February 10, 2009 - Phil Hodgen

Gifts made before 1991 – you’re home free

The Statute of Limitations is your friend.

The Statute of Limitations is tax lawyer insider jargon for “The IRS has X years to chase you and if they don’t catch you during that time you’re safe forever.”

The normal rule is that in order to get this protection you have to file a tax return. In other words, go wave the flag at the IRS, say “Here I am, come and get me!” and wait out the three years (or whatever the time is).

Gifts are often made without a gift tax return being filed. This means that the clock isn’t ticking. But for really old gifts, the clock IS ticking. And this may simplify a few people’s lives.

All of this is confirmed by a recently-release IRS emailed advice pronouncement.

The “clock doesn’t start ticking on gifts that aren’t reported” rule was passed in 1991. It is applicable to gifts made after October 8, 1990.

So for gifts made before October 8, 1990 — you’re home free. The IRS can’t tag you and claim gift tax.

Copy of the IRS email after the jump.

UILC: 6501.01-04
Release Date: 2/6/2009
ID: CCA-102110-08
Office: * * *
From: * * *
Sent: Thursday, October 02, 2008
To: * * *
Subject: FW: Gift Tax Question

Section 6501(c)(9), the unlimited statute of limitations for gifts that are not adequately disclosed on a return, was added to the Code in 1991 and is expressly applicable only to gifts after October 8, 1990. Prior to the enactment of section 6501(c)(9), section 6501(e)(2) applied a six-year statute of limitations for substantially omissions relating to gift and estate taxes, but I presume that statute has long run for the gifts described below. So, unfortunately, I don’t think the * * * and * * * gifts discovered by [sic] can be assessed. Please let me know if you have any questions.

Nonresidents with US Activities Tax and Trusts