ESTATE AND GIFT TAX RETURNS: WHAT ARE THE REQUIREMENTS: AVOIDING MISTAKES

By Fredrick P. Niemann, Esq. a New Jersey Estate Administration and Probate Lawyer
The Requirement of Filing Federal Gift Tax Returns – Under the tax code the general rules applicable to income tax returns apply to annual gift tax returns.  That is, a 3-year statute of limitations applies to the initiation of an audit based on the value of the gift.  The IRS has issued regulations describing substantiation requirements to ensure the protection of the statute of limitations for gift purposes. The IRS can challenge the substantiation or appraisal information on gift tax returns many years after the expiration of the statute of limitations under certain cases, mainly based on fraud.  The IRS may challenge the gift value based on the adequacy of the substantiation provided with the initial return and will most likely occur when the donor’s estate is audited.  Our recommendation at this time is that all records, such as valuation reports, bank records, and any other items substantiating a gift tax return, should be kept until the donor’s estate tax return is settled.

New Jersey and Federal Estate Tax Returns – The federal statute of limitations is, again, 3 years from the date the return is filed.  However, in many cases, the federal estate tax return is extended by 5 months beyond the normal due date of 9 months following the date of the decedent’s income tax returns as long as the estate is open.  These income tax returns will also have a 3-year statute of limitations.  A good rule of thumb is to keep the estate records for 5 years after the decedent’s death or until a final closing agreement is reached with the IRS, if later.

If you have any questions regarding gift taxes, contact Fredrick P. Niemann, Esq. toll free at (888) 800-7442 or e-mail him at fniemann@hnlawfirm.com/.  He will be happy to assist you.

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