Restoration of unified tax credit previously used.

• Jurisdiction: United States
• Date: 01 October 1997
• Author: Smith, Byron C.

The IRS recently issued Letter Ruling 9718004, addressing the revaluation of prior-year gifts when preparing a current-year gift tax return. If a taxpayer has used his unified credit only in a prior-year property transfer, he may have an opportunity to revalue those gifts and increase the amount of the unified credit available.

Estate and gift taxes are computed under a unified transfer tax system. Gifts made in the current year are added to taxable gifts from previous years in determining the current year's gift tax rate. Upon a decedent's death, lifetime gifts are added to the taxable estate to determine the rate of tax for an estate. Any gift taxes previously paid, or unified credit previously used, are factored into the tax computation, assuring that previous gifts and transfers are not taxed twice.

In the letter ruling, T transferred undivided interests in real estate to family members in 1982 and 1989; these gifts were reported on timely filed gift tax returns. The gifts did not result in any gift tax payable, but used a portion of T's unified tax credit. In 1991, T transferred an undivided interest in other real property, resulting in gift...