The IRS is on the hunt. Are you a target?

If one thinks the IRS has nothing to do at the estate and gift tax division (because of the increased estate and gift tax exemptions to $5.0 million), think again. 

The IRS has begun a hunt for recorded transactions that indicate a gift or gifts by a taxpayer that exceed the annual $13,000 gift tax exclusion.  Arden Dale in the Wall Street Journal reported on the IRS’s effortsA court filing in California described efforts by the IRS estate and gift tax division to find people who have not filed gift and generation-skipping tax returns and reported the taxable transfers.  Obvious targets include transfers that may have exceeded the $1.0 million gift tax exemption in calendar year 2010 and prior.  States are cooperating with the information requests, including TEXAS, Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, Washington and Wisconsin. The court filing notes that Josephine Bonaffini, the coordinator of an IRS state and federal gift-and-estate tax program, examined a sampling of data from these states and it showed an extremely high failure-to-report rate.

New tax rules have made big gifts to family members popular this year, as Congress raised the limit on how much a person can give in a lifetime to $5 million without having to pay gift tax. Still, any time a gift to one person exceeds $13,000, the giver is supposed to let the IRS know by reporting such gifts on Form 709.

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