Gift Tax Audit

August–September 2011

The New Gift Tax Audits: A Look at the Recent IRS Initiative to Identify Nonfilers Using State Property Records

By Josh O. Ungerman and Charles E. Fowler, Jr.

Josh O. Ungerman and Charles E. Fowler, Jr., examine exactly what the IRS is doing to identify noncompliant gift tax reporting as well as the law governing the filing of gift tax returns.

Introduction

A new IRS gift tax compliance initiative has recently come to light. The initiative responds to IRS suspicions of widespread failure to file gift tax returns, resulting in systemic under-collection of federal gift tax. Although gift tax audits are historically rare, the IRS has examined hu dr in d hundreds of taxpayers in the last two years whom ned und p y the IRS suspects made large gifts, yet failed to file the th I S su cts ma large gi he h usp ade appropriate r turns Borrowing from techniques long ap rop iate returns. Borrowing ppr pria e employed to identify noncompliant taxpayers in the mploy p yed income tax context, the IRS is using records obtained tex S using cord o ained ds obta from third parties—namely, la d reco s main ained i maintained in s ame land records ma ely an state and county offices—to root out intra-family land transfers for little or no consideration. Specifically, the IRS is employing the tool of a “John Doe” summons to obtain the material. In the last decade, the IRS has used John Doe summonses frequently to identify recalcitrant taxpayers whose identities are not readily available from other sources. Given the breadth of this initiative, it is important to understand exactly what the IRS is doing to identify noncompliant gift tax reporting as well as the law governing the filing of gift tax returns.

Josh O. Ungerman, J.D., CPA, is a Partner in the Dallas law firm of Meadows, Collier, Reed, Cousins, Crouch and Ungerman, L.L.P., who focuses his practice on Wealth Succession Planning and civil and criminal tax controversy matters. Josh can be reached at...