Establishing basis of gifts

[veritas]

This is interesting. I was reviewing the rules for basis on stock that was gifted to my client.

If the donee has insufficient facts to determine the donor's adjusted basis in the property, the IRS is required to obtain the necessary facts from the donor or any other person with knowledge of the facts. Code Section 1015(a). If the IRS finds it impossible to obtain these facts, the donee's basis will be the fair market value of the property on the date (or approximate date) the donor acquired the property, determined by the IRS, according to the best information available. Code Section 1015(a). The value of property as appraised for the purposes of federal or state gift taxes is deemed to be the fair market value of the property at the time of the gift. Reg. Section 1.1015-1(e).

OBSERVATION: This is an exception to the general rule that places the burden of establishing basis on the taxpayer, regardless of the difficulties she may encounter in obtaining it. If the IRS is unable to make a finding of value pursuant to this requirement, one court has held that neither gain nor loss is recognized when the donee sells the property. Caldwell & Co. v. Commissioner, 234 F.2d 660 (6th Cir. 1956).

I wonder how you make the IRS get the facts? Do you send a letter to the commissioner?

[thomtax]

Veritas,

Don't you understand that IRS employees are government employees. And as we are always told, the government works for you - the taxpayer citizen. So, since you are their boss, just order them to do so. :-)

LT

[Koss]

If the IRS finds it impossible to obtain these facts, the donee's basis will be the fair market value of the property on the date (or approximate date) the donor acquired the property, determined by the IRS, according to the best information available. Code Section 1015(a).

<snip>

I wonder how you make the IRS get the facts?

You don't.

Do you really want the IRS to determine the basis, using facts that they obtain?

If the donee has no access to the relevant facts, use the FMV on the date of acquisition. That's exactly what the IRS will do if they can't get to the relevant facts, either.

This approach would appear to shift the burden to the IRS to establish some other basis, if and only if the return is audited.

The only reason I would proactively request that the IRS determine the basis of property would be... well, there would have to be an astronomical amount of money involved, and there would have to be some concrete data that my client couldn't get to, that the IRS could get to, and that data would have to provide a basis that was more favorable to my client than FMV on the date of acquisition...

In my practice, that particular scenario is about as likely to arise as the need to calculate "depreciation not expressed in terms of years."

[My software has a field for this, but I've never taken the time to figure out what it is. My software has another field, in the "recovery worksheet," where we calculate whether (and how much) of the state tax refund is taxable on the federal return, where I am asked if the taxpayer filed a joint return the previous year, and if so, whether that return was filed with the same spouse.]


Burton

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