- To prepare for the worst case, assuming that, I did the gifting this year (but the amount was below unified lifetime credit), then a couple of years later, IRS catches my case and judges that I was actually a resident (not a NRA) when I did the gifting. If this happens, I will be forced to file gift tax return and pay gift tax by then. In this case, because I can still claim to count this gift towards my unified lifetime credit and by doing so, I should not owe any gift tax to IRS anyways, right? Just wonder, is there still any late filing penalty for this not-owing-any-tax case? If so, how to calculate it?
If your incorrectly determine your residency status for tax purposes - then - yes - you would need (1) amend your tax return - and file it as a resident alien and (2) file the gift tax return. And - yes - you may claim the unified lifetime credit against gift taxes.
That would be the donor who files form 709 - gift tax return - not recipients of the gift. The gift tax return is required when the total value of the gift is above $14,000 (for 2013) per person per year. There will not be any gift taxes unless the lifetime limit of $5,250,000 (for 2013 - adjusted every year for inflation) is reached.
So - it is likely that the gift tax return will be required to be filed by the donor, but there will not be any gift tax due. The US person is required to file the gift tax return if the gift he made per person per year is above the filing threshold.
- For the hypothetical case above, when I claim to use the unified lifetime credit, I am actually claiming based on the credit amount in the year I did gifting rather than in the year I am filing the return (which could be a couple of years later than the year I did gifting), right?
That is correct - all calculations are done on form 709.
Assuming you are a resident alien and gift in 2013 to another person $500,000.
Your taxable gift would be $500,000 - $14,000 (annual allowance) = $486,000.
That amount will go against the unified lifetime credit - so your remaining unified lifetime credit after 2013 would be $5,250,000 - $486,000 = $4,764,000
- To prevent the worst case from happening, do you think it is OK to still file form 709 to notify IRS about this gifting regardless, even though I think I am still a NRA this year? So that I fulfill (actually over-fulfill) my responsibility. But if I do so, does it mean that IRS will just consider me as a resident alien and count this amount into my unified lifetime credit and there is no way for me to argue that "this should not be counted because I was a NRA when gifting" in the future anymore?
To prevent so-called "the worst case from happening" - you need correctly determine your status. If you think that your status might be determined incorrectly - you may want to contact a tax attorney specialized with nonresident aliens - and ask for written determination. Then - you may attach the document to your tax return informing the IRS about your reasoning - so if the IRS disagree - they would send you a note. So - you would clearly disclose your position - if your position would be accepted - the IRS will not send any notice.
Filing gift tax return AND the tax return as a nonresident - are contradicting actions and might trigger additional questions from the IRS.