If a taxpayer does not file a tax return, the statute of limitations for most federal taxes never commences. Thus, in theory, the IRS can go back as many years it wants to such an “open” year to audit and assess tax.
In practice, the IRS rarely goes back too far. In the income tax arena, six years is the general rule of thumb. In a recent case, the IRS has raised eyebrows by seeking to assess gift taxes on a transfer that occurred 41 years ago.
In 1972, Sumner Redstone transferred stock in a family company to other family members in settlement of a family dispute. The IRS is now seeking $1.1 million in gift taxes and penalties, plus interest per its view that the transfer was a gift. A Tax Court petition challenging such treatment was filed in April, 2013. The taxpayer is asserting that the transfers were nontaxable settlement payments and not taxable gifts. The interest on the tax amount has been estimated by some to at least equal the tax due, given 41 years of interest.
Our firm does a substantial amount of estate and trust litigation. Since most of these cases eventually settle, issues arise whether settlement payments are taxable gifts or are instead non-gift settlements. I will be interested to see how the Redstone issue is resolved by the Tax Court, if it gets to trial.
The Tax Court docket sheet can be viewed here. I have been unable to locate an online copy of the Petition itself (the above information has come from other online sources) – if anyone has a link feel free to email it to me at firstname.lastname@example.org and I will post it in an update. Thank you to my partner, Jordan Klingsberg for bringing this case to my attention.
Redstone v. Commissioner, T.C., No. 008097-13