IRS Looking for Gift Tax Cheats


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6-8-11

First, a little history on the IRS and audits. Back in the 70’s and 80’s, the IRS was very aggressive. You had a higher chance of audit and if they got you, look out. Then after the hearings in 90’s and some of the dirty tactics got exposed, the IRS backed way off.

Now, with soaring deficits, increased audit force and a new mood toward taxpayers (and it’s not good), the auditors are getting tough again. If there have been some things that have gotten a little sloppy, then look out – the IRS is after those things

One of the sloppy things has been the practice of signing over property to family members. You might have heard about this, maybe even done it. The idea is that as mom or dad gets older, you want to get property out of their name. It could be because they want to start moving property to their heirs. It could be because they want to qualify for some help and to do so, they need to not have assets. Whatever the reason, there is a LOT of bad information on how this works.

I’ve personally heard Escrow Agents from Title Companies, bankers and unqualified seminar promoters tell people to set up Land Trusts or just do a simple Quit Claim deed to move the property.

There are plenty of reasons why you don’t want to do that, including the fact that Quit Claim deeds void Title Insurance. But there is one other big issue.

It triggers gift tax.

A gift of over $13,000 in a year is subject to gift tax. So if Mom’s house is over $13,000 when she signs it over to you, there’s probably a lot of tax and penalties due right now. And the IRS would be happy to add up the invoice to force you to pay.

There is a right way to transfer property to avoid gift tax, but doing it without a strategy can mean a big problem down the line.

Now the question is how will the IRS find these gift tax cheats. Their plan to force states to disclose records of people who transferred property with little or no consideration to family members just reached one road blog, California just won a court case that says the IRS must go to the county, not the state. It’ll be more work for the IRS, but I suspect it’s not enough to make them quit. There is likely a lot of money that will due them.

If you suspect you have a gift tax issue, or want to make sure you avoid one, drop a note to Richard@USTaxAid.com to find out how a tax strategy can save you thousands of dollars.



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