In 2012 taxpayers and their advisers were scratching their heads about the presidential election and its impact on future gift and estate tax exemptions because the $5 million inflation indexed per person federal estate and gift tax exclusion was scheduled to drop to $1 million on January 1, 2013.
Consequently, many wealthy matriarchs and patriarchs decided to make substantial gifts to family members by December 31, 2012 in order to report them on Form 709, gift tax returns, that needed to be submitted to the Internal Revenue Service by October 15, 2013 along with their personal tax returns. (*) The intent, of course, was to reduce the size of their taxable estates.
In 2012 and 2013 approximately 258,000 and 369,000 Form 709s were filed with the IRS. The aggregate amount of the gifts in those years was nearly $135,000,000,000 and $421,000,000,000, which was significantly higher than preceding years.
Many practitioners were expecting an influx of audits in 2015 and 2016 associated with the aforementioned 2012 and 2013 filings because once a Form 709 is filed and a gift fully disclosed, the IRS may not reopen the gift tax return if three years have passed. Data regarding 2014 audits has not yet been released by the Service. However, our conversations with estate planners, accountants, financial advisers, and trust officers indicate that very few 709s filed for the 2012 calendar year have been audited to date.
We will continue to keep you apprised of the number of audits in the State of Arizona and United States, the nature of the audits, and the manner in which the IRS attacks business appraisers’ opinions of value and lack of control and lack of marketability discounts applied to noncontrolling, nonmarketable minority interests in family businesses in 2012.
By Gary Ringel, CGREA
(*) The American Taxpayer Relief Act bill of 2012 (“2012 Tax Relief Act” or “Act”) was approved by the Senate and Congress on January 1, 2013 and signed into law by President Obama on January 2, 2013. As it turned out, the 2012 Tax Relief Act continued the estate tax exemption of $5 million, indexed for inflation from 2011. The Act also provided for a maximum estate tax rate of 40%. Therefore, in 2013 a married couple could make lifetime gifts having a value up to $10.5 million without incurring any federal gift tax.
The source for statistics related to Form 709 filings is the Internal Revenue Service.
The source for information regarding the American Taxpayer Relief Act is a January 16, 2013 article titled “Summary of Estate and Gift Tax Law Changes for 2013” authored by SchiffHardin LLP.