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Gift Tax Returns Targeted by IRS

by Darci Congrove

The IRS has begun to focus on transfers of real estate between related parties without adequate consideration.  At least twelve states have provided the IRS with data on related-party transfers.  As of this time, Ohio is not one of those states, but Ohio residents should still take note of the trend.  The rate of noncompliance for intra-family transfers is projected to be above 60%, so this is a target-rich environment for the IRS to find unpaid taxes.

The California Board of Equalization refused to comply with an IRS information request, citing privacy issues.  That action forced the IRS to seek a John Doe summons from the U.S. District Court.  Under Proposition 13, California property taxes are limited to a 2% increase per year until the property is sold.  California law extends this protection in some cases to children and grandchildren, provided that the appropriate paperwork is filed with the state.  This is the data that the IRS sought to review.

The District Court ruled against the IRS, finding that the Board of Equalization was not the only source of data for the desired information.  This was not a dead end for the IRS effort, however, it simply causes them to look to county property transfer records and other public sources for the data.  Meanwhile, all taxpayers who are transferring real estate within the family should be certain to properly document the gift and to file the necessary gift tax returns.

 

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