Hypothetical Question

[WhiteOleander]

I was watching one of those small claims court show. And I began to wonder.

If a man gives a woman an engagement ring worth say $15,000, does he have to file a gift tax return.

Or, is this considered a conditional gift. Not fully completed until the marriage. And at that point would it be a gift from husband to wife. So, no gift tax return required?

What if no marriage happens and woman keeps the ring? Is a gift tax return required at that point?

Just something to think about.>>>>>

[jainen]

no marriage happens

>>What if no marriage happens and woman keeps the ring?<<

Send Form 1099-C for $15000 cancellation of debt.

[George Boutwell]

If a man gives a woman an engagement ring worth say $15,000, does he have to file a gift tax return.

Wouldn't it depend on what he writes in his Engagement Letter?

[ChEAr$]

Where is Judge Wapner,

now that we need him?

A gift IS a gift, unconditionally. Therefore a gift tax return is required.
But in practice.... well, we know.

[OldJack]

now that we need him?

A gift IS a gift, unconditionally. Therefore a gift tax return is required.
But in practice.... well, we know.

The offer and acceptance of a engagement ring is not a gift... it is a contract/agreement and promise for future consideration and services. No gift tax return is to be filed regardless of fair market value of the ring.

[JohnH]

But

If it's a contract/agreement for future services, wouldn't transfer of ownership of the ring constitute constructive receipt? And wouldn't income tax be due on the FMV? My only concern is whether S/E tax might also be due, but maybe it could be avoided since (presumably) providing those services is not in the recipient's normal line of work.

[newbie]

Must be line 21. Marriage could be a gamble - could expenses be deducted on Schedule A?

[WhiteOleander]

If it's a contract/agreement for future services, wouldn't transfer of ownership of the ring constitute constructive receipt? And wouldn't income tax be due on the FMV? My only concern is whether S/E tax might also be due, but maybe it could be avoided since (presumably) providing those services is not in the recipient's normal line of work.

Ha Ha. $15,000.00 would not be anywhere near enough compensation.!!!

[JohnH]

Really?

What type of services are you thinking aboout?
You can get a house cleaning service to come around as needed for about $100 per week.

[ChEAr$]

Maybe so, but

What type of services are you thinking aboout?
You can get a house cleaning service to come around as needed for about $100 per week.

How much to "clean your clock"?

[erchess]

Everyone seems to be

having fun with this one but can we all agree that we would advise a client to treat the giving or receipt of an engagement ring as a nontaxable event?

And by the way I thought that gifts of items other than cash that anyone gave to close friends and relatives are nontaxable even if the value is significantly more than would trigger gift tax if the gift were made in cash.

[WhiteOleander]

having fun with this one but can we all agree that we would advise a client to treat the giving or receipt of an engagement ring as a nontaxable event?

And by the way I thought that gifts of items other than cash that anyone gave to close friends and relatives are nontaxable even if the value is significantly more than would trigger gift tax if the gift were made in cash.

Actually, I do think that there is no requirement for a gift tax return if the couple does get married.

However, if they do not get married and the woman keeps the ring, I think there might be "something" that needs to be done.

I think maybe the man giving the ring now has to do a gift tax return. I don't see how he can recharacterize the gift as income or forgiven debt.

[Bees Knees]

The offer and acceptance of a engagement ring is not a gift... it is a contract/agreement and promise for future consideration and services.

The contract/agreement that is entered into (marriage) is generally considered a partnership. TTB, page 8-18 says "the cost of making a contract concerning the operation of the partnership business, including a contract between a partner and the partnership..." is a non-deductible capital expense, added to basis.

Since the transfer of assets incident to a divorce are tax free under Section 1041, that means both going into a marriage (partnership), and exiting a marriage (divorce), any property exchanged are non-taxable transactions. No gift tax return is required, no line 21, Form 1040, no SE tax…they are all non-issues.

[WhiteOleander]

The contract/agreement that is entered into (marriage) is generally considered a partnership. TTB, page 8-18 says "the cost of making a contract concerning the operation of the partnership business, including a contract between a partner and the partnership..." is a non-deductible capital expense, added to basis.

Since the transfer of assets incident to a divorce are tax free under Section 1041, that means both going into a marriage (partnership), and exiting a marriage (divorce), any property exchanged are non-taxable transactions. No gift tax return is required, no line 21, Form 1040, no SE tax…they are all non-issues.

But that is if the marriage took place. What if the marriage never happened? No "partnership" ever came to be.

[ChEAr$]

Let us contrast

The contract/agreement that is entered into (marriage) is generally considered a partnership. TTB, page 8-18 says "the cost of making a contract concerning the operation of the partnership business, including a contract between a partner and the partnership..." is a non-deductible capital expense, added to basis.

Since the transfer of assets incident to a divorce are tax free under Section 1041, that means both going into a marriage (partnership), and exiting a marriage (divorce), any property exchanged are non-taxable transactions. No gift tax return is required, no line 21, Form 1040, no SE tax…they are all non-issues.

and make a distinction between these two situations. transfer of assets incident to a
divorce are tax free by the grace of Congress beCAUSE of the marital relationship;
whereas any gifts before marriage are not in the same ballpark.

It should be noted also that courts throughout the land (state courts of course) are
very divided on whether or not an engagement ring is an outright gift or a conditional
gift. So that depends on the jurisidiction one is in.