One of the most misunderstood taxes is by far the federal gift tax. The federal gift tax applies to transfers of property from one person to another where the recipient does not pay fair market value for the property, or, in the case of gifts of cash, the recipient does not give anything of value in return for the cash. If you make one or more of these types of transfers to someone else during the course of any given year, then you may need to file IRS Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, with regard to gifts that you have made. For the 2009, 2010, 2011 or 2012 tax years, transfers of this type will require the person making the transfer to file IRS Form 709 under the following circumstances:
- The total value of all gifts made to the same person within the same calendar year exceeds $13,000. Gifts that do not exceed $13,000 per year to the same person in 2009, 2010, 2011 or 2012 qualify for the annual exclusion from gift taxes. On the other hand, if you give your son $10,000 to buy a car and another $5,000 to pay off his credit card debt in 2012, then you have made a taxable gift to your son in the amount of $2,000 and you, as the gift giver, are required to file IRS Form 709 but your son will not incur any income tax or gift tax consequences. Note that the annual gift tax exclusion has increased to $14,000 as of January 1, 2013.
- Your spouse gives one or more gifts to the same person that exceed $13,000 in value in the same calendar year and you and your spouse agree to "split" the gifts between the two of you. As mentioned above, gifts that do not exceed $13,000 per year (or $14,000 in 2013) to the same person qualify for the annual exclusion from gift taxes. On the other hand, if your spouse gives his son $10,000 to buy a car and another $5,000 to pay off his credit card debt in 2012 and the entire $15,000 came from an account in your spouse's sole name, then your spouse has two options: (a) File Form 709 and report $2,000 in taxable gifts to his son; or (b) File Form 709 and report that you and your spouse have elected to divide the gifts between the two of you so that each of you is deemed to have made a $7,500 gift to the son. Gift splitting in this manner is what is referred to as a "legal fiction" - in other words, while your spouse is the only one who really made the gifts, the Internal Revenue Code allows you and your spouse to elect to say no, the gifts really came from both of us and so in the end no taxable gifts were made. While gift splitting is a total figment of the Internal Revenue Code, it is a perfectly legal and legitimate gift tax position.
- The total value of gifts made from a spouse who is a U.S. citizen made to a spouse who is not a U.S. citizen exceeds a specific value in 2009, 2010, 2011 or 2012. Instead of the $13,000 annual exclusion limit for gifts made to a non-spouse in 2009, 2010, 2011 or 2012 and the unlimited marital deduction for gifts made to a spouse who is a U.S. citizen, gifts made to a spouse who is not a U.S. citizen are limited to a specific dollar amount which is indexed for inflation each year. Below is a chart which shows the specific limits for gifts to non-citizen spouses for 2009 through 2012:
- You make a gift of a future interest to anyone during the course of the year. A gift of a future interest is one that the recipient will not be allowed to enjoy for a number of years. Examples include a gift made to a Qualified Personal Residence Trust or a gift made to any other type of irrevocable trust in which one or more beneficiaries do not have the immediate right to withdraw and use the gifted property.
When is IRS Form 709 Due?
IRS Form 709 is due on or before April 15 of the year following the year that you have made taxable gifts. If you are not sure if gifts that you have made during the course of the year should or should not be reported to the IRS on Form 709, then consult with your estate planning attorney and accountant well before April 15 of the following year to be sure.