What is a taxable gift?


B

Barry Gold

I know that the Federal (and state) governments impose a tax on gifts
exceeding a certain amount, but exactly what constitutes a "gift" for
tax purposes?

Parents routinely support their (minor) children, providing food,
clothing, housing, medical care, educational expenses much more than the
$12K/year limit for non-taxable gifts. Yet I've never heard of the
government demanding a gift tax return for this sort of thing.

Even after the child reaches adulthood, the parents may allow the child
to live in their house. Parents also routinely:
. pay for their adult child's educational expenses, which can easily
exceed $100K/year
. pay medical expenses for an adult child, especially one living in
the parents' home
. allow the child the use of a car that belongs to the family, rent
free. (The adult child may or may not be required to pay for gas and/or
insurance.)
. give the child the "discarded" (1-2 year old) family car when they
buy a new car.
. give the child an "allowance" or "pocket money"

At what point does a freewill gift to a child become a "gift" for tax
purposes?

A similar question could apply to unmarried couples living together
(either because they choose not to marry, or because state "Defense of
Marriage" laws prevent them from marrying). A person may give
substantial "in kind" gifts to a domestic partner, or even spending
money. But AFAIK nobody requires them to file a gift tax return or
report it as income (payment for homemaking services, etc.)

Any comments on the specific rules governing this? Or is it just a
matter of a lot of stuff going on "under the radar"?
 
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R

Rich Carreiro

Barry Gold said:
I know that the Federal (and state) governments impose a tax on gifts
exceeding a certain amount, but exactly what constitutes a "gift" for
tax purposes?

Parents routinely support their (minor) children, providing food,
clothing, housing, medical care, educational expenses much more than
the $12K/year limit for non-taxable gifts. Yet I've never heard of
the government demanding a gift tax return for this sort of thing.
Well, the gift tax law specifically provides that medical or
educational payments made by the "gift" giver directly to the medical
or educational institution do not count as gifts for gift tax
purposes. So if Granny writes your tuition check straight to Hahvahd,
no gift. If she writes it to you, gift.
Even after the child reaches adulthood, the parents may allow the
child to live in their house. Parents also routinely:
. pay for their adult child's educational expenses, which can easily
exceed $100K/year
. pay medical expenses for an adult child, especially one living in
the parents' home
See above.
. allow the child the use of a car that belongs to the family, rent
free. (The adult child may or may not be required to pay for gas
and/or insurance.)
I'll bet that's a gift.
. give the child the "discarded" (1-2 year old) family car when they
buy a new car.
That's a gift for the FMV of the car.
. give the child an "allowance" or "pocket money"
That's a gift (so are Christmas and birthday presents).
At what point does a freewill gift to a child become a "gift" for tax
purposes?
I'd say a freewill gift is a "'gift for tax purposes'" right
off the bat.
Any comments on the specific rules governing this? Or is it just a
matter of a lot of stuff going on "under the radar"?
I would posit that:
(a) under the law, pretty much everything you'd consider a gift
is a gift under the tax rules. (Aside from "gifts" from employers.)
(b) enforcing it is pretty much impossible except for when money or
titled property actually changes hands. And even then it's probably
pretty hard.
 
A

Alan

Barry said:
I know that the Federal (and state) governments impose a tax on gifts
exceeding a certain amount, but exactly what constitutes a "gift" for
tax purposes?

Parents routinely support their (minor) children, providing food,
clothing, housing, medical care, educational expenses much more than the
$12K/year limit for non-taxable gifts. Yet I've never heard of the
government demanding a gift tax return for this sort of thing.

Even after the child reaches adulthood, the parents may allow the child
to live in their house. Parents also routinely:
. pay for their adult child's educational expenses, which can easily
exceed $100K/year
. pay medical expenses for an adult child, especially one living in
the parents' home
. allow the child the use of a car that belongs to the family, rent
free. (The adult child may or may not be required to pay for gas and/or
insurance.)
. give the child the "discarded" (1-2 year old) family car when they
buy a new car.
. give the child an "allowance" or "pocket money"

At what point does a freewill gift to a child become a "gift" for tax
purposes?

A similar question could apply to unmarried couples living together
(either because they choose not to marry, or because state "Defense of
Marriage" laws prevent them from marrying). A person may give
substantial "in kind" gifts to a domestic partner, or even spending
money. But AFAIK nobody requires them to file a gift tax return or
report it as income (payment for homemaking services, etc.)

Any comments on the specific rules governing this? Or is it just a
matter of a lot of stuff going on "under the radar"?
Until a child is emancipated (see state law to see at which age
emancipation takes place) the parents have an obligation to
provide support. That support is not considered gifts. Once the
child is emancipated, then whatever the parents provide their
child other than direct payments to providers of medical services
and institutions of higher learning is a gift and falls under the
Gift Tax rules.

Gifts between spouses are unlimited. Gifts between adults whether
they cohabitate or not fall under the Gift Tax rules.

If you are asking whether the government is actively tracking
down the dude who gave his girlfriend a $25000 diamond bracelet
and didn't file a gift tax return.... the answer is no unless
they are actively auditing that individual for some other reason
and the gift comes to light. Ditto for gifts between parents and
their children.
 
R

removeps-groups

Gifts between spouses are unlimited. Gifts between adults whether
they cohabitate or not fall under the Gift Tax rules.
If the spouse giving the gift is a US citizen and the spouse receiving
the gift is not, there is a limit. In 2008, it looks like the limit
is $128,000.

http://www.irs.gov/instructions/i709/ch01.html#d0e401

If the spouse receiving the gift is a permanent resident, then I don't
know if the above applies.
 
A

Alan

If the spouse giving the gift is a US citizen and the spouse receiving
the gift is not, there is a limit. In 2008, it looks like the limit
is $128,000.

http://www.irs.gov/instructions/i709/ch01.html#d0e401

If the spouse receiving the gift is a permanent resident, then I don't
know if the above applies.
It only applies to a spouse who is a nonresident alien. Lawful
permanent residents are treated the same as citizens.
 
L

lotax

I would posit that:
(a) under the law, pretty much everything you'd consider a gift
� � is a gift under the tax rules. �(Aside from "gifts" from employers.)
(b) enforcing it is pretty much impossible except for when money or
� � titled property actually changes hands. �And even then it's probably
� � pretty hard.
Does this imply that many, maybe even most, gift tax returns are
wrong, and that the donors may not realize that they've perjured
themselves in signing the returns?

I mean, birthday presents that're worth let's say a coupla hundred
bucks, if left off a gift tax return could put the donor in harm's way
if the IRS were doing its job more diligently???
 
B

brownwp

Does this imply ...
... the donors may not realize that they've perjured
themselves in signing the returns?
No, since one must know one is stating a falsehood in order to commit
perjury.
 
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L

lotax

No, since one must know one is stating a falsehood in order to commit
perjury.

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What about the ones that know, should know, have every reason to know,
and - more my point, I guess - the preparers of the returns? You've
described the "innocence" of the ones that don't know what they don't
know. What about the others?
 
S

simon_baldwin

It only applies to a spouse who is a nonresident alien. Lawful
permanent residents are treated the same as citizens.

Can you cite supporting sources?

My impression is that LPRs are treated like NRAs for estate and gift
taxes, and have limits on both gifts and inheritance. The usual
remedy is a QDOT.
 
S

Stuart A. Bronstein

Can you cite supporting sources?

My impression is that LPRs are treated like NRAs for estate and
gift taxes, and have limits on both gifts and inheritance. The
usual remedy is a QDOT.
The actual rule is state in §2523 of the IRC. It says that gifts to
non-citizen spouses are not granted the unlimited deduction of gifts
to citizen spouses. There is no exception for permenant residents.

However the rule may have been different in the past. Under the
regulations, §25.2523(a)(1)(a), it says,

"In the case of gifts made prior to July 14, 1988, no marital
deduction is allowed with respect to a gift if, at the time of the
gift, the donor is a nonresident not a citizen of the United States.
Further, in the case of gifts made on or after July 14, 1988, no
marital deduction is allowed (regardless of the donor's citizenship
or residence) for transfers to a spouse who is not a citizen of the
United States at the time of the transfer."

Stu
 
A

Alan

Stuart said:
The actual rule is state in §2523 of the IRC. It says that gifts to
non-citizen spouses are not granted the unlimited deduction of gifts
to citizen spouses. There is no exception for permenant residents.

However the rule may have been different in the past. Under the
regulations, §25.2523(a)(1)(a), it says,

"In the case of gifts made prior to July 14, 1988, no marital
deduction is allowed with respect to a gift if, at the time of the
gift, the donor is a nonresident not a citizen of the United States.
Further, in the case of gifts made on or after July 14, 1988, no
marital deduction is allowed (regardless of the donor's citizenship
or residence) for transfers to a spouse who is not a citizen of the
United States at the time of the transfer."

Stu
Looks like I screwed the pooch on this one.......
 
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S

Stuart A. Bronstein

Alan said:
Looks like I screwed the pooch on this one.......
Don't feel bad - everyone makes a mistake now and then.

Even me! Remember that time I thought I'd made a mistake? Turns out I
was wrong. ;-)

Stu
 

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