What year does gift count toward annual exclusion?


N

nomail1983

For a cash-basis taxpayer who uses a calendar tax year,
in what year does a gift count toward the annual estate
exclusion: (a) the year in which the check is mailed or
delivered; or (b) the year in which the check is cashed
(i.e. clears the bank and appears on the bank statement)?

More importantly, where can I find this specified in an
authoritative document? I am looking for a pointer to a
section in an IRS Pub, the CFR or the USC.

I vaguely recall this question coming up in this forum not
too long ago. I think the answer was #b (check is cashed).

If that is the case, I need "proof" to refute an argument to
the contrary based on seemingly analogous situations. Hence
my need for a pointer to "authoritative documentation".

In IRS Pub 17, typically the date of "unconditional
delivery" is the determining factor; and if the check is
mailed, typically it is considered delivered on the date
that it is mailed.

For example, in the section "Taxes / Tests to Dedeuct Any
Tax" (p. 139), it states: "If you are a cash basis taxpayer
..... If you pay your taxes by check, the day you mail or
deliver the check is the date of payment, provided the check
is honored by the financial institution".

In the section "Contributions / When to Deduct" (p. 155), it
states: "Usually you make a contribution at the time of its
unconditional delivery. .... A check that you mail ... is
considered delivered on the date you mail it".
 
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S

Shyster1040

For a cash-basis taxpayer who uses a calendar tax year,
in what year does a gift count toward the annual estate
exclusion: (a) the year in which the check is mailed or
delivered; or (b) the year in which the check is cashed
(i.e. clears the bank and appears on the bank statement)?

Generally, the mail-box rule does not apply for federal gift
tax purposes. Instead, a gift by check is generally complete
when the check is accepted for payment, although the Tax
Court and certain circuit courts have held that completion
by acceptance for payment related back to the date of
presentment for payment (i.e., deposit with recipient's
bank) under a variant of the relation-back doctrine.

A gift is complete for federal gift tax purposes when the
donor has "so parted with dominion and control" over the
property gifted "so as to leave i`n him no power to change
its disposition, whether for his own benefit or for the
benefit of another...." Treas. Reg. 25.2511-2(a).

Generally, with respect to a gift by check, the relevant
state law controls, and the donor has not parted with
dominion and control so long as the donor can still stop
payment on the check. See, e.g., Rosano v. U.S., 245 F.3d
212 (2d Cir. 2001).

Generally, under the law of most states, a gift by check is
not complete until the check has been presented for payment
and the bank on which it is drawn has accepted it for
payment. Id.

However, in the context of gifts made inter vivos where the
checks are ultimately cashed while the donor is still
living, the Tax Court and some of the circuits have applied
a variant of the relation-back doctrine to conclude that, in
the absence of any significant delay between presentation
and payment, and provided the account on which the checks
were drawn contained sufficient funds to honor the checks at
the time of presentment, the completion of the gift apon
payment of the check relates back to the date of
presentment, and that the gift was therefore complete on the
date on which the check was presented for payment (i.e.,
typically, deposited with the recipient's bank). See, e.g.,
Metzger v. CIR, 38 F.3d 118 (4th Cir 1994). See also Estate
of Newman v. CIR, 111 T.C. 81 (1998)(explicitly indicating
that continued existence of donor in Metzger was a necessary
predicate to application of the relation-back doctrine, and
refusing to expand that doctrine to gifts made by check
where donor was not alive when the checks were ultimately
paid).

Thus, the rule appears to be, depending on the circuit to
which your case is appealable, that gifts by check, other
than gifts to charity, will be complete for federal gift tax
purposes when the check is accepted for payment by the
drawee bank.

However, depending on the circuit to which your case would
be appealable, if the donor is still alive when the checks
are ultimately paid by the bank on which drawn, then the
gift will be regarded as completed on the date the checks
were presented for payment, unless the account on which they
were drawn did not have sufficient funds to fully honor the
checks as of the date of presentment.

Hopefully the foregoing gives you some further leads on
authority and precedent you might find; without more
detailed facts, though, I cannot give any specific advise on
what the most likely outcome is in your case.
 
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N

nomail1983

Shyster1040 said:
[....] Treas. Reg. 25.2511-2(a).
[....] Rosano v. U.S., 245 F.3d 212 (2d Cir. 2001).
[....] Metzger v. CIR, 38 F.3d 118 (4th Cir 1994).
See also Estate of Newman v. CIR, 111 T.C. 81 (1998)
[....]
Hopefully the foregoing gives you some further leads on
authority and precedent you might find
Yes. Thanks so much for the legal research.
I will follow up on the citations.
 
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