By Coleman Jackson, Attorney and Certified Public Accountant
June 10, 2019
The Holy Bible at 1 Timothy 6:17 says that God gives to us richly all things…. It is a blessing to be able to give. Giving is an expression of gratitude and love. It is good to give. Every relationship should be based on the desire to give. It is more blessed to give than to receive.
Giving in the United States creates tax obligations on the giver. Internal Revenue Code Section 2503 defines “taxable gifts” as the “total amount of gifts made during the calendar year, less deductions provided in subchapter C (section 2522 and following).” The federal gift tax rules applies to gifts of present interest to a donee as oppose to transfers of future interest by the donor to the donee. Under United States federal tax laws, the donor (giver) is taxed on the fair market value of the gift. The recipient of the gift or donee is not taxed on the gift. But! Special tax reporting rules imposes on the donee a duty to disclose to the IRS certain large gifts from foreign nationals.
The total annual valuation of gifts given by a donor is a tally of all gifts given by the donor for the calendar year. Such gifts are reported annually on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return is due on April 15th of the year following the year of the gift. For example if Jose Giver gives the following gifts in 2019:
- Stocks and bonds to Jeremiah Recipient worth $40,000 fair market value;
- Wires $250,000 to the foreign bank account of Jennifer Recipient ; and
- Gives $4,000 to his niece, Carolyn Recipient under 21 years of age at the date of the gift.
Jose Giver must tally the three gifts to all recipients made in 2019 and report the gifts on April 15th 2020 on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. The total amount of gifts for 2019 is $294,000. Internal Revenue Code Section 2503 provides an annual exclusion for gifts of present interests made to any person by a donor. In 2018 the annual exclusion amount is $15,000 and pursuant to IRC Sec. 2523 the annual exclusion is $155,000 on gifts to spouses who are not U.S. Citizens. For gifts given in 2019 the annual exclusion amount remains $15,000, but the annual exclusion for gifts to spouses who are not U.S. Citizens decreases to $152,000 for gift made in 2019. Note that the annual exclusion amount is indexed to the inflation rate; therefore, it could change from year to year.
Other federal laws, including other tax reporting and disclosure rules could be implicated by the facts described in the above hypothetical. For example, Jeremiah Recipient may have to report gains & losses realized on the stocks and bonds. The $250,000 wired to Jennifer Recipient’s foreign bank account could possibly create reporting requirements under the Bank Secrecy Act which requires that U.S. persons; which includes U.S. citizens, resident aliens, trusts, estates, and domestic entities to file Form 114, Report of Foreign Bank and Financial Accounts with the Financial Crimes Network on April 15th 2020 if the foreign account balance is $10,000 or more at any time during the calendar year. Further the $4,000 to his under aged niece implicates the Generation- Skipping Transfer tax rules. That applies when gifts skip a generation. Giving is good! Giving is subject to federal taxation.
This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.
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