709 - to file or not to file

[John3cpa]

In my one man practice, gift issues don't come up often, but when they do the client always asks "what if i don't file" and my answer is "Idon't know, but here are the rules...." Well, since the gifts have always been below the filing requirement anyway, the point was moot....until today. My wealthiest client and wife want to help their daughter and husband buy a house in Providence, RI with a gift of close to 2000k. They have already sent the down payment of $50k+. He is well aware of the "rules", but ask the inevitable question "what if...". My answer this time was "I'll look into it". Help!!

Thanks in advance...y'all have always been a great help.

[jimmcg]

709

Don't know the exact penalties for non filing offhand but make sure you properly document in writing your proper professional advice on the matter. Clients often have "selective amnesia" when the you know what hits the fan.

[sea-tax]

I think that you need to tell the client the truth , that a return should be filed. I realize you can't force someone to file if they don't want to . However I would try to find out from the client why they are opposed to filing the gift return.

If they still don't want to then I would have them sign a letter to the effect that I told them it is a requirement and that they insisted not to file.

[Uncle Sam]

What Happens if I Don't File?

Nothing immediately.
However, how is your client's daughter going to claim proper basis should an event happen that's not planned for - such as a catastrophic casualty, or sale of residence, or if client gets audited by IRS and examines bank or other financial records and sees an extraordinarily large withdrawal and question it, or if his/her estate return for determination of assets has to be calculated, or nursing home at a later date is needed and client says assets are worth $ X, and gov't says $ Y.
Clients tend to trap themselves by taking shortcuts when unplanned events take place - then is when it comes back to haunt them.

[Bees Knees]

Since this could involve evasion of estate tax down the road, I would tend to be very strict on the policy that you file what the rules say you do, or go some place else with your business. What’s the difference between estate tax evasion, and someone saying nobody will know whether I report cash receipts or not on my Schedule C business?

As far as the taxpayer is concerned, nothing will happen. As far as you are concerned, you could get in all kinds of trouble down the road if you knew about this and didn’t insist on your client following the rules. Stories tend to change over time, and three years from now, the selective memory of your client might be you never told the client the rules. That is why you need to put things down in writing.

[Unregistered]

The gift tax return also documents where the money came from if the daughter gets examined.