IRS Asks Court to Release Property Tax Records to Catch Gift TaxNonfilers


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S

Stuart A. Bronstein

Alan said:
The IRS is trying to serve a John Doe summons on the California
BOE to obtain its property transfer records.

http://goo.gl/11s6o
They're going to get lots and lots of records of transfers to and
from trusts and from estates. There may be a few gift tax evaders,
but I'd guess they are few.
 
J

JoeTaxpayer

They're going to get lots and lots of records of transfers to and
from trusts and from estates. There may be a few gift tax evaders,
but I'd guess they are few.
Stu - on my "to write list" I have an article "Bad Estate Planning" in
which I describe how my mother did just this, a change of title done by
lawyers, transferring her house to my sister. When I asked if she filed
form 709 to claim this in her tax return, blank stare followed.
It was a small enough value that there would have been no tax due, but
of course no step up in basis on Mom's passing. The bottom line for me
is that when my sister sells the house there will be a tax bill she
should have been able to avoid. So in this case, not so much tax
avoidance, but stupidity leading to a potential $20K tax bill.

(Disclaimer - I only agree with Shakespeare regarding lawyers who
practice outside of their expertise. If you, lawyer of Mom, don't know
anything about estate planning, don't practice it, you messed up big
time here.)
 
P

Pico Rico

(Disclaimer - I only agree with Shakespeare regarding lawyers who
practice outside of their expertise. If you, lawyer of Mom, don't know
anything about estate planning, don't practice it, you messed up big time
here.)

you are misreading Shakespeare. Read his ENTIRE quote.
 
S

Stuart A. Bronstein

JoeTaxpayer said:
Stu - on my "to write list" I have an article "Bad Estate
Planning" in which I describe how my mother did just this, a
change of title done by lawyers, transferring her house to my
sister. When I asked if she filed form 709 to claim this in her
tax return, blank stare followed. It was a small enough value
that there would have been no tax due, but of course no step up
in basis on Mom's passing. The bottom line for me is that when
my sister sells the house there will be a tax bill she should
have been able to avoid. So in this case, not so much tax
avoidance, but stupidity leading to a potential $20K tax bill.
Yes, I've seen lawyers make all kinds of stupid mistakes like that.

In your case, did your mother keep living in the house? If she did,
it could be argued that technically it was still part of her taxable
estate, thus eligible for stepped up basis.
 
J

JoeTaxpayer

In your case, did your mother keep living in the house? If she did,
it could be argued that technically it was still part of her taxable
estate, thus eligible for stepped up basis.
Mother and sister both live in it. Both are wiling to ignore my good
council. I offered the anecdote as an example of bad planning, I don't
have the energy to convince them they are going to waste a lot of money.
I do my sister's taxes, and when Mom passes, I'm going to have a tough
decision to make.
 
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S

Stuart A. Bronstein

JoeTaxpayer said:
Mother and sister both live in it. Both are wiling to ignore my
good council. I offered the anecdote as an example of bad
planning, I don't have the energy to convince them they are
going to waste a lot of money. I do my sister's taxes, and when
Mom passes, I'm going to have a tough decision to make.
It's not as bad as it seems. If your mother still lives there (or
could) when she dies, §2036 says,

"The value of the gross estate shall include the value of all
property to the extent of any interest therein of which the
decedent has at any time made a transfer (except in case of a bona
fide sale for an adequate and full consideration in money or
money’s worth), by trust or otherwise, under which he has retained
for his life or for any period not ascertainable without reference
to his death or for any period which does not in fact end before
his death—

"(1) the possession or enjoyment of, or the right to the income
from, the property, or

"(2) the right, either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the property or
the income therefrom."

Then under §1014 says that a recipient gets a stepped up basis

"if by reason thereof the property is required to be included in
determining the value of the decedent’s gross estate under chapter
11 of subtitle B...."

It was not the smartest thing to do, but it doesn't have to be a
problem, either.
 
J

JoeTaxpayer

It's not as bad as it seems. If your mother still lives there (or
could) when she dies, §2036 says,
I'll be saving this. This is great news. Which is why I like knowing
lawyers who actually know their stuff.
Much appreciated.
 
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P

Pico Rico

It's not as bad as it seems. If your mother still lives there (or
could) when she dies, §2036 says,

"The value of the gross estate shall include the value of all
property to the extent of any interest therein of which the
decedent has at any time made a transfer (except in case of a bona
fide sale for an adequate and full consideration in money or
money's worth), by trust or otherwise, under which he has retained
for his life or for any period not ascertainable without reference
to his death or for any period which does not in fact end before
his death-

"(1) the possession or enjoyment of, or the right to the income
from, the property, or

"(2) the right, either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the property or
the income therefrom."

Then under §1014 says that a recipient gets a stepped up basis

"if by reason thereof the property is required to be included in
determining the value of the decedent's gross estate under chapter
11 of subtitle B...."

Let's say this has occurred, and at the time of the transfer the proper tax
forms were filed, either using up a portion of the gift tax allowance, or
using it all up and a payment for gift tax was made.

Upon death, if the house is included in the gross estate, does the portion
of the gift tax allowance that was used get "unused"? Is there and estate
tax credit for the gift tax paid?
 

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