Gift tax SOL disclosure final regs.

• Author: Vandermeulen, Bruce A.
• Position: Statute of limitations; IRS regulations

On Dec. 2, 1999, the IRS issued Regs. Sec. 301.6501 (c)-1(f), defining "adequate disclosure" for gifts as required under Sec. 6501 (c)(9). Adequate disclosure requires sufficient information be included on a gift tax return to apprise the Service of the nature of a gift. The statute of limitations (SOL) will not start for any gifts not adequately disclosed on a gift tax return. Obtaining the three-year SOL is important, as the SOL runs with respect to all issues, not just those for valuation. The regulations apply to all gifts made after 1996, if the return is not filed until after Dec. 3, 1999.

Previously, the regulations required special disclosures for gifts subject to Chapter 14 (dealing with certain transfers to family members when the donor has retained a certain type of interest in the property transferred) of the Code. The IRS has now issued disclosure requirements applicable to all other gifts (referred to as Chapter 12 gifts). The original disclosure requirements for Chapter 14 gifts continue to apply only to Chapter 14 gifts. The new disclosure rules apply to all non-Chapter 14 gifts. Exhibit 1 lists the disclosures under these two chapters. This will explore some differences between the proposed and final Chapter 12 regulations and highlight some differences between the final Chapter 12 and Chapter 14 disclosures.

Exhibit 1

Section A--Disclosure Required for Transfers Subject to Chapter 12 (Regs. Sec. 301.6501 (c)-1 (f))

1. A description of the transferred properly and any consideration received by the transferor.

   Comment: A part-sale/part-gift transaction must now be disclosed under these rules. Previously, only the gift portion of the transaction would be reported.

2. The identity of, and relationship between, the transferor and transferee.

   Comment: This information has always been required on a gift tax return.

3. If the properly is transferred in trust, the trust's tax identification number (TIN) and a brief description of its terms, or in lieu of a brief description of the trust terms, a copy of the trust instrument.

   Query: For a trust that is defective for income tax purposes (which is the case with many insurance trusts), should the taxpayer use the grantor's TIN?

4. A detailed description of the method used to determine the FMV of the properly transferred, including any financial data (e.g., balance sheets, etc., with explanations of any adjustments) used in determining the value of the interest, any restrictions on the transferred properly considered in determining the property's FMV and a description of any discounts (such as discounts for blockage, minority or fractional interests and lack of marketability) claimed in valuing the properly. For a transfer of an interest actively traded on an established exchange (such as the New York Stock Exchange, the American Stock...