Chapter 12 - Gift Tax Flashcards
Subchapter A - Determination of Tax Liability
2501-2505
(K) Transfers Excluded From the Gift Tax Base (3)
Annual Exclusion
Tuition and Medical Expenses
Political Contributions (and 501(c)(4),(5), and (6)) (3)?
Imposition of Tax (Gift)
2501
(a) Tax is assessed on transfers of gifts.
Gift tax does not apply to contributions to political organizations. Also orgs 501(c)(4),(5),&(6). (3)?
Rate of Tax (Gift)
2502
Taxable Gifts
2503
Taxable Gifts are total gifts made during the year subtracted by deductions of Subchapter C
Annual exclusion applies per donee for gifts during the year except for gifts of future interests.
(c) Gifts to minors will not be considered future interests if they are expendable for the minor’s benefit before 21 (3rd party spending can be limited to HEMS standard but cannot require them to consider other availabe resources) and any unspent amounts pass to donee at 21 and assets pass to donee’s estate with GPOA if they pass before 21.
(e) Exclusion for amounts paid for tuition and medical expenses. Must be made directly to education institution and medical provider.
Loans of artworks to 501(c)(3) organizations not considered gifts.
Additional Annual Exclusion Present Interest Considerations
Income Interests
Periodic payments of interest can count as present interests, but not deferrals such as ability to accumulate until age of majority. Trustee’s discretion to pay income or accumulate busts present interest classification.
Trustee’s discretion to distribute principal to one other than income beneficiary busts present interest unless “so remote to be negligible” (Jones v. Commissioner T.C. 1957). Principal distributions to the income beneficiary are fine.
Administrative powers that are overly broad can bust present interest status
Unproductive property may bust present interest status depending on circuit.
Contractual Rights to Future Payments
If not in trust, contractual rights to future payments generally considered present interests.
Gifts of LLC interests may not be present interests if significant restrictions on sale plus little chance of realizing income.
Checks must be deposited before year end and unconditionally gifted to count as within year even if not cleared.
Crummey Withdrawal Rights
Cristofani v. Commissioner allows for holders of mere contingent/nonvested remainders in a trust to be eligible Crummey recipients. However, Service says it will still pursue cases where facts indicate intent was merely to obtain annual exclusions.
Service has stated it will challenge Crummey powers only enforceable through arbitration clauses rather than courts.
Additional Annual Exclusion Leverage Attempts
Intentional Use of Intermediaries
Annual exclusion gifts to a bunch of friends who then make those annual exclusion gifts to one of your family members will be collapsed/shammed.
Front-Loading
Can try to make loan and then forgive amount of annual exclusion every year. Court will uphold or strike based on intent/plan.
529 plans are explicitly authorized for front-loaded exclusions.
Taxable Gifts for Preceding Calendar Periods
2504
Unified Credit Against Gift Tax
2505
Subchapter B - Transfers
2511-2519
Transfers in General
2511
Gift tax applies whether transfer is in trust or not; direct or indirect; and whether property is real, personal, tangible or intangible.
Only applies to nonresident noncitizens if transfer involves property situated in United States.
Treatment of Loans with Below-Market Interest Rates
7872
Defines gift loans as below-market loan where forgoing of interest is in nature of a gift. Divided into two categories of demand loans and term loans.
Demand loan is below market if interest is less than federal short-term rate. Term loan is below market if amount loaned exceeds PV of all payments due under loan computed using discount factor equal to AFR.
Demand loans generally more useful for planning because “gifts” are made each year, whereas gift under term loan is made all at once right away.
De minimis exception for loans of $10,000 or less made between individuals.
Valuation of Gifts
2512
Value of property is considered the amount of the gift on the date the gift was made. Difference in value of transferred property and consideration is a gift.
Transfers in the ordinary course of business are deemed to be made for adequate and full consideration 25.2512-8
Gift by Husband or Wife to Third Party
2513
