Wednesday April 24, 2024

1.2.6 Gift Tax Calculation and Form 709

Gift Tax Calculation and Form 709

Calculation Procedures: The general structure of the gift calculation process is as follows.

Form 709 Due Date: Form 709 is due April 15th of the year following the gift.

Calculation of gift tax is a cumulative process. All prior gifts and prior gift taxes payable under current schedules are considered when calculating the current gift tax payable. Under Sec. 1015(d), the basis of property may be increased if gift tax was paid upon the gift transfer. The unified gift tax exemption can be applied only up to amount of the gift tax liability, any gifts in excess must be paid by the donor.

Calculation Procedures

The general structure of the gift calculation process is as follows:

CURRENT GIFTS	____________________
PRIOR GIFTS	____________________
TOTAL GIFTS SUBTOTAL	____________________
MARITAL DEDUCTION	____________________
CHARITABLE DEDUCTION	____________________
ANNUAL EXCLUSION	____________________
NET TAXABLE GIFT	____________________
TENTATIVE TAX	____________________
GIFT TAX CREDIT	____________________
TOTAL TAX	____________________

Example 1.2.6A Gift Tax Payable In Year 2024

Harold Wilson has made gifts to his daughter Susan over the past three years in excess of his annual exclusion. The excess gifts are $2,250,000, $2,360,000 and $2,470,000, respectively. He makes a gift this year to Susan of $5,331,000 and also gives $1,000,000 to charity.

The Form 709 gift tax return will be as follows:

Current Gifts	$6,000,000
Prior Gifts	$7,080,000
Total Gifts Subtotal	$13,080,000
Marital Deduction	0
Charitable Deduction	$1,000,000
Annual Exclusion	$17,000
Net Taxable Gift	$12,063,000
Tentative Tax	$4,771,800
Gift Tax Credit	$5,389,800
Total Tax	$0

Form 709 Due Date

Form 709 is due April 15th of the year following the gift. It includes for each transfer a description of the asset, the donor's basis, the date of the gift and the value of the gift. The tax is payable at the time the return is due. Gift tax that is not paid could subject the donor to liability for an additional penalty of .5% each month the tax is late, with a maximum of 25%. Sec. 6651(a)(2). Valuing the gift and filing the Form 709 will start the three-year statute of limitations running, provided that there is "adequate disclosure." Reg. 25.2504-2.

Private Letter Rulings

PLR 200221010 Service Revalues $200,000 Gift to $14M after Statute of Limitations Period: The Service has issued an IRS Legal Memorandum in which it revalued a gift with a claimed amount of $200,000 to $14 million. In ILM 200221010 (12 Feb 2002), the taxpayer had acquired a 20% interest in ABC LLC in 1997. Subsequently, the taxpayer transferred the 20% interest to a generation-skipping trust and a family trust. The taxpayer and spouse filed the Form 709 gift tax return and noted "Class B units in ABC LLC, Units acquired on 4/6/97 for $200,000." The taxpayer claimed a gift value of $200,000. The gift tax return was due on April 15, 1998, but was not filed until October 9, 1998.

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