Eight years ago, Alex made gifts of all his assets to family and friends. Althou

Question

Eight years ago, Alex made gifts of all his assets to family and friends. Although the transfers would have generated gift taxes, none were paid and no gift tax returns were filed. At present, no one knows where Alex is or even if he is still alive. The IRS has discovered that the gifts were made and is pursuing the donees for the gift tax due. Comment on the validity of the following defenses posed by the donees. a) The donor, not the donee, is responsible for the payment of any gift tax due. b) The assessment of any gift tax is barred by the statue of limitations

Explanation / Answer

The person who makes the gift files the gift tax return, if necessary, and pays any tax.

If someone gives you more than the annual gift tax exclusion amount ($14,000 in 2015 and 2016), the giver must file a gift tax return.

Does the gift recipient ever have to pay gift tax?

If the donor does not pay the tax, the IRS may collect it from Donee.

No Statute of Limitation

The Code states that the IRS can assess tax or bring a suit to collect (unassessed) tax at any time in certain situations [IRC Sec. 6501(c)]. Of the several situations listed, the following are the most prominent:

1. The taxpayer does not file a return [IRC Sec. 6501(c)(3)].

2. A false or fraudulent return is filed with the intent to evade tax [IRC Sec. 6501(c)(1)]. The IRS has the burden of proving this for each year it assesses tax under the unlimited limitations period of IRC Sec. 6501(c)(1) [Harold L. King, TC Memo 1979-359 (1979)].

3. The taxpayer attempts to defeat or evade any tax, other than income, estate, and gift tax [IRC Sec. 6501(c)(2)].

However, other situations in which the statute remains open include the failure to notify the IRS of certain foreign transfers [IRC Sec. 6501(c)(8)] and not showing the gift tax required to be shown on a gift tax return [IRC sec. 6501(c)(9)]

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