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Another gifting question

Take the situation of a father and a mother, each of whom have been giving their adult son the max allowable gift per year for several years.

Now, the father dies, but the mother, who inherits all of the father's worldly belongings, would like to continue gifting the son as if the father were still alive. So she decides she will continue gifting her son as before, but to provide the prior amount the father used to provide, she decides to gift to her adult brother with the understanding that he would then gift this amount to the son.

This sounds kosher enough and would indeed provide the son with the same amount he used to receive when the father was alive.. But is there any way in which the irs would see this as an attempt to somehow 'work around' the system, and not view it kindly? I know each gift is clearly allowable, but Im just wondering if the irs would view it in another way... IF they could track down the gift to her brother, and then his gift to the son, would they look at this as a way to defraud the system? I dont even see how they track it, unless they happened to be examining both their estates at the same time, but i was just wondering.

Paul

Reply to
boostm3
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I want to piggyback on your question, what if the mother, instead of gifting to the brother who then gift to the son, gift to the brother's son. And brother gift to the mother's son? Or even going more afield, two friends get together and gift to each other's offsprings. Is that legal?

Reply to
po.ning

Paul, The IRS could apply a general principle called the "step transaction doctrine" which says, in effect, "what were you REALLY doing?" (google that term for specifics) If the intent was an end-run around the gift tax the service could ignore the transaction to the brother and say that the money was really gifted directly to the other son.

You asked how the IRS might find out about this and it's the same answer, really, throughout much of tax law -- for things that aren't reported to the IRS on forms W2, 1099, etc, it would be in an audit. And in an audit they can dig as deeply as they want into financial records.

Keep in mind that you only pay tax after making a very large amount of over-$12,000 gifts. Currently the exclusion shields $1 million in reportable gifts from tax. So the mother could just make a reportable $12,000 gift and file a gift tax return. She wouldn't pay any tax, and only after giving $1 million+ of these kinds of reportable gifts would any tax be owed. It has an effect on estate taxes, but is her estate going to be big enough that it's even an issue?

-Tad

Reply to
Tad Borek

Stop right there. A "gift" with strings attached is not a gift at all. (There can be strings on some gifts to charities for example, but not this type of string that passes the gift through one person to another).

Once a true gift is given to the brother then the money is the brothers, period -- he can do with it as he wishes, including gifting it to his son, however that has to be in independent desire of the brother and not a condition on the gift in the first place.

What it seems that you want to do is evade the gift tax (or reporting thereof) and thats is how the IRS would look upon it as well.

Reply to
Ernie Klein

Happen to stumble across this thread, and we have a similar situation.... Have a large family with 5 kids + grandkids. I think I mentioned some of this in another thread about - bad feelings and gifting money -

Anyway.... since the families are not all the same sizes, we generally felt the plan was to give everyone the $12,000 this year, and then have them "gift" to the smaller (or single) family members an appropriate amount to even things out from the larger family and the single person...

Reply to
P.Schuman

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