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My father in law is a farmer in Nebraska. He “gave” his combine

to his son in law...
My father in law is a farmer in Nebraska. He “gave” his combine to his son in law who farms most of his land for him. He told the son in law that instead of paying him for the combine, divide the amount evenly to the other three siblings. So my wife and I both received a check for $20,000 each.

When I spoke to my father in law he informed that I needed to claim to funds as unearned income on my taxes for 2012, and to let my accountant know that the funds came from the sale of farm equipment. After speaking to my accountant she informed me that I don’t pay the taxes on the money. She asked to to contact my brother in law and ask him if he is sending me a 1099. I contacted my brother in law and asked him if he was sending me a 1099 and if so how was he going to code it (which to my understanding he could have only coded it as unearned income). He informed me that he was going to discuss this with his accountant and call me back. When he called me back he informed me that his accountant told him that I was not going to receive a 1099 for the funds. His accountant informed him that the transaction was to be treated as if the siblings sold the combine to him. The only question I have with that analogy is that we never owned the combine.

I’m in a difficult situation here as I don’t want to cause any problems, but I also don’t want to be responsible for the taxes if I’m not liable for them. My wife does not work and we file separately, so if we are responsible for the taxes, are we individually responsible for the $20,000 we received? If this is deemed a “gift” are we only responsible for the difference between the annual allotted gift amounts? For example my father in law or brother in law can gift us up $12,000 a year from my understanding. So would my wife and I be responsible for $8,000 individually?

Thanks for your assistance, and I will be happy to provide more information if needed
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Answered in 4 minutes by:
2/8/2013
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,888
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified

Robin D :

Hello and thank you for using Just Answer,
Your accountant is correct. You did not own the combine so you could not sale it. Your father-in-law sold it or gifted it to your brother-in-law. Your father -in-law then gifted the money to you and your wife. If he splits the gift between the two of you then he does not have to report the gift to you and your wife because it is under $13,000.
You are not responsible for reporting the gift nor for paying any tax on this money. Your father-in-law bears all the responsibility in this act.

Robin D :

Since you each got $20,000 your father-in-law must report the gifts to you each that was more than $13000 but you still need do nothing.

Customer:

So it's my father in laws tax liability not my brother in laws?

Robin D :

Correct

Robin D :

Father-in-law owned the combine. He also sold it. Even if he directed the income to be given to other parties, he still sold it.

Customer:

My father in law informed me that he was not gifting the money to us. He wanted me to inform my accountant that the funds came from the sale of a combine which is farm equipment. That has no bearing?

Robin D :

Only for him because then he would not have to report the sale. If you own no interest in that farm you are not allowed to absorb his income or deductions. IRS does not allow for reassignment of income.

Robin D :

He would have had to gift the combine to you prior to the sale for you to be able to sale it.

Customer:

Understood...Thanks for your assistance!

Robin D :

Your positive rating is always thanks enough.

If you could also participate in the very short survey that Just Answer will send you by e-mail I would appreciate that very much.

Robin D :

Listen to your accountant!

Customer:

Ok

Robin D :

Thanks

Robin D :

Let me know if you cannot see the rating option. Sometimes there are problems in CHAT with that.

Customer:

Are you still available?

Robin D :

Yes

Customer:

One more question

Robin D :

Ok

Customer:

What happens to the other siblings that pay taxes on the money? are they essentially giving money to the IRS for nothing?

Robin D :

Yes

Robin D :

Plus they are filing incorrect returns.

Customer:

And them paying the taxes in no way alleviates my father in law from his responsiblity?

Robin D :

Not at all!

Customer:

Ok

Customer:

Thanks again!!!!

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,888
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
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Category: Tax
Satisfied Customers: 15,888
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