Question

1. Assume D, a widower, made no prior taxable gifts. Consider §§ 2501, 2502, 2505, and 6019.

In 2014, D makes a taxable gift in the amount of $5,500,000. What are the gift tax ramifications of the transfer? What is the amount of the gift tax payable? Must D file a gift tax return?

Answer 1

The person who makes the gift files the gift tax return, if necessary, and pays any tax. If someone gives more than the annual gift tax exclusion amount, the giver must file a gift tax return. That still doesn't mean they owe gift tax. Gifts are only taxed when their value exceeds the lifetime exemption. For the year 2014 lifetime exemption was $534000 and annual exclusion was $14000 and rate of Tax was 40%.

Amount of Gift Tax payable:

Taxable Gift amount $5,500,000

Less: Annual Exclusion                     $14,000

Less: Life time exemption $5,340,000

Net taxable Gift $146,000

Gift Tax Payable                                 $58,400

Yes D must file a tax return.