Question about a Revenue Ruling vs. Qualified Relative


B

blaha

OK, here's the issue.
An individual is a qualified relative. Not a member of the household,
but receives support from a relative. The individual has no other
income, and does not file income taxes. My understanding would be
that money provided to this individual would be considered support,
not a gift. That's the whole point of being a qualified relative.
But, I then got a hold of a Revenue Ruling :

Rev. Rul. 54-343, 1954-2 CB 318

1939 IRC Sec. 1002 Regulations 108, Section 86.8: Transfers for a
consideration in money or money's worth.
Headnote:
Rev. Rul. 54-343, 1954-2 CB 318 [CAUTION: This Rev Rul has been
amplified by Rev Rul 82-98, 1982-1 CB 141.]
Reference(s):
Medical and hospital bills paid by a taxpayer for his adult son and
living expenses advanced to the son's family, including monthly
payments to cover the mortgage on the son's residence and automobile,
for no consideration other than the taxpayer's love and affection,
constitute gifts within the meaning of section 1002 of the Internal
Revenue Code.
Full Text:
Advice is requested whether medical and hospital bills paid by a
taxpayer for his adult son and living expenses advanced to the son's
family, including monthly payments to cover the mortgage on the son's
residence and automobile, for no consideration other than love and
affection, constitute gifts for the purpose of the Federal gift tax.
In the instant case, the father has no responsibility for the support
of his adult son.
Section 1002 of the Internal Revenue Code reads as follows:
Where property is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by which the
value of the property exceeded the value of the consideration shall,
for the purpose of the tax imposed by this chapter [chapter 4 of the
Code], be deemed a gift, and shall be included in computing the amount
of gifts made during the calendar year.
Section 86.8 of Regulations 108 provides in pertinent part that the
transfers reached by the statute are not confined to those only which,
being without a valuable consideration, accord with the common law
concept of gifts, but embrace as well sales, exchanges, and other
dispositions of property for a consideration in money or money's worth
to the extent that the value of the property transferred by the donor
exceeds the value of the consideration given therefor. However, a
consideration not reducible to a money value, as love and affection,
promise of marriage, etc., is to be wholly disregarded, and the entire
value of the property transferred constitutes the amount of the gift.
Accordingly, it is held that medical and hospital bills paid by a
taxpayer for his adult son and living expenses advanced to the son's
family, including monthly payments to cover the mortgage on the son's
residence and automobile, for no consideration other than the <Page
319> taxpayer's love and affection, constitute gifts within the
meaning of section 1002 of the Internal Revenue Code.


Now, this Ruling does not mention if the individual is a qualified
relative, so I'm wondering if that is the difference.
Or - is this saying that even though a person is a qualified relative,
support given to that individual is considered a gift?

Any help or opinions would be appreciated.
 
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A

Arthur Kamlet

OK, here's the issue.
An individual is a qualified relative. Not a member of the household,
but receives support from a relative. The individual has no other
income, and does not file income taxes. My understanding would be
that money provided to this individual would be considered support,
not a gift. That's the whole point of being a qualified relative.
But, I then got a hold of a Revenue Ruling :

Well, nothing you posted here indicates the child is a dependent.



Or a QR.

Gifts to dependents may well be for their support.


And had the money paid for medical been paid directly to the
medical provider instead of to the kid, it would not have been
a gift at all.
 
B

Bill Brown

OK, here's the issue.
An individual is a qualified relative.  Not a member of the household,
but receives support from a relative.  The individual has no other
income, and does not file income taxes.  My understanding would be
that money provided to this individual would be considered support,
not a gift.  That's the whole point of being a qualified relative.
But, I then got a hold of a Revenue Ruling :

Rev. Rul. 54-343, 1954-2 CB 318

....

Now, this Ruling does not mention if the individual is a qualified
relative, so I'm wondering if that is the difference.
Well, that ruling was issued about 54 years ago. "Qualified relative"
is a term introduced into the IRC somewhat more recently than that.
 
B

blaha

Well, nothing you posted here indicates the child is a dependent.

Or a QR.

Gifts to dependents may well be for their support.

And had the money paid for medical been paid directly to the
medical provider instead of to the kid, it would not have been
a gift at all.
Person is definately not a dependant child; too old.
But by my understand they are a dependant relative. (Blood relative,
no other income)
As such, I would have thought that any money given for general living
expenses could be support and not a gift, but this revenue ruling
implies otherwise. The next post has a point, maybe this ruling,
being before the IRS defined Qualified Relative, is now obsolete.
 
B

blaha

Well, that ruling was issued about 54 years ago. "Qualified relative"
is a term introduced into the IRC somewhat more recently than that.

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used,   >>
<< nor can it used, for the purpose of avoiding penalties  >>
<< that may be imposed upon the taxpayer.                  >>
<<                                                         >>
<<   The Charter and the Guidelines for submitting posts   >>
<<  to this newsgroup as well as our anti-spamming policy  >>
<<                  are atwww.asktax.org.                 >>
<<         Copyright (2007) - All rights reserved.         >>
<< ------------------------------------------------------- >>
Interesting thought.
So maybe this ruling has been made obsolete. If a person is a
qualified relative, all the money spent for there support should not
be considered a gift and subject to gift tax. At least that's what
I'm hoping, and discussing with the lawyers.
 
A

Alan

Arthur said:
Well, nothing you posted here indicates the child is a dependent.



Or a QR.

Gifts to dependents may well be for their support.
There are a variety of rulings on this point. I.e., gifts are
counted as support as long as the item meets the definition of
support. I remember one ruling that dealt with the gift of a TV
to a child. The fair market value of the gift was used as
support for the child. I can't remember if it fell into the
"entertainment" or "education bucket.
 
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B

blaha

There are a variety of rulings on this point. I.e., gifts are
counted as support as long as the item meets the definition of
support. I remember one ruling that dealt with the gift of a TV
to a child.  The fair market value of the gift was used as
support for the child. I can't remember if it fell into the
"entertainment" or "education bucket.




--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used,   >>
<< nor can it used, for the purpose of avoiding penalties  >>
<< that may be imposed upon the taxpayer.                  >>
<<                                                         >>
<<   The Charter and the Guidelines for submitting posts   >>
<<  to this newsgroup as well as our anti-spamming policy  >>
<<                  are atwww.asktax.org.                 >>
<<         Copyright (2007) - All rights reserved.         >>
<< ------------------------------------------------------- >>- Hide quoted text -

- Show quoted text -
Let me tell you what I learned from the expert. Any comments that
 
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D

Doug

There are a variety of rulings on this point. I.e., gifts are
counted as support as long as the item meets the definition of
support.
The original case back in 1954, even with the Dad paying the hospital
bills and making the mortgage payments, the adult son probably had
made more than the exemption amount for the year, and therefore could
not be counted as a dependent on the Dad's return.

-Doug
 

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