Gifts That Could Raise Red Flags at the IRS

The IRS is, among other things, tasked with finding estate planning strategies that violate tax laws. Many of the circumstances that get people in trouble with the IRS through their estate planning involve illegal gifts.

Here are just a few examples of some gifts that might cause the IRS to pay you some special attention.

Loans disguised as gifts

This is often an issue with parents and their adult children. Some parents might make large loans to the children, which they intend to forgive later on. This can get problematic if the amount of the “loan” exceeds the annual gift tax exclusion figures.

The IRS will closely analyze whether or not there was any interest charged, if there was a promissory note, if there was any collateral for the debt, if the borrower ever actually paid back some of the loan or even had the ability to pay, if there was a date by which the loan was supposed to be repaid or if the transaction was federally reported as a loan.

Gifts that use a middleman

Another common strategy people use to try to fool the IRS is to give a gift to one person that is actually intended for another person. The IRS will not be fooled, especially if this happens frequently over time in large sums.

Conditional gifts

In the eyes of the IRS, gifts are given without any strings attached. For example, if you give the deed of your house to your child on the condition that you are still able to receive rent from the property, that does not legally qualify as a gift because there is a condition attached to the transfer.

For more information about potentially illegal gifts that the IRS will watch for, contact an experienced Tampa, FL estate planning lawyer at BaumannKangas Estate Law.