IRS Going After Gift Tax

I have had people ask me how aggressive the IRS is in going after people who made asset transfers that may be subject to the gift tax.  An article in Forbes provides an answer

(The IRS) has asked a federal court for permission to order a California state tax agency to hand over its computer database of everyone who transferred real estate to relatives for little or no consideration from 2005 to 2010.

As I have written before, transfers of property between people could be subject to gift tax, especially if the person making the transfer receives no cash in return, or if the amount of cash received is less than fair-market value for the property being transferred.  An example would be a parent giving a piece of property to a child for free or below market value.  This also affects couples who are not married.  A person who owns a house and places their partner on the title as a 1/2 owner is considered to have made a taxable gift equal to 1/2 of the fair-market value of the home. 

These rules don’t apply to married couples — but same-sex married couples in Iowa should note that for federal tax purposes, they are considered unmarried, and so would be subject to gift tax on property transfers.

The Forbes article contains more details about the latest enforcement efforts by the IRS and is recommended reading for anyone concerned about this issue.