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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 13258
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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scenario is husband and wife gifted in cash 10million (9million

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scenario is husband and wife gifted in cash 10million (9million came out of husband only accounts) no 709 return is filed because no actual taxes were due from any previous gifts and no 709 has ever been filed before...excluding a divorce, what would the worst consequences be?
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.

Greetings,

 

You wrote: "no 709 return is filed because no actual taxes were due from any previous gifts and no 709 has ever been filed before"

 

Do you mean that gifts more than the annual exclusion amount were given in the past but that the required return(s) were not (yet) filed?

 

When you ask "what would the worst consequences be?" are you asking about examination and penalties proposed or what are you meaning by "consequences"?

 

When you said having tried "only you" are you referencing a prior question asked here (since none show on this user) or are you saying this current question is the only thing so far you have tried? If there is a prior thread can you post a link so that can be referenced without asking again for the same information, please.

 

 

Thank you for clarifying your question so we can provide the answer you need.

Customer: replied 1 year ago.

no gifts more than annual exclusion given ever....just asking if no 709 is filed on the 10 million, what would the consequences be ...worst or any

Customer: replied 1 year ago.

no prior thread

Expert:  jgordosea replied 1 year ago.

Hello again,

 

On the Form 709 there is not any consequence for having made gifts less than the annual exclusion amounts.

Regardless of the total of those gifts there is no impact on the gift or estate return.

 

Gifts made during the calendar year to a donee are fully excluded under the annual exclusion if they are all gifts of present interest and they total $13,000 or less per donee.($13,000 in 2009-2012 and $14,000 on or after January 1, 2013)

 

There are no consequences for not filing, despite the amount in total, when no return was required so long as the total per donee was under the annual exclusion amount each year.

Of course, records should be maintained to document that the annual exclusion amount was not exceeded in any year to any donee, especially since it would be more than 600 gifts at or near the exclusion amount to get to a total of $10 million gifted.

 

Please ask if you need clarification.

Thank you.

 

Customer: replied 1 year ago.

all I am asking is if someone gave in cash 10 million and did not file a gift tax return form 709, what are the negatives that could happen on this scenario...

Expert:  jgordosea replied 1 year ago.

Sorry I thought that there was not any gift more than the exclusion and that no return was required.

 

There are possible civil or criminal penalties for failure to file or for evasion.

Please note that word possible - as they may or may not apply.

 

Late file penalty is five percent of the taxes due on the form, charged each month until the taxes are paid, but only up to 25 percent of the original tax due.

If the return was filed late because of fraud, an additional penalty of 15 percent is imposed per month. The fraud penalty cannot exceed 75 percent of the tax due.

 

A penalty of 20 percent is charged on underpayment of gift taxes due to an intentional undervaluation of the gift.

 

Penalties for tax evasion -- failing to file any form to avoid tax -- vary by situation, but usually do not exceed $100,000.

 

All of same possible penalties apply to estate and gift tax as are applicable to income tax.

See the table at http://www.wwwebtax.com/payments/penalties_and_interest.htm

 

Criminal penalties are not imposed, as a matter of policy, when the taxpayer voluntarily complies without notification from the IRS.

 

Most likely if the return was not filed the failure to file and failure to pay may be proposed. So, up to 50% of the tax due plus interest on the tax and the penalty could be proposed.

 

Worst case for voluntary compliance does not include criminal charges but the worst case would be the criminal tax penalties. For a list see http://www.taxdebthelp.com/tax-problems/tax-penalties/criminal-tax-penalties

 

Please ask if you need clarification.

Thank you.

 

 

 

 

 

Customer: replied 1 year ago.

so if there is no gift tax due because of the 10,250,000 exclusion how could there be any penalty or interest if no tax was due to begin with???


 


so again, what would be the other consequences that you know of?

Expert:  jgordosea replied 1 year ago.

Hello again,

 

There is gift tax on any amount that is over the 14,000 per person per year amount.

See form 709 lines 4 and 5 that show the amount of tax computed before the credit.

 

From http://www.irs.gov/irm/part20/irm_20-001-002r.html

"Amount Subject to IRC 6651(a)(1)

  1. The amount subject to the penalty is the tax required to be shown on the return, reduced by the following:

    1. The amount paid on or before the date prescribed for payment of the tax without regard to any extensions of time to file or pay.

    2. The amount of any credit against the tax that may be claimed on the return. See IRC 6651(b)(1)."

So if the credit on Form 709 reduces the tax that will reduce the amount subject to penalty (and yes may make it zero).

 

Indeed, just like the individual that does not file a 1040 when there is a refund due to the individual the amount subject to penalty may be zero.

 

But, I was attempting to answer what is the worst consequence although in many cases there may be little or no consequence.

I know that the full range of civil and criminal penalties can possibly apply to gift tax returns as well as income tax returns.

 

Sorry if I have made it more difficult that it already is.

Hope this clarifies for you.

 

 

Customer: replied 1 year ago.
Relist: Incomplete answer.
just answer my question
Expert:  Megan C replied 1 year ago.

Thanks for asking your question, I am a licensed Certified Public Accountant and I'm here to help! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

I'm so sorry for any confusion. I see that you and your wife are wanting to give away $10 million, which would result in no gift tax due because of the lifetime credit of $5.2 million each.


However, I noticed that you have $9 million in gifts, where your wife has $1 million. In order to do this, you would formally need to gift $4 million to your wife, which you can do tax free, or else you would have a $4 million taxable gift - and if you didn't file a return, there would be penalties and interest due.

You're essentially asking that, since no tax is due (once you gift the $4 million to your wife), what are the consequences of not filing the gift tax return. We can not advise you to not file the return, because as you know about the requirement to file the return, not filing it would be willful failure to file which comes with severe penalties.

However, if you failed to file the return and then were subject to a random gift tax audit (which are extremely rare, but do happen) then most likely nothing would happen - penalties are assessed based on unpaid tax, and unless there was something out of the ordinary you would be no penalty.

On the other hand, the IRS tracks your lifetime credit, and in the future if you gave away gifts more than the annual exclusion amount - those gifts would be taxable. If you then failed to file those returns, tax would be due and penalties would be assessed. So, it's in your best interest to file the returns.

I hope you find this helpful. Please let me know if you need any further clarifications or if we missed something in your question. Thanks again for using JustAnswer.com - and please take a moment to rate my response as "excellent" so that I may recieve credit for assisting you today.

Customer: replied 1 year ago.


ok, then to complete this all the way, would the wife still have 4 million under current laws to use as her exemption?

Expert:  Megan C replied 1 year ago.
Thank you for your follow up question. If I understand you correctly, you have $10 million you want to give away. You want to gift $9 million and your wife $1 million.

If you do not gift your wife $4 million, so that you each can gift $5 million - then $4 million of the $10 million would be taxable. As such, you would owe tax, and if you did not file your form 709 then you would be leaving tax unpaid, which could result in penalties and interest.

If you do not gift your wife $4 million, and instead pay gift tax on the $4 million excess gift you give, then yes - she would still have a $4 million exemption to use at some later date.

I hope this makes sense. Please let me know if you need anything additional. If not, please rate as "excellent" so that I may receive credit for assisting you today.
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 13258
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and other Tax Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
Thank you for your positive rating, and generous bonus. It is greatly appreciated. If you need anything else in the future, please do not hesitate to come back to me. I also answer financial and social security questions in addition to tax questions.

Again I thank you, and apologize for any confusion you may have had in your quest for your answer.

Thanks!

Megan

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