In documents filed with the Federal Court in California, the IRS has recently revealed its efforts to get a John Doe summons directed at California authorities was intended to be used to identify people who have given real estate to relatives without reporting, and if required, paying gift taxes on the transfer. Tax lawyers following the Agency’s efforts note the IRS has begun a low profile, but comprehensive attempt to use state land transfer records as evidence against taxpayers of omission in reporting real estate gifts to family members.
IRS tax attorneys say the new strategy comes at a time when significant gifts are on the rise following a decision by lawmakers’ to raise the lifetime tax free gift limit to $5 million dollars. Never the less, tax lawyers caution that anytime a gift exceeds $13,000 to one person, the person making the gift is required to report it to the IRS (see IRS form 709).
As the IRS implements this strategy and begins collecting more records from more states, tax lawyers and other tax professionals are anticipating an increase in the number of audits. According to IRS pleadings, in the past two years the IRS has examined 323 taxpayers for failing to report possible gifts. Another 217 taxpayers are currently being examined over the issue, and an additional 250 taxpayers are being considered for audit.
So far, tax attorneys reviewing the Court pleadings say the Agency has identified 97 taxpayers who failed to report gifts exceeding $13,000; and in twelve cases, the IRS actually found the taxpayers owed back taxes and penalties (using the old $1,000,000 tax free gift limit). What’s more, the Court pleadings also include a chart indicting in states where the IRS has already gotten real estate transfer records, taxpayer noncompliance has been significant. Specifically, the document suggests noncompliance rates in Florida are at 90%; in Ohio 100%; Virginia 80%; Connecticut 60%; Nebraska 60%; Washington 80%; and in Wisconsin noncompliance is running at approximately 50%.
The IRS latest strategy for improving compliance with gift reporting requirements has tax lawyers and other tax professionals bracing for more business. Taxpayers who have made substantial gifts and failed to report the gift to the IRS should consult with a competent tax attorney or other tax professional to get the answers they need. Unfiled returns and/or back taxes owing for an unreported gift can be costly. The longer you wait to act, the move expensive it may become with added interest and penalties. So don’t delay if you’ve made a gift greater than $13,000 and didn’t report it to the IRS get help before they catch you.
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