The IRS requires that you file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, for years in which you make one or more reportable gifts. In general, the reportable gift is the total of gift payments per recipient that exceeds the “annual exclusion amount” for the calendar year. You must identify each recipient receiving a reportable gift amount on your return. Gifts to your spouse are excluded, as are gifts to political organizations and gifts you make to pay the medical or tuition expenses of another individual. Gifts include donated cash and property, non-business property sold at below-market cost, forgiven debt and other situations in which full consideration is not paid. When the reportable gift to an individual comes from an organization or trust, the recipient must file the gift tax return.
If you don’t file your gift tax return on time, you could be penalized up to 100 percent of the tax amount.
Understanding the Gift Tax Penalty
Separate penalties apply when you fail to file a gift tax return and when you fail to pay the tax. The gift tax return due date for filing the IRS gift tax form is April 15 of the following year, unless you ask for a six-month extension of the gift tax return or your income tax return. A filing extension does not relieve you of paying the tax on the normal filing date. If you fail to file the gift tax return, you’ll be assessed a gift tax penalty of 5 percent per month of the tax due, up to a limit of 25 percent. If your filing is more than 60 days late (including an extension), you’ll face a minimum additional tax of at least $205 or 100 percent of the tax due, whichever is less. Failure to pay the gift tax on time will result in a penalty of 0.5 percent month of the amount due, up to a total of 25 percent. If you ignore an IRS notice to pay gift tax, your monthly penalty will increase from 0.5 percent to 1 percent.
If the IRS judges your failure to file as fraudulent, the monthly penalty increases to 15 percent from 5 percent, up to a maximum of 75 percent of the tax due.
Exceptions to the Gift Tax Penalty
You might not have to pay the gift tax late-filing penalty if you can demonstrate that your failure to file resulted from a reasonable cause rather than willful neglect. The penalty you owe for not paying your gift tax on time will be reduced by any part of the tax you pay before the start of the current month. If you fail to file and fail to pay, the penalty for late payment will be subtracted each month from the penalty for late filing, but not below the minimum penalty amount.
If you file a gift tax return that overstates the tax you owe and then fail to pay the tax on time, you’ll be penalized on the actual amount you owe, not the overstated amount. If you filed the return on time, failed to pay the tax due, and entered into an installment agreement with the IRS, your monthly penalty will be reduced from 0.5 percent to 0.25 percent.
2018 Tax Law
The annual exclusion amount for the calendar year 2018 is $15,000. The minimum penalty for failing to file the gift tax return within 60 days of gift tax return due date is the lesser of the total amount due or an amount equal to $210 times the 2018 IRS inflation adjustment.
2017 Tax Law
The annual exclusion amount for the calendar year 2014 is $14,000. The minimum penalty for failing to file the gift tax return within 60 days of gift tax return due date is the lesser of the total amount due or $210.
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