Filing Your Gift Tax Return Late? Here's Why You Shouldn't

Posted by Daniel LaForge on Mar 13, 2023 7:30:00 AM
Daniel LaForge
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We all do our best to file tax returns on time. But when the deadline is approaching and we’re all so busy, we might think, “There’s no tax, so what’s the harm. I’ll just get it done when I can”. Sounds reasonable, right?

Consider the following:

  1. When you file, a three-year time period begins during which the IRS can challenge a gift return. This alone should be enough motivation to file on time. Where gifted property valuation matters are involved, it’s always best to file and start the clock. The three year clock does not start if gifts are not “adequately disclosed”.
  2. Most tax elections (i.e.: Electing out of GST exemption automatic allocation rules, gift splitting, 529 plan 5 year gifting) are generally required to be made on a timely filed return.
  3. The rules get tricky here, but where GST exemption is being allocated to gifts, you must file on time to use the gifted properties value at date of transfer. On a late filing, you need to make a late allocation of GST exemption using the gifted properties value at the late allocation date. This can be problematic if the value has increased substantially, new valuations need to be done and GST tax may now be due.
  4. When gifted property is transferred to a trust, it is always a good exercise to see if allocating the GST exemption to the gifted property fits the donor’s overall estate plan. As noted in item #3, this should be addressed before the filing deadline.
  5. An IRS audit of a decedent’s 706 estate filing typically involves a search for unreported lifetime gifting (i.e.: review of past real estate title transfers, etc.), where a 709 gift return was not completed. Using the DOD value vs. a potentially much lower date of gift value chews up more of the GST lifetime exemption.

As you can see, there are a lot of important reasons to file on time. The only exception may be if you’re gifting “cash” to an “individual”. In this case, you’ll likely be ok filing late, although it’s not recommended. Best to file on time!

If you have questions about gift tax filing obligations, leave a comment below, or feel free to contact me directly. I’m happy to help!

Topics: Estate Tax, Estate Planning, gift tax