U.S. Tax Court Decision in Redstone v. Commissioner Highlights Importance of Timely Filing Gift Tax Returns and Adequately Disclosing All Required Information
Redstone v. Commissioner
In 1971, Sumner Redstone gifted an interest in his business to his children, but never filed a Gift Tax Return. Over 40 years later, the IRS discovered the gift and successfully brought an action against him for a gift tax deficiency of $737,625.
STATUTE OF LIMITATIONS
The gift tax statute of limitations generally prevents the IRS from assessing a deficiency more than 3 years after a Gift Tax Return is filed. If no return is filed, the IRS may assess a tax at any time. In addition, the statute of limitations only runs on gifts that are “adequately disclosed.” A return is adequately disclosed if it includes a description of the gift, the value received by the donor, the relationship between the parties, and well-supported valuation information.
GIFT TAX RETURN
IMPORTANCE OF APPRAISALS
A gift is not adequately disclosed unless it includes appraisals valuing the gifted asset and describing the valuation methodology and relevant discounts utilized.
If the IRS imposes interest on the $737,625 deficiency, the overall liability could be as high as $15.5 million - more than six times the value of the original gift.