I am aware that the law requires a person to file some sort of tax
one gives a gift exceeding a certain amount.
My question is " How would the government, or anyone, know if
a person just gives a gift to someone and doesn't tell anyone about
My suspicion is that it is done a lot, and reported rarely, and
nothing bad ever comes of ignoring the requirement.
Person receiving gift might have to show that it was a gift, and not
taxable income. To do this, they will probably have to name the donor.
IRS can look at bank records for audit purposes, too. Gifts large
enough to trigger the reporting requirement are probably not often made
without some kind of bank record.
I understand your point. However, if one decided to buy
100K in Canadian Maple Leaf gold coins, and then just give
them to someone who would know that the gift needed to
be on the downlow, and , if cashed, done one or two coins
at a time...... I can't see how the gov would get involved. There
would be a record of the buyer receiving the coins, but they
then magically disappeared.
Unless someone tells the government where to look,
it looks to me like nothing bad will happen.
Andy in Eureka, Texas
It's like many other situations - if you don't tell them and they
don't audit you, they may never find out.
But the law requires that you tell them. If you don't, and they
somehow find out (either by auditing you or someone else involved in
the transaction) and they believe you did it intentionally, you could
go to jail.
Here's another, unrelated gift tax question.
Suppose TP pays for a large amount of veterinary work for a cat.
If the cat "belongs" to someone else, is this a gift to that
person? Or is TP merely acting on their own desires
to help out a cat, regardless of it's ownership, such that this
is just a purchase of veterinary services by TP, not a gift?
Why - for various reasons.
A reason specific to the intent of this NG, might be because a taxpayer is
being audited and the IRS wants to consider a $50K deposit into their bank
account as unreported income - subject to taxes, penalties and interest and
maybe even subject to a fraud penalty.
In order to PROVE that the money isn't taxable income the recipient will
need to show where the money came from. The typical IRS audit takes place
some 20 months AFTER a return is filed. If the return was due 04/15/08 and
was extended to and filed on 10/15/08, it could easily take the IRS until
June 2010 to pull the return for audit.
The first thing asked for at audit are 14 months of bank statements - the 12
months for the year in question plus the last month of the prior year and
the first month of the subsequent year. The IRS uses this, and your tax
return, to prepare a cash report - where they compare your reported income
with the amounts deposited in your bank account. The look for and note
discrepancies and they investigate substantial discrepancies.
Now suppose that your dear old Auntie Anne gave you $50,000 for Christmas of
2007 when you visited her on New Year's Eve 2007. That money will show up
in your January 2008 bank statement and it will look like you deposited $50K
more than you reported in income - which you did. The IRS will expect you
to either pay tax on that money OR PROVE that it isn't taxable income.
You can claim it was whatever you want, but unless you can PROVE it to the
IRS you'll be paying tax on that money.
I expect you to argue that you'll just Auntie Anne to tell the IRS about the
gift. But what if Old Auntie Anne died in a tragic snow board accident in
February of 2009. Being dead, she can't testify. And since she's been dead
for 16 months before you even got audited her records are now long gone, the
estate was closed, the records destroyed.
Now how do you prove that it was gift and not taxable income?
Were you my client, I'd have advised you to get a gift letter from Auntie
Anne IMMEDIATELY. Something written in her hand and to keep it with your
other important tax papers for the year in question.
Doesn't matter - there are taxes that could be due on such gifts. I recall
a case from W A Y back about a celebrity, Tony Curtis (I think it was Curtis
but I don't have the cite handy and I don't recall the exact details).
Anyway Old Tony gave his fiancée a substantial diamond as an engagement
ring, she got the ring, he got her, everyone was happy. UNTIL the IRS got
involved. Seems that Tony was MORE than 35 years older than his fiancée.
This triggered the Generation Skipping Transfer Tax and Old Tony had to pay
taxes on the value of the ring.
Its also worth noting that the legal concept of Transferee Liability can
attach in various situations. Transferee Liability is when the liability
attaches to the gift and the tax liability follows it. So if you owe the
IRS $50K and you give me your last asset, a $100K Silver Shadow, for
Christmas. The IRS can legally take the car from me to satisfy your tax
One of my closest friends has a saying "it ain't always pretty, but the
truth is always the truth!" You can try to argue your way out of it as much
as you like, but there are good and valid reasons to maintain records of all
transactions - and the more substantial the transaction the more important
it is to have a record of what happened.
Gene E. Utterback, EA, RFC, ABA
What would you advise if a similar situation arose today? (Assume
it's early in the proces, he's about to buy the ring so he can
implement your advice prior to doing anything with tax consequences.)
Would it work if he _lent_ her the ring to wear, and didn't _give_ it
to her until after they were married?
The only time I recommend it's ok to ignore the rules is when it results
in overpayment, not tax evasion. (e.g. you can't find a stock's basis,
since it's been held so long, claiming zero basis may save you more in
time than you'll pay in taxes.)
I suppose any/every discussion regarding taxes can turn into "but how
would I get caught?" I ignore that question, as I'd like to avoid the
risk of jail.
The check image from when you cashed the check will show that it came
from her bank account. But if it was cash, then there is no way.
Of course, we're assuming that people are depositing the cash they
receive. The following is illegal but I heard it happens: they could
keep the cash and spend it slowly, or maybe if they're on vacation
they could go spend the money on side trips, and it would be difficult
for the IRS to catch them. Even if you could get away with it it's
not always a good idea because putting the cash in a bank or
securities account will allow it to grow faster.
This sounds strange. So say you plan to get married and give your
fiancee a 20k ring (which many people in fact do). Are you saying
gift tax is due on this 20k-13k=7k. There are 3 scenarios: you
eventually get married, you break up the marriage and the fiancee
returns the ring, you break up the marriage and the fiancee keeps the
ring. And there is another scenario: you eventually get married but
both spouses are same gender.
An engagement ring is exempt from the gift tax so long as the marriage
occurs. If it doesn't, the ring must be returned or claimed as a gift.
I imagine, but don't know for sure that a legal same sex marriage would
enjoy the same gift rules.
But the issue here isn't marriage, it's whether a completed gift is
made. A gift in contemplation of marriage (e.g. engagement ring) is
not a true gift, but one contingent on the marriage taking place.
Whether it's same sex couples of heterosexual couples, the principle
is the same - has there been a completed gift? It has nothing to do
with the DOMA.
That may be but Don's point (correcting me) was that a same sex couple
doesn't enjoy the unlimited gift exclusion the different sex couple
would, and therefore, once married and the gift completed, they may have
paperwork to file that others might not.
I strongly suspect there are ways to structure it that don't
constitute a gift to the cat's owner. Paying prior to treatment ought
to help; paying off someone else's debt is more likely to be
considered a gift.
There are clear rules which allow me to pay for your higher education or
medical expenses, unlimited, so long as I pay to the institution directly.
I don't see how paying your vet is any different from paying your
landscaper. treated as a gift to you, and subject to reporting if over