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Posted by blaha on January 22, 2008, 11:21 pm
Please log in for more thread options > Phil Marti wrote:
> > A discussion has been going on that went down all sorts of paths but has
> > never answered what I saw as the central question:
>
> > If one supports a person one is not required by law to support, is the money
> > spent on such support taxable for gift tax purposes?
>
> > Rephrasing, is it possible than you can wind up with a dependent on your
> > 1040 and a tax liability on your 709 because of the money you spent on that
> > dependent?
>
> See Dickman vs Comm'r, 465 U.S. 330 (1984).
>
> This is the case where the 11th Circuit reversed the Tax Court
> and ruled that intra-family interest free loans were taxable
> gifts. The Supreme Court upheld the 11th. (BURGER, C. J.,
> delivered the opinion of the Court, in which BRENNAN, WHITE,
> MARSHALL, BLACKMUN, STEVENS, and O'CONNOR, JJ., joined. POWELL,
> J., filed a dissenting opinion, in which REHNQUIST, J., joined.)
>
> One of the arguments raised by Greene dealt with the contention
> that imposing a gift tax on interest-free loans could result in
> imposing the tax on routine neighborly or familial gifts, thus
> intruding into cherished zones of privacy.
>
> The court responded:
>
> "Our laws require parents to provide their minor offspring with
> the necessities and conveniences of life; questions under the tax
> law often arise, however, when parents provide more than the
> necessities, and in quantities significant enough to attract the
> attention of the taxing authorities. Generally, the legal
> obligation of support terminates when the offspring reach
> majority. Nonetheless, it is not uncommon for parents to provide
> their adult children with such things as the use of cars or
> vacation cottages, simply on the basis of the family
> relationship. We assume that the focus of the Internal Revenue
> Service is not on such traditional familial matters. When the
> Government levies a gift tax on routine neighborly or familial
> gifts, there will be time enough to deal with such a case.
>
> Moreover, the tax law provides liberally for gifts to both family
> members and others; within the limits of the prescribed statutory
> exemptions, even substantial gifts may be entirely tax free.
> First, under Section 2503(e) of the Code, 26 U.S.C. Section
> 2503(e) (1982 ed.), amounts paid on behalf of an individual for
> tuition at a qualified educational institution or for medical
> care are not considered "transfer[s] of property by gift" for
> purposes of the gift tax statutes. More significantly, Section
> 2503(b) of the Code provides an annual exclusion from the
> computation of taxable gifts of $10,000 per year, per donee; this
> provision allows a taxpayer to give up to $10,000 annually to
> each of any number of persons, without incurring any gift tax
> liability. /8/ The "split gift" provision of Code Section
> 2513(a), which effectively enables a husband and wife to give
> each object of their bounty $20,000 per year without liability
> for gift tax, further enhances the ability to transfer
> significant amounts of money and property free of gift tax
> consequences. /9/ Finally, should a taxpayer make gifts during
> one year that exceed the Section 2503(b) annual gift tax
> exclusion, no gift tax liability will result until the unified
> credit of Code Section 2505 has been exhausted. /10/ These
> generous exclusions, exceptions, and credits clearly absorb the
> sorts of de minimis gifts petitioners envision and render
> illusory the administrative problems that petitioners perceive in
> their "parade of horribles.""
>
> I know of no other case that has addressed this issue other
> than a really really really old case in the Ninth Circuit. Comm'r
> vs Greene (41 B.T.A. 515). A trustee of an estate of a woman that
> had been declared incompetent had to provide support &
> maintenance to the woman's older children (they were in their
> 40s) by state court order. The Ninth Circuit said that a gift was
> a transfer for less than full and adequate consideration. They
> found nothing in section 503 (this was the relevant section in
> the Revenue Act of 1932) to imply that state law should be used
> to define "consideration." They said that the gift tax reaches
> all transfers where the consideration is not reducible to money
> or money's worth. They also added that there was no requirement
> for donative intent under section 503.
>
> --
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> << nor can it used, for the purpose of avoiding penalties >>
> << that may be imposed upon the taxpayer. >>
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I'm the one who asked the original question, and we have a few experts
working it.
Indeed, even though you may be able to cliam an individual as a
dependant for income taxes, that does not mean that the money you use
to support them is not subject to gift tax. Anyone you are not
legally REQUIRED to support that you give financial support to is
considered a gift. So, you 19 year old child, any support is a gift.
Legally you can kick them out at 18. Tuition and medical are exempt,
but everything else counts.
Thank you very much to all who contributed here.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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