The recent changes in estate and gift tax laws have incentivized taxpayers to give large gifts of real estate as a form of estate planning. As a result of many taxpayers failing to file a Form 709 United States Gift (and Generation Skipping Transfer) Tax Return, the IRS has quietly launched a gift tax enforcement initiative to find taxpayers making real estate gifts.

Legislative Change in Gift Tax Exemption

Last year, Congress enacted the “Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.” This Act increased the gift tax exemption from $1 million to $5 million, enabling a person to gift more during his or her lifetime without being taxed. As a result of this Act, large transfers of real estate have become an increasingly popular method of estate planning.

IRS Filing Requirements For Gifts

Despite the change in estate and gift tax laws, every U.S. citizen and resident must still file a Form 709 for any gifts with a fair market value of $13,000 or more in one calendar year, including gratuitous transfers of real estate.

The Form 709 must be filed with the IRS prior to April 15th of the year succeeding the year in which the gift was made. Failure to file a Form 709 or under valuation of gifts on a Form 709 can result in penalties to the taxpayers making gifts.