Sage-Tips

Does the IRS audit gift tax returns?

There is no statute of limitations for the IRS to initiate a gift tax audit if the taxpayer did not file a gift tax return for the year of a gift (or as to unreported gifts made in a year for which a gift tax return was filed to report other gifts).

What triggers a gift tax return?

If you give more than $15,000 in cash or assets (for example, stocks, land, a new car) in a year to any one person, you need to file a gift tax return. Gifts between spouses are unlimited and generally don’t trigger a gift tax return. Gifts to nonprofits are charitable donations, not gifts.

What is the penalty for not paying gift tax?

If you fail to file the gift tax return, you’ll be assessed a gift tax penalty of 5 percent per month of the tax due, up to a limit of 25 percent. If your filing is more than 60 days late (including an extension), you’ll face a minimum additional tax of at least $205 or 100 percent of the tax due, whichever is less.

What happens if you forget to file Form 709?

A penalty is usually charged if your Form 709 is filed after the due date (including extensions). It is usually 5\% of the tax not paid by the original due date for each month or part of a month your return is late. The maximum penalty is 25\%. You might not owe the penalty if you have reasonable cause for filing late.

How does IRS know if you give a gift?

The primary way the IRS becomes aware of gifts is when you report them on form 709. You are required to report gifts to an individual over $15,000 on this form. However, form 709 is not the only way the IRS will know about a gift. The IRS can also find out about a gift when you are audited.

How long does the IRS keep gift tax returns?

If you report anything on a gift tax return (Form 709), keep a copy of the form indefinitely.

Is IRS Form 8891 still required?

Form 8891 was discontinued by the IRS for tax years beginning Jan. 1, 2015 and later. Taxpayers are no longer required to file Form 8891 for any year past or present. See the IRS news release “IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements”.

Does a gift from your parents have to be reported to the IRS as income?

You most likely won’t owe any gift taxes on a gift your parents make to you. Depending on the amount, your parents may need to file a gift tax return. If they gave you or any other individual more than $30,000 in 2020 ($15,000 per parent), they need to file some paper work.

Do cash gifts need to be reported to the IRS?

Cash gifts up to $15,000 per year don’t have to be reported. Excess gifts require a tax form but not necessarily a tax payment. Noncash gifts that have appreciated in value may be subject to capital gains tax. Cash payments between individuals typically don’t have to be reported.

Is there a penalty for not filing a gift tax return if no tax is due?

The IRS can impose penalties for not filing a gift tax return, even when no tax was due. The gifts might not be taxed, because of the lifetime gift tax exclusion. But the gifts reduce the lifetime exclusion and must be reported so the IRS can track your use of the lifetime exclusion amount.

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