As you might have noticed from part one of this series, gift taxation is a process that must be discussed and planned thoroughly in order to follow the rules and regulations surrounding it. Today, we’re going to wrap up the last of the frequently asked questions, so let’s get started.
Whom should I hire to represent me and prepare and file the tax return?
The International Revenue Service cannot make recommendations about certain individuals, but there are several factors to consider, such as:
- How complex is the transfer?
- How large is the transfer?
- Do I need an attorney, CPA, Enrolled Agent (EA) or other professional(s)?
For most simple, small transfers (less than the annual exclusion amount) you may not need the services of a professional.
However, if the transfer is large, complicated, or both, then these actions should be considered; it is a good idea to discuss the matter with several attorneys and CPAs or EAs. Ask about how much experience they have had, and ask for referrals. This process should be similar to locating a good physical. Locate other individuals that have had similar experiences and ask for recommendations. Finally, after the individual(s) are employed and begin to work on transfer matters, make sure the lines of communication remain open so that there are no surprises.
Finally, people who make gifts as part of their overall estate and financial plan often engage the services of both attorneys and CPAs, EAs, and other professionals. The attorney usually handles wills, trusts, and transfer documents that are involved and reviews the impact of documents on the gift tax return and overall plan. The CPA or EA often handles the actual return preparation and some representation of the donor in matters with the IRS. However, some attorneys handle all the work. CPAs or EAs may also handle most of the work, but cannot take care of wills, trusts, deeds, and other matters where a new license is required. In addition, other professionals (such as appraisals, surveyors, financial advisors, and others) may need to be engaged during this time.
Do I have to talk to the IRS during an examination?
You do not have to be present during an examination unless the IRS representatives need to ask specific questions. Although you may represent yourself during an examination, most donors prefer that the professional(s) they have employed handle this phase of the examination. You may delegate authority for this by executing Form 2848 “Power of Attorney.”
What if I disagree with the examination proposals?
You have many rights and avenues of appeal if you disagree with any proposals made by the IRS. See publications 1 and 5 for an explanation of these options.
What if I sell property that that has been given to me?
The general rule is that your basis in the property is the same as the basis for the donor. For example, if you were given stock that the donor had purchased for $10 per share (and that was his or her basis), and you later sold it for $100 per share, you would pay income tax on a gain of $90 per share. Take note that the rules are different for property acquired from an estate. Most information for this page came from the Internal Revenue Code: Chapter 12—Gift Tax (generally Internal Revenue Code 2501 and following, related regulations and other sources).
Can a married same sex donor claim the gift tax marital deduction for a transfer to his or her spouse?
For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who are lawfully married under the laws of a state who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married. Also, the Service will recognize a marriage of individuals of the same sex that was validly created under the laws of the state of celebration even if the married couple resides in a state that does not recognize the validity of same-sex marriages.
However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.
Gifts to your spouse are eligible for the marital deduction.
If you have any questions or are involved in a gift taxation situation, contact France Law Firm today! We’re happy to help you make this process as easy as possible.
