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Statute of Limitations: Adequately Disclosing the Value of a Gift on a Gift Tax Return

by Beth Flowers, Associate

When a Gift (and Generation Skipping Transfer Tax) Return (Form 709) is filed and gift(s) are adequately disclosed, the statute of limitations (being 3 years after the return is filed) on the gifts begins to run. There are several requirements that must be met for the return to be considered complete (and the gifts adequately disclosed) so that the statute of limitations begins to run. One item that is required to be included for the gift to be considered adequately disclosed is the value of the gift. To adequately disclose the value of the gifted item, the donor should attach either a qualified appraisal or a detailed description of the method used to determine the fair market value of the gift.

The Internal Revenue Code provides some guidance on what information should be included in an appraisal or the detailed analysis of the valuation method for a gift. To begin, the appraisal should provide information about the appraiser, including (1) that appraiser is an individual who holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis, (2) that because of the appraiser’s qualifications (should be detailed), the appraiser is qualified to make appraisals of the type of property being valued, and (3) that the appraiser is not the donor or the donee of the property or a member of the family of the donor or donee.

Next, the appraisal needs to contain information about the property being valued, including (1) the date of the transfer, the date on which the transferred property was appraised, and the purpose of the appraisal, (2) a description of the property, (3) description of the appraisal process employed, (4) a description of the assumptions, hypothetical conditions, and any limiting conditions and restrictions on the transferred property that affect the analyses, opinions, and conclusions, (5) the information considered in determining the appraised value that is sufficiently detailed so that another person can replicate the process and arrive at the appraised value, (6) appraisal procedures followed, and the reasoning that supports the analyses, opinions, and conclusions, (7) the valuation method utilized, the rationale for the valuation method, and the procedure used in determining the fair market value of the asset transferred, (8) the specific basis for the valuation, and (9) an explanation of any discount applied to the valuation.

Beth Flowers is an attorney in the MM&R Edwardsville office who focuses her practice in estate planning, real estate law and business law.

Professional Services Disclaimer: Please note that the information presented here is as an educational service, and while it contains information about legal issues, it is not legal advice. No warranty is made regarding the applicability of the information presented to a particular client situation, and the information set forth is not a substitute for original legal research, analysis and drafting for a particular client situation.

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