It appears that the IRS is initiating a program to sniff out gift tax cheaters who are not properly filing their gift tax returns. The IRS estimates that between 60% and 90% of taxpayers who transfer real estate for little or no consideration to family members fail to file form 709 to report the gift. The IRS is now checking real estate transfer records for 15 states: Conn., Fla., Hawaii, Nebraska, NH, NJ, NY, NC, Ohio, PA, Texas, VA, WA, and Wisconsin. So far, over 500 taxpayers have been audited and many more are lined up for audit.
Our normal method of making these types of gifts is to form a partnership or LLC and then gift the partnership or LLC interest. In this case we can many times apply a minority and lack of marketability discount and there is no filing of the transfer of the real estate so nothing for the IRS to catch.
Remember, even if the gift is not taxable, if it exceeds $13,000 to any one person in a year, you are required to file a gift tax return on form 709. Our advice if your are making non cash gifts is to file a gift tax return even if you are under the $13,000 threshold to start the three year statute of limitations.
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