Is Paying A Relative's Apartment Utilities Considered A Gift For Form 709?

paoli2 | Oct 13, 2020 | 2,641 posts since 2011

Ok. I do have a new tax professional to do my taxes and now she is supposed to do two Form 709 (Gift tax) so the government can follow us for the rest of our lives and make sure we don't be too generous to a certain adult child of ours. I got too involved with other pressing things and had no idea how much we went over for the "exclusion" we are allowed as a married couple. Now I am forced to stay married at least until we see this through!.

What I would like to know is why does the IRS consider the utilities we paid monthly to the company for her as a "gift"? They seemed not too high until I added them up for 12 months and they went into thousands of dollars!! But how can that be a "gift" ? My new tax lady wants copies of the entire year's bank statements to show we paid them. I am exhausted with all the work I have been doing just because we were a bit overly generous with our own child! Some terrible things happened to her this year and she really needed our help. If you can't depend upon your parents at these times, what good are we?? If you have info you can share that my tax lady is wrong, please share. I am going gaga looking up a year's worth of bank statements. Thanks so much!

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Answers

GreenDream | Oct 13, 2020 | 358 posts since 2019

This is a good question, as now you are getting into an area that most people don't even think about.

As far as the IRS is concerned paying someone else's utility bills is the equivalent of handing them that amount in cash as a gift. As the person giving the "gift" you are expected to report it to the IRS on form 709. The annual exclusion is $15k (individually, or $30k as a couple) in gifts in a year. Any gifts in excess of $15k need to be reported, even if no tax is to be paid.

The good news is that even if you made more than $15k+ in gifts (or $30k+ as a couple) as long as the total amount of gifts you've given in your lifetime is below $11.58 million you won't owe the IRS anything for the gift tax, you're just reporting it so they can deduct the amount from your lifetime gift giving exemption total - which also applies to your estate tax, so if you give your adult child $580k gifts in your life time, your estate will be limited to $11 million (11.58m - 580k) before taxes are due.

Hope that helps.

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paoli2 | Oct 13, 2020 | 2,641 posts since 2011

Thanks so much for the quick reply. What you wrote was exactly what they explain on the IRS page. I was just confused as how it could be a "gift". Your explanation makes sense tho. The bad news is that we have to pay her to fill out one 709 for each of us since we are splitting the gifts amount and that costs hundreds of dollars. Those 709 forms are not something I would want to do without professional help especially since our "gifts" other than the new car are not your normal gifts. You can bet I won't let this happen to us again even if we can get the $30,000.00 exclusion! Much appreciation for your input. BTW, I don't think we could ever go over the $11 million in 10 lifetimes!

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Choice | Oct 13, 2020 | 937 posts since 2020

See if you can claim as a dependent.

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paoli2 | Oct 13, 2020 | 2,641 posts since 2011

She is an adult and would never accept being anyone's dependent at her age and neither would I. Everything in life is not about saving as much money as we can. Helping our adult children survive this world should be our top priority no matter how old they get. Just my own ideas of life.

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Ally6770 | Oct 13, 2020 | 4,294 posts since 2010

We have gifted the children every year since 1995 on every Jan 2, and I have continued to do it after my husband passed. As long as you stay below the gifting amount which is now $15,000 for each person gifting to another person no extra income tax forms are required to be prepared.

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paoli2 | Oct 13, 2020 | 2,641 posts since 2011

Unfortunately, I went over the $15,000 and even the $30,000 because of the unexpected problems which occurred when we have to get her the car with safety features. I will be very careful in the future to keep it under the exclusion allowed like you do, Ally.

Blazer9: The point is that once we do the honest thing and file the 709, we don't get hit with the taxes but they get to have a running tab on how much we give so when we are gone, they take if off the sum we are allowed to leave to our child or children. They get less inheritance. If we don't report when we go over the exclusion amount, I read on IRS info they can hit us with $25,000 fine and a year in jail. This is not something to play around with. Ally is doing it the correct and safe way. I just got hit with some unexpected problems for her and felt I had to go over the exclusion (with the new car) so I am paying my tax lady to do two 709s.and hope I never have to do this again. Also, I was told that they know most people don't do 709s so they are actively looking for those who may not. It's not worth risking imo.

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CuriousDave | Oct 14, 2020 | 233 posts since 2018

Please provide the source of your statement that you could be hit with a $25,000 fine and a year in jail for failure to report gifts over the exclusion amount. According to Section 6651(a) of the Internal Revenue Code (referenced in the instructions for filing Form 709), the penalty for failure to file the return is 5% per month up to a max of 25% of the tax computed, with (for 2020) a minimum of the "lesser of $435 or 100% of the tax."
Failure to file a gift tax return when required is not a criminal offense, so any jail term makes no sense, and in any case is not mentioned anywhere in the above code section.

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paoli2 | Oct 14, 2020 | 2,641 posts since 2011

Curious: I read it in an article called "Pocket Sense" "Penalties for Failure to File Gife tax Return 12-12-2019 under the paragraph "Cracking Down". It seems they were given it by Crawer Law Center. However, I think the penalties must have been changed since I did see the info you are referring to in another article. No matter how much the penalty is, it is expensive enough to pay someone to do the dang forms so I sure don't want to get hit with even a penny in penalties! As for the jail time.....that could add a lot to one'e dreary social life, if one didn't have one. (:

Other articles I read on the penalties did also pick up the $25,000 etc. so I thought it was factual. Don't think I will be in danger of penalties since we are doing the 709s.

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Ally6770 | Oct 14, 2020 | 4,294 posts since 2010

You have hired someone. Assumed you did research before doing so. Do as the law requires and what she says so you can sleep at night and not worry about it. It is only a form. Next time something like this happens --- You could have bought the car on a loan and paid on it the total amount to $15,000 when everything is added together and the same thing the following year. Also think of making large purchases in the future the end of the year and finish it off the first of the year. Still staying below the $15.000. Just keep the running total monthly balance that you donate for her keep. Also there are government programs to help her out possibly if she qualifies.
Also you made the comment that you were forced to stay married----because of our past PM's remember clawback is 5 years.

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paoli2 | Oct 16, 2020 | 2,641 posts since 2011

Ally: First of all, you know I wrote "forced to stay married" tongue in cheek" only according to the rules of 709. If beloved one and I were not married, we could not take advantage of the higher exclusion. After 60 years together, I don't think we will be parting any time soon.. Second, can you explain how the 5 year clawback would have anything to do with this situation? We "have" to get both the 709s done and filed in January of 2021 to get the 2020 higher exclusion so what does this have to do with any "clawback"? Your explanation would be appreciated in case I am missing anything here. Thanks.

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Choice | Oct 16, 2020 | 937 posts since 2020

Let us speculate now that we see the reference to clawback... they call this additional layer of facts peeling the layers of garlic back in some quarters. Sometimes gifts, etc. are counted in determining availability/eligibility amount under certain Medicaid/Medi-Cal programs for that recipient and applicable funds would be clawbacked if gifted within x years (back) under this Fed funded but State administrated program. For all, this is a reason to consider keeping some retirement funds in a qualified retirement account since it is normally excluded in that availability of funds calculation except for current year payout. But a qualified person with expertise in this area of government programs would be the person to consult in addition to a tax person. Aren’t facts a wonderful thing! Perhaps we’ll see more. My earlier “you’re welcome” somehow got deleted. Stay safe

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blazer9 | Oct 13, 2020 | 228 posts since 2019

What is point in doing any reporting of family giving money?
Gift Tax ? Christmas must be hell.
Who,s to know if I make payments on siblings mortgage.

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paoli2 | Oct 16, 2020 | 2,641 posts since 2011

blazer: YOU would know! It's about doing the right and honest thing so the rest of us won't have to go through extra Hell because they know so many aren't! If you have kids, what kind of example are you if you don't follow the rules but expect them to? Sorry for the rant but being honest gets to your nerves sometimes. I am a very nervous, honest person!

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blazer9 | Oct 16, 2020 | 228 posts since 2019

@paoli2
no need for a response to the post as it was one of the first posted 10/13.
It just has been bumped down with the piled on later posts 8^)

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