Reported gift did not receive an unlimited assessment period

Plain-English summary

A taxpayer reported a current-year taxable gift but omitted prior taxable gifts that were needed to calculate the correct rate. The omission caused the reported gift's tax to be understated. Chief Counsel concluded that section 6501(c)(9)'s unlimited assessment period applies only to a gift that was not reported, subject to the statute's adequate-disclosure rule. Because the current gift itself appeared on the return, the special period did not apply even though the return omitted prior-year gifts. The normal limitation rule therefore governed additional tax on the reported gift.

Ruling snapshot

• Question: Does section 6501(c)(9) allow assessment at any time when a gift was reported but prior taxable gifts were omitted from the return?
• Outcome: Advice given, the extended period does not apply to the reported gift.
• Key authorities: IRC §§ 2503, 6019, and 6501; Treas. Reg. §§ 25.6019-3(a) and 301.6501(c)-1(f)(1).

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       memorandum
       Number: 201643020
       Release Date: 10/21/2016
       CC:PA:02:EMISHORY
       POSTF-103840-15

UILC: 6501.07-18

date: June 04, 2015

 to:   George Bezold
       Senior Counsel (Milwaukee)
       (Small Business/Self-Employed)

from: Pamela W. Fuller
Senior Technician Reviewer, Branch 2
(Procedure & Administration)

subject: Section 6501(c)(9) and failure to report prior years' gifts

       This Chief Counsel Advice responds to your request for assistance. This advice may
       not be used or cited as precedent.


       LEGEND


       $a       =   ----------------
       $b       =   --------------
       $c       =   ----------------
       Y1       =   -------
       Y6       =   -------
       Y7       =   -------
       Y8       =   -------
       Y9       =   -------
       Y15      =   -------
       Y31      =   -------
       Y32      =   -------
       Date 1   =   -----------

POSTF-103840-15 2

ISSUE

Where a taxpayer filed a gift tax return that reported a gift for the calendar year in which
the gift was made but did not report prior years’ gifts on the return as required, causing
an under assessment of tax on the reported gift, whether section 6501(c)(9) of the
Internal Revenue Code provides an extended period of limitation for assessing the
additional tax due on the reported gift.

CONCLUSION

No. Section 6501(c)(9) only applies to gifts that were not reported on a gift tax return.
Because the gift was reported on the gift tax return, the extended period of limitation for
assessing additional tax due on the reported gift in section 6501(c)(9) does not apply to
the reported gift, even though prior years’ gifts were not reported on the return.

FACTS

X filed a gift tax return for tax year Y31 on Date 1, Y32, reporting a taxable gift of $a,
and $b tax due. X had previously made gifts in Y1, Y6, Y7, Y8, Y9 and Y15 that totaled
$c and were reported on prior gift tax returns. On the tax year Y31 return, X failed to
report the prior years’ gifts as required by Treasury Regulation section 25.6019-3(a).
Because the amount of prior years’ gifts is necessary to calculate the tax on a current
year’s gifts, X’s failure to report the prior years’ gifts on the tax year Y31 return caused
the tax on the reported gift to incorrectly be calculated at a lower rate than if the prior
years’ gifts were reported on the tax year Y31 return.

LAW AND ANALYSIS

Section 6501(a) provides that, generally, tax must be assessed within three years of
when the return was filed. There is a limited exception to this general limitation period
for unreported gifts. Section 6501(c)(9) states:

   If any gift of property the value of which . . . is required to be shown on a
   return of tax imposed by chapter 12 (without regard to section 2503(b)),
   and is not shown on such return, any tax imposed by chapter 12 on such
   gift may be assessed, or a proceeding in court for the collection of such
   tax may be begun without assessment, at any time. The preceding
   sentence shall not apply to any item which is disclosed in such return, or
   in a statement attached to the return, in a manner adequate to apprise the
   Secretary of the nature of such item.

There are two rules in section 6501(c)(9) that limit when the special limitation period
applies. The first rule is that it only applies to a gift that is not reported on the gift tax
return. The second rule is that it does not apply to an item that was adequately
disclosed on the return, or on an attachment to the return. As such, there is a two-step
analysis for applying the special limitation period in section 6501(c)(9).
POSTF-103840-15 3

Step one is to determine if the gift was reported on the gift tax return. If the gift was
reported, then the special limitation period does not apply to the gift and the analysis is
concluded. If the gift was not reported, then the analysis moves to step two. Step two
is to determine if the item was adequately disclosed. If the item was disclosed, then the
special limitation period in section 6501(c)(9) does not apply to the item. If the item was
not disclosed, then the special limitation period applies and tax may be assessed on the
gift at any time. Although it is arguable that Treasury Regulation § 301.6501(c)-1(f)(1) is
silent concerning the omission of prior taxable gifts, the clear language of section
6501(c)(9) precludes it from applying to a gift that was reported on the gift tax return
even if prior years’ gifts were omitted.

In this case, the $a gift was reported on the tax year Y31 gift tax return. Thus, step one
is met and the matter is concluded. Therefore, despite X’s failure to report prior years’
gifts on the Y31 return, the special limitation period in section 6501(c)(9) does not apply
to the $a gift.

This writing may contain privileged information. Any unauthorized disclosure of this
writing may undermine our ability to protect the privileged information. If disclosure is
determined to be necessary, please contact this office for our views.

Please call (202) 317-6844 if you have any further questions.