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Several Million Reasons to File a Gift Tax Return

By DJ Berry
gift tax
Billionaires are just like the rest of us (or at least we like to think so). The IRS is proving this in their latest coup de grâce. In the tax court case of Redstone v. Commissioner, Sumner Redstone, the billionaire owner of Viacom, is the latest taxpayer to show why a tax return should often be filed, even if no tax is due. In 1972, Redstone made a taxable gift of stock to his children, but failed to file a gift tax return. Forty-one years after the fact, the IRS is stating that he now owes about $1.1 million in taxes and penalties. Interest on the amount due could eventually drive the total amount payable to well over $2 million.

Statute of Limitations
In broad terms, the phrase “statute of limitations” refers to a law that restricts the time within which proceedings may be brought. For IRS purposes, it refers to the length of time they have to assess tax or audit a return after a tax return is filed.

Under IRC §6501(a), the general rule regarding the statute of limitations for filing tax returns is three years after the return is due or is filed, whichever date is later. For example, if a return was due April 15, 2013, and was filed April 14, 2013, the statute of limitations would run until April 15, 2016. If the return was filed May 15, 2013, the statute would run until May 15, 2016.

Why is this so important? As mentioned above, the statute of limitations restricts the time within which the IRS can enforce the code. After the three-year time period, if the IRS has not given notice of any changes, they are generally barred from doing so permanently.

Some other examples of the statute of limitations are as follows: if the taxpayer omits income of 25% or greater on the original return, the statute is 6 years; if the taxpayer files a false or fraudulent tax return, the statute of limitations does not apply (i.e., the statute does not run); finally, if the taxpayer never files a return, the statute never starts to run.

When to File a Return
As can be seen, Redstone’s problem is that he never filed a tax return. Because of this, he now might owe several million dollars. If he had filed a return in 1972 and the IRS never challenged it, as long as the return was not fraudulent Redstone could easily defeat the IRS’s case.

The primary lesson to learn as a result of Redstone’s problems is that even though it often appears a tax return may not be due, especially for gift and estate tax purposes, it might behoove the taxpayer to file a return to start the statute of limitations. This is perfectly legal and could help limit the actions available to the IRS in the future.

Every situation is unique, so feel free to call the tax experts at Blackburn, Childers & Steagall if you would like to discuss how the filing and non-filing of a tax return may affect your circumstances.

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