Gift tax SOL prop. regs.

• Author: Vandermeulen, Bruce A.
• Position: Statute of limitations; IRS proposed regulations - Includes proposed disclosure requirements

Before the Taxpayer Relief Act of 1997 (TRA '97), the IRS generally could revalue a gift for gift tax purposes within three years of the date of filing the gift tax return (if tax was paid with the return). When the gift involved a transfer subject to Chapter 14's special valuation rules, the taxpayer had to make additional disclosures (set forth in Regs. Sec. 301.6501(c)-1(e)) as to the property transferred for the statute of limitations (SOL) to commence.

For estate tax purposes, gifts that could not be revalued for gift tax purposes could nevertheless be revalued to determine the appropriate estate tax bracket. To provide closure to valuation issues, the TRA '97 and the Internal Revenue Service Restructuring and Reform Act of 1998 allowed taxpayers to finalize valuation issues for gift and estate tax purposes. Now, the Service cannot revalue a gift for gift or estate tax purposes if it was adequately disclosed on a gift tax return. However, prior taxable gifts remain adjustable for purposes of subsequent gift and estate tax returns if the proposed adjustments are not related to valuation issues.

The TRA '97 amended Sec. 6501(c)(9) to require adequate disclosure of all gifts for which the taxpayer seeks SOL protection. Because Regs. Sec. 301.6501(c)-1 (e) deals with Chapter 14 gifts, it was not clear what type of disclosure was required for non-Chapter 14 gifts. The IRS proposed Regs. Sec. 301.6501(c)-1(f), providing taxpayers with disclosure requirements necessary to commence the SOL for non-Chapter 14 gifts (see News Notes, "Gift Tax SOL," T-FA, February 1999, p. 73). The proposed regulations are effective for gifts made in calendar years ending after Aug. 5,1997, if the gift tax return for such year is filed after the regulations become final. (Presumably, this would include 1998 gift tax returns extended and filed after the regulations become final.) Table 1, on p. 296, summarizes disclosure requirements and suggests possible applications.

Table 1: Proposed Disclosure Requirements for Non. Chapter 14 and Chapter 14 Transfers

Non-Chapter 14 transfers Chapter 14 transfers 1. A description of the transferred A description of the property and any consideration transactions, including received by the transferor. a description of Comment: A part sale, part gift transferred and now must be disclosed under these retained interests and rules. Previously, only the net the method (or methods) gift would be reported. used to value each. 2. The...