceeds the annual limit.
From a practical perspective many gifts overs the annual limit are made each year by parents to help their children buy their first home and I would guess in many cases no 709 is ever filed!Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR -
Thanks for the response. I often hear this $100 penalty mentioned for all sorts of unfilled returns, but I've never found anything to substantiate that. Do you know where this idea comes from or know of a cite?"The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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See TTB Failure To File.
IRC 6651(a)(1) may apply according to TTB. I was trying to paste that chart but it does not work.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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OK. Thanks
I'll look that up.
But if $100 is all that's at stake, it might be better to just skip amending the return to add the Form 709."The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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There is no penalty. The idea comes from Section 6651. The statement was "shall not be less than the lesser of $100 or 100 percent of the amount required to be shown as tax on such return". (It now reads $135; it was changed from $100 to $135 in 2008).
They completely miss the word "lesser" and they miss the first sentence that says "In the case of a failure to file a return of tax imposed by chapter 1". Gift and Estate taxes are not in chapter one.
On the other hand, if the IRS were to do an in-depth audit of the person who received the gift, they are going to question why $50,000 was deposited into the bank account. When the receiver says "It was a gift.", the IRS would say "No it's not, there was no gift tax return filed".
A gift tax return could then be filed late, but it could be an big argument with the IRS to prove the initial payment was a gift, and not any type of taxable income.
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I would file the Return
John,
The penalties are based on tax due. In your situation, there should be no tax liability. It should only take about 20-30 minutes to prepare the return. So, I would just add it to the to do list.
There is no flat $100 penalty that I have encountered.Comment
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I concur with TaxGuyBill and TXEA above. There is no penalty under Code §6651 when there is no tax due.
However, I would advise the clients that they have a legal obligation to file a return and recommend that they do so.Roland Slugg
"I do what I can."Comment
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