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Saturday, December 15, 2012


In a recent Chief Counsel Advice, a taxpayer made a gift in the prior year, but did not file a gift tax return. The taxpayer later died. On the estate tax return for the taxpayer, the earlier unreported gift was reported.

The IRS concluded that a gift tax was due for the year of the unreported gift. This resulted, even though the taxpayer had available unified credit in the year of the unreported gift to avoid gift tax in that year. The quirk in this case is that the taxpayer used her unused unified credit against gifts made in a later tax year, which tax year was then closed for statute of limitation purposes at the time of the IRS adjustments. Since the IRS could not apply unified credit in the earlier year, and then assess gift taxes in the later years (because the statute of limitations was closed), the only recourse for the IRS was to deny the use of the credit in the earlier year. The theoretical basis for such a special determination was the consistency doctrine, per similar facts and issues addressed in PLR 199930002.

Interestingly, interest on the unreported gift was determined to run from the due date of the return for the unreported gift year, and not from the due dates of later years when gift tax would have been imposed if all the gifts had been reported in order. While one perhaps can justify the loss of the use of the unified credit in the earlier unreported year, it does seem inappropriate to charge interest from that year since in no circumstance would taxes have had to been paid in that year.

Chief Counsel Advice 201249015

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