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Question about a Revenue Ruling vs. Qualified Relative

OK, here's the issue. An individual is a qualified relative. Not a member of the household, but receives support from a relative. The individual has no other income, and does not file income taxes. My understanding would be that money provided to this individual would be considered support, not a gift. That's the whole point of being a qualified relative. But, I then got a hold of a Revenue Ruling :

Rev. Rul. 54-343, 1954-2 CB 318

1939 IRC Sec. 1002 Regulations 108, Section 86.8: Transfers for a consideration in money or money's worth. Headnote: Rev. Rul. 54-343, 1954-2 CB 318 [CAUTION: This Rev Rul has been amplified by Rev Rul 82-98, 1982-1 CB 141.] Reference(s): Medical and hospital bills paid by a taxpayer for his adult son and living expenses advanced to the son's family, including monthly payments to cover the mortgage on the son's residence and automobile, for no consideration other than the taxpayer's love and affection, constitute gifts within the meaning of section 1002 of the Internal Revenue Code. Full Text: Advice is requested whether medical and hospital bills paid by a taxpayer for his adult son and living expenses advanced to the son's family, including monthly payments to cover the mortgage on the son's residence and automobile, for no consideration other than love and affection, constitute gifts for the purpose of the Federal gift tax. In the instant case, the father has no responsibility for the support of his adult son. Section 1002 of the Internal Revenue Code reads as follows: Where property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this chapter [chapter 4 of the Code], be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. Section 86.8 of Regulations 108 provides in pertinent part that the transfers reached by the statute are not confined to those only which, being without a valuable consideration, accord with the common law concept of gifts, but embrace as well sales, exchanges, and other dispositions of property for a consideration in money or money's worth to the extent that the value of the property transferred by the donor exceeds the value of the consideration given therefor. However, a consideration not reducible to a money value, as love and affection, promise of marriage, etc., is to be wholly disregarded, and the entire value of the property transferred constitutes the amount of the gift. Accordingly, it is held that medical and hospital bills paid by a taxpayer for his adult son and living expenses advanced to the son's family, including monthly payments to cover the mortgage on the son's residence and automobile, for no consideration other than the taxpayer's love and affection, constitute gifts within the meaning of section 1002 of the Internal Revenue Code.

Now, this Ruling does not mention if the individual is a qualified relative, so I'm wondering if that is the difference. Or - is this saying that even though a person is a qualified relative, support given to that individual is considered a gift?

Any help or opinions would be appreciated.

Reply to
blaha
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Well, nothing you posted here indicates the child is a dependent.

Or a QR.

Gifts to dependents may well be for their support.

And had the money paid for medical been paid directly to the medical provider instead of to the kid, it would not have been a gift at all.

Reply to
Arthur Kamlet

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Well, that ruling was issued about 54 years ago. "Qualified relative" is a term introduced into the IRC somewhat more recently than that.

Reply to
Bill Brown

Person is definately not a dependant child; too old. But by my understand they are a dependant relative. (Blood relative, no other income) As such, I would have thought that any money given for general living expenses could be support and not a gift, but this revenue ruling implies otherwise. The next post has a point, maybe this ruling, being before the IRS defined Qualified Relative, is now obsolete.

Reply to
blaha

Interesting thought. So maybe this ruling has been made obsolete. If a person is a qualified relative, all the money spent for there support should not be considered a gift and subject to gift tax. At least that's what I'm hoping, and discussing with the lawyers.

Reply to
blaha

There are a variety of rulings on this point. I.e., gifts are counted as support as long as the item meets the definition of support. I remember one ruling that dealt with the gift of a TV to a child. The fair market value of the gift was used as support for the child. I can't remember if it fell into the "entertainment" or "education bucket.

Reply to
Alan

,

text -

Let me tell you what I learned from the expert. Any comments that

Reply to
blaha

The original case back in 1954, even with the Dad paying the hospital bills and making the mortgage payments, the adult son probably had made more than the exemption amount for the year, and therefore could not be counted as a dependent on the Dad's return.

-Doug

Reply to
Doug

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