How the Gift Tax Stole Christmas!
December 2024
The Internal Revenue Code imposes a gift tax on the transfer of property by gift.
But like the Grinch, the Code gives back in the form of an annual gift tax exclusion, as well as other exclusions and deductions.
Every Who down in Whoville liked Christmas a lot...
But the Grinch, who lived just north of Whoville, did NOT!
The Grinch hated Christmas! The whole Christmas season!
Now, please don't ask why. No one quite knows the reason.
Gift Tax
"Why, for fifty-three years I've put up with it now!"
"I MUST stop this Christmas from coming! But HOW?"
Then he got an idea! An awful idea!
The general rule is set forth in I.R.C. § 2501, which provides that a federal gift tax is imposed for each year on the transfer of property by gift. I.R.C. § 2501(a)(1).
The gift tax applies to a transfer by way of gift whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. Treas. Reg. § 25.2511-1(a).
Donative intent on the part of the transferor is not an essential element in the application of the gift tax to a transfer. Treas. Reg. § 25.2511-1(g)(1).
Instead, a gift is complete when the donor parts with dominion and control to leave him or her without the power to change its disposition. Treas. Reg. § 25.2511-2(b).
Gift tax is therefore triggered on cessation of dominion and control.
The gift tax is not a property tax. It is a tax imposed on the transfer of property by individuals. Treas. Reg. § 25.0-1(b).
The gift tax is not imposed on the receipt of property by the donee. On the contrary, the tax is a primary and personal liability of the donor. Treas. Reg. § 25.2511-2(a).
Reporting
Any individual who in any calendar year makes any transfer by gift (other than a transfer which under I.R.C. § 2503(b) for annual exclusion gifts is not to be included in the total amount of gifts for such year) is generally required to make a return with respect to the gift tax imposed. I.R.C. § 6019(1).
The unextended due date for filing the return is April 15 following the close of the calendar year. I.R.C. § 6075(b)(1).
Reporting is made on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
EXAMPLE: A and B are married. On December 25, 2024, A transfers $1 million to their child, C. The first $18,000 is excluded from A’s taxable gifts for 2024. I.R.C. § 2503(b). The balance is considered a gift. I.R.C. § 2511. A is required to file a Form 709 by April 15, 2025 (unless extended). I.R.C. § 6075(b)(1).
Exclusions
And what happened then? Well ... in Whoville they say,
That the Grinch's small heart grew three sizes that day!
And the minute his heart didn't feel quite so tight,
He whizzed with his load through the bright morning light,
And he brought back the toys! And the food for the feast!
Fortunately, not all transfers are considered taxable gifts. Several exclusions exist.
Importantly, the first $10,000 of gifts to a person (adjusted for inflation to $18,000 for 2024, and $19,000 in 2025) is not included in the amount of gifts made during a year. I.R.C. §§ 2503(b)(1) & (2); Rev. Proc. 2023-34; Rev. Proc. 2024-40.
This is often referred to as an “annual exclusion gift.” As a result, many make cash gifts during the holidays within the annual exclusion amount.
EXAMPLE: A and B are married. On December 25, 2024, A transfers $18,000 to their child, C. A’s transfer is excluded from A’s taxable gifts for 2024. I.R.C. § 2503(b). B also transfers $18,000 to C. B’s transfer is excluded from B’s taxable gifts for 2024. I.R.C. § 2503(b). As a result, A and B transfer a total of $36,000 to C without imposition of gift tax, and gift tax returns (2024 Form 709) are not required. I.R.C. § 6019(1).
Other exclusions exist for certain transfers for the benefit of a minor, and certain transfers for educational expenses or medical expenses. I.R.C. §§ 2503(c) & (e). Additionally, a marital deduction exists for a gift to spouse. I.R.C. § 2523.
