Q: My understanding is that a gift to someone that is to be jointly shared with a spouse, even if it is less than the exclusion amount for the gift, must be reported on a gift tax return (Form 709) to the IRS. Is that true? In order to avoid estate settlement problems later, should gift tax returns be submitted for prior years in which gifts were given but no gift tax returns were submitted? Would there be penalties, fees, etc. for late returns (assuming that the life time exemption is not exceeded)? Is there an amnesty or forgiveness program for those who fess up to their ignorance of the law?
Robert
Sacramento, CA
A: There are a number of aspects to your question. Let's look at them one at a time.
The first part of your question concerns the concept of "gift splitting" between spouses. Whether you will benefit from gift splitting depends on whether your gift was made from separate property or community property. If your gift was made from separate property, and it exceeded the annual exclusion amount ($13,000 for 2012, $14,000 for 2013), then electing to split the gift with your spouse would allow you to use her annual exclusion amount, also. You must file a gift tax return to make this election.
If the gift was made from community property, then each spouse is treated as having given 50% of the gift. Gift splitting is not necessary in this case.
Now, let's see if you have to file a gift tax return. If you made a gift in excess of the annual exclusion amount, or you want to elect "gift splitting," then you need to file a gift tax return, IRS Form 709, to report the gift. If your gift is less than the annual exclusion amount, you do not have to file a gift tax return.
For example, if you made a gift of $15,000 to a donee in 2012, then you would have to report a $2,000 taxable gift ($15,000 less the $13,000 annual exclusion amount). That doesn't mean that you will owe any gift tax because there is an applicable exemption amount, a credit against gift and estate tax, equating to $5,120,000 in value for 2012 ($5,250,000 for 2013, indexed for inflation thereafter) that would offset the tax on the $2,000 taxable gift, assuming no previous taxable gifts. You would not actually owe any gift tax until your taxable gifts exceeded the "applicable exemption amount."
The annual exclusion applies "per donee, per year." If you made three $13,000 gifts to three different people in 2012, then you reduce each of the gifts by $13,000 in calculating whether you made a taxable gift. You would not have made a taxable gift in this example and you would not have to file a gift tax return.
To further clarify, if you made two $8,000 gifts in 2012 to the same person, then you would have to report a $3,000 taxable gift ($8,000 plus $8,000 less the $13,000 per person, per year exclusion amount).
Gift tax returns are due April 15th of the year following the year of the gift, the same due date as for filing income tax returns. You can request a 6 month extension of time to file your gift tax return using either the same extension form as for income tax purposes (IRS Form 4868) or an extension request specifically for gift tax returns (IRS Form 8892). You must pay any gift tax due with the extension request as it is an extension of time to file, not an extension of time to pay.
Each spouse has to file their own gift tax return, if one is required. There is no provision for filing "jointly." The gift tax is a transfer tax that applies to each person individually.
It is important to file gift tax returns if you made gifts in excess of the annual exclusion amount. You need to keep track of how much of your "applicable exemption amount" you have left. The "applicable exemption amount" is a credit against both gift and estate tax, as mentioned above.
There is no penalty for filing a gift tax return late, unless tax is due with the return. If tax is due with the return, the penalty is 5% for each month or portion of a month that the return is late, up to 25%. There is also a late payment penalty of .5% per month, or portion of a month. The .5% is included in the 5% for the first five months, in essence. In addition to the penalties, interest is due on late paid tax.
I am not aware of any amnesty programs for late filing and paying of gift taxes. There is a "reasonable cause" relief provision for the penalties. Unfortunately, ignorance of the filing and paying requirements is not considered reasonable cause.
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