Arden Dale for the Wall St. Journal writes: Taxpayers who gave substantial assets to family members last year could
be in for a nasty surprise this tax season: potential errors on federal
gift-tax returns that could result in donors owing taxes on gifts they
thought were tax-free.
Part of the problem: Many taxpayers rushed to give during the last
months of 2012, afraid that Congress would scale back the $5.12 million
gift-tax exemption to $1 million at year-end—and raise the tax rate on
gifts exceeding that limit to 55% from 35%. (Lawmakers decided to leave
the exemption—$5.25 million for 2013—intact, and raised the rate only
five percentage points, to 40%.)
Making matters worse, Form 709, the gift-tax return, is a potential
trap for many accountants, especially when the taxpayer gave something
other than securities or put the gift into a trust, as many did in 2012.
Form 709 applies to gifts exceeding $13,000 in 2012. Filing
incorrectly can mean a hefty tax bill for someone who expected to pay no
tax on a gift at all. And an error can saddle heirs with a surprise tax
bill even decades after someone made them the gift.
For 2012 tax returns in particular, it is important to have someone
knowledgeable handle the form, says Jere Doyle, a senior wealth
strategist at the Boston office of BNY Mellon Wealth Management, which
oversees $179 billion.
"The problem is, you've got to find that person," he says.
Surprisingly few accountants have experience with more complicated
reporting on a gift-tax return. Most know how to report smaller, annual
gifts. But gifts of real estate or business interests—which were popular
last year—or anything besides stocks and bonds, are a different matter.
Graduate accounting programs used to train accountants to report
more-complicated gift transactions, but some no longer do, says Steven
D. Baker, an estate lawyer and accountant in Austin, Texas.
A big stumbling block for many professionals is that Form 709
requires an advanced knowledge of rules for two separate taxes: the gift
tax and the "generation-skipping tax," which imposes levies that
wouldn't otherwise be incurred when families leave assets to heirs who
are more than one generation younger. Yet certain estate plans can
exempt these heirs from the tax. The generation-skipping tax is
considered especially complex by estate planners.
Some experts recommend that taxpayers have a lawyer review, if not
prepare, the gift-tax return. "I can see the potential for hurt feelings
on the CPA's side," says Roger Pine, a partner at Briaud Financial
Advisors, an advisory firm in College Station, Texas, that manages $480
million. "But I think the 709 is unique in that CPAs seem to be happy to
have someone else do it."
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