Misstated prior gifts do not keep later gift tax years open indefinitely

Plain-English summary

Chief Counsel addressed a taxpayer who failed to report gifts in one year and then understated the cumulative prior-year gifts shown on later gift tax returns. Section 6501(c)(9) leaves the assessment period open indefinitely for tax on a gift omitted from the return for the year the gift occurred. It does not extend the later years merely because those returns understated prior-year gifts, even if the mistake reduced the tax due in those years. Those later returns generally remain subject to the normal three-year period, and the six-year substantial-omission rule does not apply when the omitted amount is only prior-year gifts. Fraud or willful evasion could independently create an unlimited assessment period if the facts support those exceptions.

Ruling snapshot

• Question: Does understating prior-year gifts on later gift tax returns keep the assessment period for those later years open indefinitely?
• Outcome: Advice given: no, absent another exception, the normal three-year period applies.
• Key authorities: IRC §§ 6501(a), (c)(1), (c)(2), (c)(9), and (e)(2); Treas. Reg. § 301.6501(c)-1(f)

Full text (IRS public release)

ID:      CCA_2016031010450810
UILC:    6501.17-00

Number: 201614036
Release Date: 4/1/2016
From:
Sent: Thursday, March 10, 2016 10:45:08
To:
Cc:
Bcc:
Subject: FW: Question re 6501(c)(9) Gift Tax Adequate Disclosure Rules


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As you noted, for the -------tax year, § 6501(c)(9) provides an unlimited ASED for the
value of the gifts the taxpayer failed to report or to disclose. Thus, if there is any gift tax
deficiency for that year, resulting from the unreported and undisclosed gifts, it may be
assessed at any time.

For the gift tax returns for subsequent years when the taxpayer understated the
amounts of his prior year gifts, the national office view is that the language in
§ 6501(c)(9) “any tax imposed by chapter 12 on such gift may be assessed … at any
time” refers to the tax imposed on the omitted gift that is subject to tax on that return
(i.e., the current year gift amounts), and it does not refer to omissions or
understatements of the prior year gift amount on that return. Accordingly, § 6501(c)(9)
does not extend the ASED for gift tax returns for subsequent years just because the
prior year gift amounts on those returns were understated, even if that resulted in
underreported gift tax for those subsequent years.

Treas. Reg. § 301.6501(c)-1(f) provides that: “If a transfer of property … is not
adequately disclosed on a gift tax return … or in a statement attached to the return, filed
for the calendar year period in which the transfer occurs, then any gift tax imposed …
on the transfer may be assessed … at any time.” Under the regs, only the failure to
disclose a gift on the return for the year of that gift keeps the ASED open, not a failure
to accurately report the sum of prior year gifts on a return for a later year.

As a result, if the only problem with the subsequent year gift tax returns is
understatement of the amounts of prior year gifts, then the understatement of gift tax
due for those subsequent years may be assessed only within the normal § 6501(a) 3-
year period. The returns for ------------------------------should be carefully evaluated,
because the ASEDs for those returns should still be open.

The six-year ASED for substantial omission in § 6501(e)(2) will not extend the ASED for
gift tax returns whose only defect is underreported prior year gifts, because the
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language “if the taxpayer omits from … the total amount of the gifts made during the
period for which the return was filed” also refers to the current-year gifts; gift tax returns
are annual returns, even if the taxpayer is required to report prior year gifts and to
properly use those when calculating the tax on the current year gifts.

It would take a legislative fix to § 6501(c)(9) and (e)(2) to close this gap.

Of course, if some other exception, like § 6501(c)(1) (false or fraudulent return with
intent to evade tax) or § 6501(c)(2) (willful attempt to defeat or evade tax), applies, there
would be an independent ground for an unlimited ASED. But there would have to be
sufficient facts to support one of those
exceptions.

Please let me know if you have any further questions.

Thanks,
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