United States: Filing Form 709: Beyond The Basics Of Gift Tax Returns

Last Updated: April 12 2016
Article by Scott A. Bieber and Sarah J. Chang

Since 2013, the gift tax filing threshold has been $14,000, making it relatively apparent that if your client made a gift in excess of $14,000 to any one person (other than a spouse) in 2013 or any year thereafter, the client probably had to file a federal gift tax return (Form 709). Less obvious are the various elections, allocations, and disclosures reported on Form 709 that provide additional reasons to file gift tax returns, some of which are mandatory and some of which are elective. This article explores some of those less obvious issues that may arise when preparing a Form 709.

Gift Splitting—Not As Easy As It Looks

Code Section 2513 allows a married couple to split a gift made by one of them for federal gift tax purposes if, at the time of the gift, each spouse is a citizen or resident of the United States. An individual is considered the "spouse" of another individual only if they were married to each other at the time of the gift and he or she does not remarry during the calendar year. The consent must be made on a gift tax return filed for the year in which the gift is made. If a return is filed for that year that does not indicate consent by the spouse, it cannot later be changed in an amended return unless the amended return is filed by April 15 of the year after the year of the gift. If no timely return is filed, the consent may be indicated on the first late return filed for that gift unless a notice of deficiency with respect to the gift in question has been sent by the IRS. Note that if the spouse of the donor is not a U.S. citizen but the couple is living in the U.S. at the time of the gift, the gift can be split, but if the couple is living outside of the U.S. at the time of the gift, the gift cannot be split.

Gift splitting is an all or nothing proposition. The consent must apply to "all...gifts made during the calendar year by either while married to each other."2 This is an important point that many couples and professionals do not realize. It is especially important in second marriages if gifts in excess of the annual exclusion are being made. A spouse readily may agree to split annual exclusion gifts to their respective children and families, but doing so also means that any taxable gifts during the year are split and both spouses' lifetime gift tax exclusions are used. This can result in one spouse inadvertently using his or her lifetime gift tax exemption for gifts made to the children of a prior marriage. The only exception to this rule is that the gift cannot be split to the extent it is to or for the benefit of the spouse. If a donor makes a gift to an irrevocable trust of which the spouse is one of the beneficiaries, the gift cannot be split unless, at the time of the gift, the interests of the other beneficiaries are ascertainable and identifiable separate from the spouse's interest.3 This rule does not directly impact annual exclusion gifts, but it can have an impact in a trust over which the spouse and children (or descendants) have Crummey powers, such as a typical irrevocable insurance trust. Most practitioners view the Crummey withdrawal rights as separately identifiable and ascertainable interests. Therefore, they report gift splitting for the children's Crummey powers but not, of course, for the spouse's Crummey power.

EXAMPLE: John gives $61,000 to a Crummey trust over which his wife, Jane, has a $5,000 Crummey power and each of their two children have $28,000 Crummey powers. John and Jane elect to split gifts. John's transfer to Jane qualifies for the annual exclusion and is not split. The gifts to the children are treated as onehalf from John and one-half from Jane. Thus, for gift tax purposes, John is treated as having made $33,000 of gifts and Jane is treated as having made $28,000 in gifts. It should be noted that on occasion, the IRS has disagreed with this treatment. If the trust is a spray trust with the spouse and children all as beneficiaries, the IRS has concluded that none of the gifts can be split because the children's underlying interests in the trust are not ascertainable in value.4

With certain trusts, such as QPRTs and non-zero-out GRATs, gift splitting can have a negative effect if the actual grantor of the trust dies before the end of the income or annuity term. In that case, the portion of the gift deemed made by the deceased grantor will have no effect for transfer tax purposes since adjusted taxable gifts do not include gifts that are included in the donor's estate for federal estate tax purposes, but the gift deemed to be made by the nongrantor spouse will continue to be an adjusted taxable gift in that spouse's estate at his or her death.

Although for gift tax purposes, the portion of a gift to a trust of which a spouse is the beneficiary cannot be split, for GST purposes, it is, in effect, split when determining the amount of GST exemption to allocate. Each spouse is treated as the transferor of one-half of the gift even if a portion of the gift was to the spouse.5 Thus, in the example above, even though John is treated as making a gift of $33,000 and Jane is treated as making a gift of $28,000, each must allocate $30,500 of GST exemption to the trust to keep it exempt from GST tax. What if the spouse's interest in the trust is not susceptible to valuation? Assuming all other gifts are split for gift tax purposes in the year in question, does the GST exemption for this gift still get allocated onehalf by each spouse? Although the regulations are not clear on this, it seems that the better position is that the donor spouse must allocate all of the GST exemption to this trust.

Adequate Disclosure to Start Statute of Limitations

The IRS generally has three years from the filing of a gift tax return to assess a deficiency.6 However, this will only apply to gifts that are adequately disclosed on the gift tax return.7 If the statute of limitations expires with respect to a gift, then the IRS cannot later revalue the gift for any purpose. Since the calculation of whether any gift tax is due is dependent on the value of prior gifts, this prevents the IRS from revaluing the gift in a later year solely for the purpose of determining the gift tax due as a result of a subsequent gift. Similarly, the IRS cannot contest the value of a gift for which the statute has run in the estate of the donor for purposes of determining the amount of estate tax that is owed. Prior to changes in the law in 1997 and 1998, the IRS had successfully asserted this position in a number of cases.

The IRS has issued regulations regarding what constitutes "adequate disclosure."8 Adequate disclosure must include: (1) a description of the property transferred and any consideration received for it; (2) the identities of the transferor and transferee and how they are related; (3) if the transferee is a trust, the trust's FEIN and a brief description of the trust terms (or a copy of the trust); (4) a detailed description of the method used to determine the fair market value of the transferred property; and (5) a statement describing any position that is contrary to IRS regulations or Revenue Rulings.

For gifts of nonmarketable assets, the key requirement for adequate disclosure is the description of how the fair market value was determined. Section 301.6501-1(f)(2)(iv) states that the return must include a detailed description of the method used to determine fair market value, including financial data used in making the determination. Any restrictions that were considered in valuing the property and any valuation discounts also must be disclosed. If the value of the entity or interest in an entity being transferred is determined based on the net asset value of the entity, the gift tax return must include a statement providing the fair market value of 100% of the entity before any discounts. When the value of an asset is not based on particular financial data, the regulations do not address what disclosure is required. For example, if recent sales are the basis for the valuation, is it sufficient to disclose that fact and the dates and prices for the sales? It would appear that the additional information relating to financial information should not be necessary in that case. If the entity that is the subject of the transfer owns an interest in another nonmarketable entity, then the information required by the regulations showing how the gift was valued also must be provided for the indirectly owned entity if the information is relevant and material in determining the value of the gift.9

To continue reading this article, please click here


1 The authors would also like to thank Georgia Loukas Demeros for her contributions to this article.

2 Section 2513(a)(2).

3 Reg. 25.2513-1(b)(4).

4 See Letter Rulings 200616022 & 200422051 (withdrawal rights of children ignored in determining availability of gift splitting). But see Letter Ruling 200130030 (gift splitting allowed for amounts subject to children's Crummey powers); Letter Ruling 200218001 (wife's interest subject to ascertainable standard and therefore susceptible of valuation).

5 Reg. 26.2652-1(a)(4).

6 See Section 6501(a).

7 See Section 6501(c)(9).

8 Reg. 301-6501(c)-1(f).

9 Reg. 301-6501(c)-1(f)(4).

This article was first published in the April 2016 edition of Estate Planning magazine.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Ostrow Reisin Berk & Abrams
In association with
Practice Guides
by Mondaq Advice Centers
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Ostrow Reisin Berk & Abrams
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions