In 1972, President Richard Nixon cruised to
re-election. “The Waltons” premiered on CBS. And Sumner Redstone, who wasn’t
yet a global media mogul, (allegedly) made a taxable gift to his children and
failed to file a return.
Why wouldn’t you file a gift tax
return if you made a taxable gift? Well, for a lot of people, the answer might
be “I didn’t know it was required.” But, in this case, Redstone argues the
transfer wasn’t gift, but rather the result of an “intra-family lawsuit” and
thus “an ordinary business transaction.”
So, how long does (or can) the
IRS scour your financial history to find taxable gifts? Well, it seems they do
(or can) go back some 41 years. Whether you are a billionaire or a regular
“Joe,” this case is worth watching.
You can get the high points of
the case from a recent Bloomberg
article titled “Billionaire Redstone Challenges IRS on Tax
for 1972 Gift.” Normally the IRS is bound by a statute of limitations set
to about three years. However, an exception to this rule includes the failure to file a tax return like the
allegedly missing gift tax return of Mr. Redstone.
Apparently, the difficulty arose
over certain shares of National Amusements Inc., and a family lawsuit resulting
in a “transfer” of shares. The IRS is now calling that “transfer” a “gift” with
$1.1 million in taxes, penalties, and interest due and owing.
According to Richard Behrendt, a
former estate and gift tax auditor turned director of estate planning, “This is
unheard of… I can’t remember ever hearing of anybody going back 41 years to
raise an issue. It’s really unprecedented in my experience.”
Note: Mr. Redstone may have
become a target, given the fact he is the chairman of both Viacom and CBS, not
to mention National Amusements and all the related subsidiaries of the three.
Reportedly, Mr. Redstone is worth approximately $4.9 billion. Nevertheless,
this 41-year-look-back is a troublesome precedent.
The take-away (even if you have
a smaller fortune) is that timely filing of an accurate gift tax return will
start the clock running on a three-year statute of limitations. If no gift tax
return is filed, the statute does not apply. Thus, if a taxpayer fails to file
a gift tax return, the IRS can pursue you indefinitely.
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Reference: Bloomberg
(May 1, 2013) “Billionaire Redstone Challenges IRS on Tax
for 1972 Gift”