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IRS Cracks Down on Unreported Transfers of Real Estate

 Jack and Jill own a house. They would like to add Peter, their son, to the deed just in case something happens to them in the near future. Jack and Jill file a form at the County building to add Peter to the deed. Did Jack and Jill make a gift to Peter? Yes. Do they need to file a gift tax return (IRS Form 709)? It depends.

This is a popular scenario for many individuals who are concerned about the maintenance and control of their assets if they were to become incapacitated. It is more commonly seen in the case of adding a trusted family member to a bank account; however, it can apply in real estate as well. Transferring property to a person for little or no consideration is a gift in the eyes of the IRS. If the value of the transfer is greater than $13,000, a gift tax return may be required.

The IRS believes there is a large number of taxpayers failing to file Form 709s for these types of transactions. Through "John Doe" summonses, the IRS is approaching various states and requesting property tax records. It appears they are specifically interested in transfers of property to relatives between 2005 and 2010. They have already approached California, New York, Wisconsin, Florida, Nebraska, North Carolina, Ohio, and Washington. Many states are voluntarily disclosing their property transfer data to the IRS.

If you are like Jack and Jill and have transferred real estate to a relative and did not file a gift tax return, the IRS may be looking for your return.

For inquiries on whether a transfer of real estate should be reported on a gift tax return, contact Brian Whitlock at bwhitlock@BlackmanKallick.com or 312-980-2941, or your Blackman Kallick representative. Our thanks to Tara Scott for her contribution to this article.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.