When A Gift Is Not A Gift?


W

William Brenner

This purely hypothetical thought came from nowhere to an
otherwise (temporarily) vacant mind:

A couple marries.

One spouse gives the other a large amount of money, say $1
million -- or something else of value. As I understand it,
this is not reportable as a gift; nor does it count against
the giver's estate exemption.

Soon thereafter, the marriage is annulled, and thus legally
never happened.

The query is: Does the annulment affect the status of the
non-gift? Does it now become a reportable gift? Is there a
time factor?

Assume that the scenario included no intent to evade. And
even if it did...
 
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M

MTW

William said:
The query is: Does the annulment affect the status of the
non-gift? Does it now become a reportable gift? Is there a
time factor?
Hmmm... That's an interesting question. My ~guess~ would be
that a gift tax return is now required (assuming that the
"gift" is not returned).

As I recall, when an annulment occurs, any "joint" returns
that were filed during the term of the marriage must be
amended to reflect a non-married status. The theory, as you
note, is that the marriage NEVER HAPPENED. Thus, I would
think that a gift tax filing would be triggered in the
situation you described.

But, alas, I'm not on the Supreme Court... <g>

MTW
 
S

Stuart Bronstein

William said:
This purely hypothetical thought came from nowhere to an
otherwise (temporarily) vacant mind:
Well, I don't do theoreticals for most people, but I'll make
an exception for you. ;-)
A couple marries.

One spouse gives the other a large amount of money, say $1
million -- or something else of value. As I understand it,
this is not reportable as a gift; nor does it count against
the giver's estate exemption.
Right. There's a 100% exemption for intervivos gifts to
spouses.
Soon thereafter, the marriage is annulled, and thus legally
never happened.

The query is: Does the annulment affect the status of the
non-gift? Does it now become a reportable gift? Is there a
time factor?
Interesting question. If they got divorced it shouldn't
change anything. But with an annulment it's basically
saying they were never married. So I suppose it could be
retroactively taxable.

One of my friends once represented a woman who married a
foreign guy, but his intention was just to get his green
card and then get divorced. When he filed for divorce, she
counter claimed for annulment based on fraud. Once the
annulment was entered, the INS had the guy expelled from the
US.

Stu
 
C

Christopher Green

This purely hypothetical thought came from nowhere to an
otherwise (temporarily) vacant mind:

A couple marries.

One spouse gives the other a large amount of money, say $1
million -- or something else of value. As I understand it,
this is not reportable as a gift; nor does it count against
the giver's estate exemption.

Soon thereafter, the marriage is annulled, and thus legally
never happened.

The query is: Does the annulment affect the status of the
non-gift? Does it now become a reportable gift? Is there a
time factor?

Assume that the scenario included no intent to evade. And
even if it did...
Apparently Rev. Rul. 76-255 still controls, and this seems
to require that the tax effects of an annulled marriage be
unwound. The details of the annulment, the way the state
views an annulled marriage, and what can be discerned about
the parties' intent will probably help to clarify any real
situation in which something like this happened to occur.

An annulment that declares the marriage legally void from
the beginning is the interesting kind of annulment. Others,
such as the annulment that substitutes for divorce among
Roman Catholics, may not be distinguishable from a divorce.

The closer the annulment is in time to the gift, the more
likely an unwinding would be required: if the annulment
became final in the same year or the next, there's no
impracticality in converting the gift from nonreportable to
reportable.

The more the situation smells of sham, the more likely the
IRS would be interested, and the more likely an unwinding
would be required. If it looked like a paper marriage for
the purpose of transferring, say, a business between
families, the transaction is unlikely to survive. But if it
looked like a good-faith marriage involving the sort of
people who are accustomed to making gifts of that magnitude,
and it foundered for a reason properly dealt with through
annulment, it stands a better chance of standing up.
 
B

Brian

...
This purely hypothetical thought came from nowhere to an
otherwise (temporarily) vacant mind:

A couple marries.

One spouse gives the other a large amount of money, say $1
million -- or something else of value. As I understand it,
this is not reportable as a gift; nor does it count against
the giver's estate exemption.

Soon thereafter, the marriage is annulled, and thus legally
never happened.

The query is: Does the annulment affect the status of the
non-gift? Does it now become a reportable gift? Is there a
time factor?
In Rev Rul 76-255 the IRS takes the position that if a
court holds that under state law no valid marriage ever
existed the couple must file amended returns for all years
they filed jointly. I don't know of a case in the gift tax
area, but the same logic should apply. With the income tax
the taxpayers filed jointly because they assumed that they
were married. The annulment under state law
retroactively disqualified them from filing jointly.

Gift tax issues usually also look to state law for the
legal effects that determine their federal tax consequences.
If the IRS' position is that the couples are retroactively
unmarried for income tax purposes and must file as single
persons, presumably they would also take the postion that
the taxpayers are retroactively unmarried for the unlimited
marital gift exclusion. This potentially could result in a
nasty unintended and unforseeable taxable gift.

Brian Bivona, CPA
 
D

D. Stussy

William said:
This purely hypothetical thought came from nowhere to an
otherwise (temporarily) vacant mind:

A couple marries.

One spouse gives the other a large amount of money, say $1
million -- or something else of value. As I understand it,
this is not reportable as a gift; nor does it count against
the giver's estate exemption.

Soon thereafter, the marriage is annulled, and thus legally
never happened.

The query is: Does the annulment affect the status of the
non-gift? Does it now become a reportable gift? Is there a
time factor?

Assume that the scenario included no intent to evade. And
even if it did...
Since an anullment is a reversal of the marriage as if it
never happened, I would say that this created a reportable
and/or taxable gift out of one that originally wasn't. A
divorce would cause a different answer.
 
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S

Seth Breidbart

Brian said:
In Rev Rul 76-255 the IRS takes the position that if a
court holds that under state law no valid marriage ever
existed the couple must file amended returns for all years
they filed jointly.
Including those years for which filing amended returns would
otherwise be barred by the passage of time?

Seth
 
D

D. Stussy

In Rev Rul 76-255 the IRS takes the position that if a
court holds that under state law no valid marriage ever
existed the couple must file amended returns for all years
they filed jointly. I don't know of a case in the gift tax
area, but the same logic should apply. With the income tax
the taxpayers filed jointly because they assumed that they
were married. The annulment under state law
retroactively disqualified them from filing jointly.
I haven't actually read that ruling, but it would be
interesting to see how it addresses any closed (including
compromised) years. An annulment does not imply tax fraud,
since when filed, the returns were [presumedly] of a correct
filing status, etc.... Closed years can't be amended.
 
S

Stuart Bronstein

Including those years for which filing amended returns would
otherwise be barred by the passage of time?
If no return was filed, the limitations period does not run
and there is no restriction on going back.

Stu
 
S

Stuart Bronstein

D. Stussy said:
Brian wrote:
I haven't actually read that ruling, but it would be
interesting to see how it addresses any closed (including
compromised) years. An annulment does not imply tax fraud,
since when filed, the returns were [presumedly] of a correct
filing status, etc.... Closed years can't be amended.
People seldom file gift tax returns. Unless they actually
file a return, the year is not closed for this purpose.

Stu
 
J

jtc

Including those years for which filing amended returns would
otherwise be barred by the passage of time?
are you speaking of a civil annulment as opposed to a
catholic church annulment?
 
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A

Arthur Kamlet

I haven't actually read that ruling, but it would be
interesting to see how it addresses any closed (including
compromised) years. An annulment does not imply tax fraud,
since when filed, the returns were [presumedly] of a correct
filing status, etc.... Closed years can't be amended.
Cite please?

I'll grant that any refund which might result from amending
a closed year is forfeited.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
B

Brian

In Rev Rul 76-255 the IRS takes the position that if a
Including those years for which filing amended returns
would otherwise be barred by the passage of time?

Seth
A closed year can't be amended. I should have stated that
they would have to amend all years for which the statute is
sill open.

The original issue was whether a taxable gift occurred where
one spouse gave another a gift and the marraige was later
annulled. In that case, no gift tax return would have been
filed (or if one had been filed, presumably it would not
have reported the gift to the annulled spouse) so the
statute would have never run on the spousal transfer. Thus
every year prior to the annulment would presumably still be
open for gift tax purposes, regardless of how far back it
occurred.

Brian Bivona, CPA
 
D

D. Stussy

Stuart said:
D. Stussy said:
Brian wrote:
In Rev Rul 76-255 the IRS takes the position that if a
court holds that under state law no valid marriage ever
existed the couple must file amended returns for all years
they filed jointly.
I haven't actually read that ruling, but it would be
interesting to see how it addresses any closed (including
compromised) years. An annulment does not imply tax fraud,
since when filed, the returns were [presumedly] of a correct
filing status, etc.... Closed years can't be amended.
People seldom file gift tax returns. Unless they actually
file a return, the year is not closed for this purpose.
It's not just a gift tax return that would need to be dealt
with - but INCOME TAX also.... People REGULARLY file those.
 
D

D. Stussy

Arthur said:
D. Stussy said:
Brian said:
This purely hypothetical thought came from nowhere to an
otherwise (temporarily) vacant mind:

A couple marries.

One spouse gives the other a large amount of money, say $1
million -- or something else of value. As I understand it,
this is not reportable as a gift; nor does it count against
the giver's estate exemption.

Soon thereafter, the marriage is annulled, and thus legally
never happened.

The query is: Does the annulment affect the status of the
non-gift? Does it now become a reportable gift? Is there a
time factor?
In Rev Rul 76-255 the IRS takes the position that if a
court holds that under state law no valid marriage ever
existed the couple must file amended returns for all years
they filed jointly. I don't know of a case in the gift tax
area, but the same logic should apply. With the income tax
the taxpayers filed jointly because they assumed that they
were married. The annulment under state law
retroactively disqualified them from filing jointly.
I haven't actually read that ruling, but it would be
interesting to see how it addresses any closed (including
compromised) years. An annulment does not imply tax fraud,
since when filed, the returns were [presumedly] of a correct
filing status, etc.... Closed years can't be amended.
Cite please?

I'll grant that any refund which might result from amending
a closed year is forfeited.
Balance due amended returns are also rejected. The ASED for
the IRS has passed so they can't process (supplementally
assess) them.

Citation: IRC 6204(a).
 
D

D. Stussy

In Rev Rul 76-255 the IRS takes the position that if a
A closed year can't be amended. I should have stated that
they would have to amend all years for which the statute is
sill open.

The original issue was whether a taxable gift occurred where
one spouse gave another a gift and the marraige was later
annulled. In that case, no gift tax return would have been
filed (or if one had been filed, presumably it would not
have reported the gift to the annulled spouse) so the
statute would have never run on the spousal transfer. Thus
every year prior to the annulment would presumably still be
open for gift tax purposes, regardless of how far back it
occurred.
So, I conclude that the safest thing for a couple to do if
they THINK they're headed for anullment is to go ahead and
file a 709, reporting the interspousal gift and claiming the
marital exclusion, and hope that by the time the anullment
goes through, the gift tax ASED has expired... :)
Hmmmm.
 
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S

Seth Breidbart

In Rev Rul 76-255 the IRS takes the position that if a
If no return was filed, the limitations period does not run
and there is no restriction on going back.
If they filed jointly, how does that map to "no return was
filed"?

Seth
 
S

Stuart Bronstein

D. Stussy said:
Stuart said:
D. Stussy said:
Brian wrote:
In Rev Rul 76-255 the IRS takes the position that if a
court holds that under state law no valid marriage ever
existed the couple must file amended returns for all years
they filed jointly.
I haven't actually read that ruling, but it would be
interesting to see how it addresses any closed (including
compromised) years. An annulment does not imply tax fraud,
since when filed, the returns were [presumedly] of a correct
filing status, etc.... Closed years can't be amended.
People seldom file gift tax returns. Unless they actually
file a return, the year is not closed for this purpose.
It's not just a gift tax return that would need to be dealt
with - but INCOME TAX also.... People REGULARLY file those.
Of course. But a year can be closed for income tax purposes
but still open for gift tax purposes.

Stu
 
S

Stuart Bronstein

In Rev Rul 76-255 the IRS takes the position that if a
If they filed jointly, how does that map to "no return was
filed"?
I'm not aware that a gift tax return can be filed jointly.
A gift can be split, certainly, but that is when a gift is
from one spouse but treated as coming from both for tax
purposes.

Stu
 
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S

Seth Breidbart

In Rev Rul 76-255 the IRS takes the position that if a
I'm not aware that a gift tax return can be filed jointly.
A gift can be split, certainly, but that is when a gift is
from one spouse but treated as coming from both for tax
purposes.
This subthread was about the income tax returns.

Seth
 
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