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IRS Frequently Asked Questions on Gift Taxes

posted Mar 11, 2016, 11:29 PM by Zaher Fallahi

Below are some of the more common questions and answers about Gift Tax issues. You may also find additional information in IRS Publication 559. 


Who pays the gift tax?

Generally, the donor is generally responsible for paying the gift tax. Under special circumstances the donee may agree to pay the tax instead.


What is considered a gift?
Any transfer to an individual, either directly or indirectly, without of full consideration in return.


What can be excluded from gifts?
Generally, any gift is a taxable gift. Of course, there are many exceptions and the following are not taxable gifts.


1- Gifts that do not exceed the annual exclusion of $14,000 for the calendar year 2016.

2- Tuition or medical expenses you pay for someone that are paid directly to an educational institution or medical facility (physician, hospital, etc.).

3- Gifts between spouses.

4- Gifts for the use of a political organization

5- Gifts paid to charitable organizations.


May I deduct gifts on my income tax return?
Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make, except the gifts to charitable organization.


How much annual and life-time exclusion are available?
The annual exclusion applies to gifts to each donee. You can give each of your children $14,000 in 2016 without being required to file a gift tax return for it.


What if my spouse and I want to give away property that we own together?
You are each entitled to the $14,000 of annual exclusion amount on the gift. Together, you can give $28,000 to each donee and split the gift, must file gift tax return for each spouse.


What other information do I need to include with the return?

The form 709 and among other items listed:

1- Copies of appraisals.

2- Copies of relevant documents regarding the transfer.

3- Documentation of any unusual items shown on the return (partially-gifted assets, other items relevant to the transfer(s)).


What is "Fair Market Value?"
Fair Market Value is defined as: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller.


Whom should I hire to represent me and prepare and file the return?
The IRS cannot make recommendations about specific individuals or firms, but there are several factors to consider:

1- Complexity of the transfer.

2- Size of the transfer.

3- Do I need an attorney, CPA, Enrolled Agent (EA) or other professional(s)?


For most simple, small transfers you may not need the services of a professional.  However, if the transfer is large or complicated or both, then these actions should be considered;


It is a good idea to discuss the matter with attorneys, CPAs or EAs. Ask about how much experience they have had and ask for referrals. This process should be similar to locating a good physician. Locate other individuals that have had similar experiences and ask for recommendations. Finally, after the individual(s) are employed and begin to work on transfer matters, make sure the lines of communication remain open so that there are no surprises.

Finally, people who make gifts as a part of their overall estate and financial plan often engage the services of both attorneys and CPAs, EAs and other professionals. The attorney usually handles wills, trusts and transfer documents that are involved and reviews the impact of documents on the gift tax return and overall plan. The CPA or EA often handles the actual return preparation and some representation of the donor in matters with the IRS. However, some attorneys handle all of the work. CPAs or EAs may also handle most of the work, but cannot take care of wills, trusts, deeds, etc.  and matters where a law license is required. In addition, professionals such as appraisers, surveyors, financial advisors and others, may be engaged during this time


Do I have to talk to the IRS during an examination?
You do not have to be present during an examination unless IRS representatives need to ask specific questions. Although you may represent yourself during an examination, most donors prefer that the professional (s) they have employed handle this phase of the examination.


What if I disagree with the examination proposals?
You have many rights and avenues of appeal if you disagree with any proposals made by the IRS.  See Publication 1 and 5 for an explanation of these options.


What if I sell property that has been given to me?
Generally, your basis in the property is the same as the basis of the donor. For example, if you were given stock by your patents that they had purchased for $10 per share, and you later sold it for $100 per share; you would pay income tax on a gain of $90 per share.


Most information for this page came from the Internal Revenue Code: Chapter 12--Gift Tax (generally Internal Revenue Code §2501 and following, related regulations and other sources)


Can a married same sex donor claim the gift tax marital deduction for a transfer to his or her spouse?
For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married.  Also, the Service will recognize a marriage of individuals of the same sex that was validly created under the state laws even if the married couple resides in a state that does not recognize the same-sex marriages.  However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.


Zaher Fallahi, Tax Attorney, CPA, advises clients with to tax and gift tax preparation, tax planning, IRS representation, and resolving tax controversy with respect to unreported foreign bank accounts and foreign trusts; FBAR, FATCA and OVDP. We may be reached at (310) 719-1040 (Los Angeles), (714) 546-4272 (Orange County), or e-mail to: [email protected]