Form 709 gift tax return question

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Sairam2188
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Form 709 gift tax return question

Post by Sairam2188 »

I have a question about gift of cash > $30k from my mom. We live in California (community property state). Due to some relationship reasons, my mom and dad keep their finances separate and file taxes separately through they are still married. My mom pays for all of my expenses and my dad doesn't get involved. She gifted around $100k cash from her earnings to me apart from college fees to build my career and future. Only my mom submitted the 709 form declaring the full amount she gifted. The 709 form says that both spouses have to file gift tax return for half the gifted amount each, in community property state. What are the consequences that my dad did not file gift tax return for half the gift and my mom declared the entire amount? Will IRS ask me to pay gift tax for this? Or what can happen? Thanks in advance for your advice.
123
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Re: Form 709 gift tax return question

Post by 123 »

If you look at Question 12 on Form 709 it asks the donor (if married) if the gift should to be considered to be given one-half by each of you. If she said "No" then the IRS doesn't even care who the spouse was at the time of the gift. You said that your parents each keep their finances and taxes separate. It may be that the gift you received from your mother was her own separate property. Since your mom declared the full amount I don't see anything to be gained by pursuing it further. Perhaps your dad is even unaware of the gift.

As the recipient of a domestic gift you have no gift tax liability or reporting responsibility.
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Sairam2188
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Re: Form 709 gift tax return question

Post by Sairam2188 »

123 wrote: Fri Jun 18, 2021 12:24 am If you look at Question 12 on Form 709 it asks the donor (if married) if the gift should to be considered to be given one-half by each of you. If she said "No" then the IRS doesn't even care who the spouse was at the time of the gift. You said that your parents each keep their finances and taxes separate. It may be that the gift you received from your mother was her own separate property. Since your mom declared the full amount I don't see anything to be gained by pursuing it further. Perhaps your dad is even unaware of the gift.

As the recipient of a domestic gift you have no gift tax liability or reporting responsibility.
Thank you very much for your kind answer! I was only worried because I thought that anything she earns is also considered community property. Will IRS ask her or me to prove that it is her separate property?
123
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Re: Form 709 gift tax return question

Post by 123 »

Sairam2188 wrote: Fri Jun 18, 2021 12:28 am ...I was only worried because I thought that anything she earns is also considered community property. Will IRS ask her or me to prove that it is her separate property?
No. The IRS is aware that even people in a community property state can have separate property (such as from before the marriage began or which was inherited after the marriage began). There is just no issue for the IRS to get nosy about unless your mom or dad is approaching or has exceeded the lifetime gift/estate exclusion amount ($11.7 million for 2021).
The closest helping hand is at the end of your own arm.
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Sairam2188
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Re: Form 709 gift tax return question

Post by Sairam2188 »

123 wrote: Fri Jun 18, 2021 12:43 am
Sairam2188 wrote: Fri Jun 18, 2021 12:28 am ...I was only worried because I thought that anything she earns is also considered community property. Will IRS ask her or me to prove that it is her separate property?
No. The IRS is aware that even people in a community property state can have separate property (such as from before the marriage began or which was inherited after the marriage began). There is just no issue for the IRS to get nosy about unless your mom or dad is approaching or has exceeded the lifetime gift/estate exclusion amount ($11.7 million for 2021).
Excellent! I feel much better now as mom and I have been worried. Thanks a lot again!
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HueyLD
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Re: Form 709 gift tax return question

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Sairam2188 wrote: Thu Jun 17, 2021 11:55 pm I have a question about gift of cash > $30k from my mom. We live in California (community property state). Due to some relationship reasons, my mom and dad keep their finances separate and file taxes separately through they are still married. My mom pays for all of my expenses and my dad doesn't get involved. She gifted around $100k cash from her earnings to me apart from college fees to build my career and future. Only my mom submitted the 709 form declaring the full amount she gifted. The 709 form says that both spouses have to file gift tax return for half the gifted amount each, in community property state. What are the consequences that my dad did not file gift tax return for half the gift and my mom declared the entire amount? Will IRS ask me to pay gift tax for this? Or what can happen? Thanks in advance for your advice.
From the form 709 instructions:

“ If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return.”

Unless your mom can document that the gifted money is from her separate property, your dad will have to file.
SuzBanyan
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Re: Form 709 gift tax return question

Post by SuzBanyan »

HueyLD wrote: Fri Jun 18, 2021 7:58 am
Sairam2188 wrote: Thu Jun 17, 2021 11:55 pm I have a question about gift of cash > $30k from my mom. We live in California (community property state). Due to some relationship reasons, my mom and dad keep their finances separate and file taxes separately through they are still married. My mom pays for all of my expenses and my dad doesn't get involved. She gifted around $100k cash from her earnings to me apart from college fees to build my career and future. Only my mom submitted the 709 form declaring the full amount she gifted. The 709 form says that both spouses have to file gift tax return for half the gifted amount each, in community property state. What are the consequences that my dad did not file gift tax return for half the gift and my mom declared the entire amount? Will IRS ask me to pay gift tax for this? Or what can happen? Thanks in advance for your advice.
From the form 709 instructions:

“ If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax returN.”

Unless your mom can document that the gifted money is from her separate property, your dad will have to file.
It is possible that the community earnings have been transmuted into separate property by the OPs Mom & Dad. There may be a sufficient writing to confirm such an agreement. Keeping separate accounts and filing taxes as married filing separately certainly shows some level of agreement to treat liquid assets as separate property.

But even so, there really is no risk to the OP or his Mom. People fail to file gift tax returns all the time. Upon the death of Mom or Dad, there may be a need to resolve to what extent the lifetime exclusion has been used because the estate of the deceased spouse is worth more than $11.7 million (under current law). For a few very wealthy families, this could be a mess, but for most families it will not be relevant.
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Lee_WSP
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Re: Form 709 gift tax return question

Post by Lee_WSP »

Was this in one year or over several years? How much was direct payments for health or education?
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Sairam2188
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Re: Form 709 gift tax return question

Post by Sairam2188 »

SuzBanyan wrote: Fri Jun 18, 2021 8:12 am
HueyLD wrote: Fri Jun 18, 2021 7:58 am
Sairam2188 wrote: Thu Jun 17, 2021 11:55 pm I have a question about gift of cash > $30k from my mom. We live in California (community property state). Due to some relationship reasons, my mom and dad keep their finances separate and file taxes separately through they are still married. My mom pays for all of my expenses and my dad doesn't get involved. She gifted around $100k cash from her earnings to me apart from college fees to build my career and future. Only my mom submitted the 709 form declaring the full amount she gifted. The 709 form says that both spouses have to file gift tax return for half the gifted amount each, in community property state. What are the consequences that my dad did not file gift tax return for half the gift and my mom declared the entire amount? Will IRS ask me to pay gift tax for this? Or what can happen? Thanks in advance for your advice.
From the form 709 instructions:

“ If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax returN.”

Unless your mom can document that the gifted money is from her separate property, your dad will have to file.
It is possible that the community earnings have been transmuted into separate property by the OPs Mom & Dad. There may be a sufficient writing to confirm such an agreement. Keeping separate accounts and filing taxes as married filing separately certainly shows some level of agreement to treat liquid assets as separate property.

But even so, there really is no risk to the OP or his Mom. People fail to file gift tax returns all the time. Upon the death of Mom or Dad, there may be a need to resolve to what extent the lifetime exclusion has been used because the estate of the deceased spouse is worth more than $11.7 million (under current law). For a few very wealthy families, this could be a mess, but for most families it will not be relevant.
Thank you so much! I am glad to know that keeping separate accounts and filing taxes as married filing separately indicates separate property though those were mom's earnings after marriage which may usually come under community property if not for this reason. We were worried if 1) IRS will ask her or me to prove that it is her separate property, and 2) what may be the consequences may years later just in case the estate goes over lifetime exemption which may be lowered under the new administration. Currently, like you wrote, this is way below that limit, but we are worried just in case they pull out all her 709s at that time and will they penalize her or me for my dad not filling tax return?
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Lee_WSP
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Re: Form 709 gift tax return question

Post by Lee_WSP »

Sairam2188 wrote: Sat Jun 19, 2021 6:00 pm
Thank you so much! I am glad to know that keeping separate accounts and filing taxes as married filing separately indicates separate property though those were mom's earnings after marriage which may usually come under community property if not for this reason.
It most certainly does not. Please ask a lawyer in your state instead of random people on the internet, regardless of how helpful they are.
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Sairam2188
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Re: Form 709 gift tax return question

Post by Sairam2188 »

Lee_WSP wrote: Fri Jun 18, 2021 9:36 pm Was this in one year or over several years? How much was direct payments for health or education?
Thank you Lee. It's been over 3 years.. I don't remember the exact amount for direct payments for health or education, but it's been significant as college fees are expensive.
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Lee_WSP
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Re: Form 709 gift tax return question

Post by Lee_WSP »

Sairam2188 wrote: Sat Jun 19, 2021 6:30 pm
Lee_WSP wrote: Fri Jun 18, 2021 9:36 pm Was this in one year or over several years? How much was direct payments for health or education?
Thank you Lee. It's been over 3 years.. I don't remember the exact amount for direct payments for health or education, but it's been significant as college fees are expensive.
Well I'd start with seeing what she filed. But, since there's two of them, and it was a gift of community property, she/they are able to gift 2x the annual exclusion (1 from each parent). The total amount indicates it's going to be over in at least one year. Unless it includes direct payments for the items I asked about.

This will all be settled if needed upon your father's passing.
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