Instruct: Given a question, retrieve passages that answer the question.
Query: Are gifts taxed in the United States?
A gift tax is a tax imposed on the transfer of ownership of property. The United States Internal Revenue Service says, a gift is "Any transfer to an individual, either directly or indirectly, where full compensation (measured in money or money's worth) is not received in return."[1]
In the United States, the gift tax is governed by Chapter 12, Subtitle B of the Internal Revenue Code. The tax is imposed by section 2501 of the Code.[2] For the purposes of taxable income, courts have defined a "gift" as the proceeds from a "detached and disinterested generosity."[3] Gifts are often given out of "affection, respect, admiration, charity or like impulses."[4]
There are two levels of exemption from the gift tax. First, gifts of up to the annual exclusion ($14,000 per recipient in 2013, 2014, 2015, 2016 and 2017[7]) incur no tax or filing requirement. By splitting their gifts, married couples can give up to twice this amount tax-free. Note that each giver and recipient pair has their own unique annual exclusion; a giver can give to any number of recipients and the exclusion is not affected by other gifts that recipient may have received from others.
The tentative tax is reduced by gift tax that would have been paid on the adjusted taxable gifts, based on the rates in effect on the date of death (which means that the reduction is not necessarily equal to the gift tax actually paid on those gifts).
Donors of gifts in excess of the annual exclusion must file gift tax returns on IRS Form 709 and pay the tax. Executors of estates with a gross value in excess of the unified credit must file an estate tax return on IRS Form 706 and pay the tax from the estate. Returns are required if the gifts or gross estate exceed the exclusions. Each state has its own forms and filing requirements. Tax authorities may examine and adjust gift and estate tax returns.
The estate tax in the United States is a tax on the transfer of the estate of a deceased person. The tax applies to property that is transferred via a will or according to state laws of intestacy. Other transfers that are subject to the tax can include those made through an intestate estate or trust, or the payment of certain life insurance benefits or financial account sums to beneficiaries. The estate tax is one part of the "Unified Gift and Estate Tax" system in the United States. The other part of the system, the gift tax, applies to transfers of property during a person's life.
Non-resident alien donors are allowed the same annual gift tax exclusion as other taxpayers ($14,000 per year for 2013 through 2016[7]). Non-resident alien donors do not have a lifetime unified credit. Non-resident alien donors are subject to the same rate schedule for gift taxes.
For gift tax purposes, the test is different in determining who is a non-resident alien, compared to the one for income tax purposes (the inquiry centers around the decedent's domicile). This is a subjective test that looks primarily at intent. The test considers factors such as the length of stay in the United States; frequency of travel, size, and cost of home in the United States; location of family; participation in community activities; participation in U.S. business and ownership of assets in the United States; and voting. It is possible for a foreign citizen to be considered a U.S. resident for income tax purposes but not for gift tax purposes.
, Estate and Gift Taxes , Introduction to Estate and Gift Taxes , Introduction to Estate and Gift Taxes , United States Gift (and Generation-Skipping Transfer) Tax Return , Instructions for Form 709 , Instructions for Form 709
In the United States, the term transfer tax also refers to Estate tax and Gift tax. Both these taxes levy a charge on the transfer of property from a person (or that person's estate) to another without consideration. In 1900, the United States Supreme Court in the case of "Knowlton v. Moore", 178 U.S. 41 (1900), confirmed that the estate tax was a tax on the transfer of property as a result of a death and not a tax on the property itself. The taxpayer argued that the estate tax was a direct tax and that, since it had not been apportioned among the states according to population, it was unconstitutional. The Court ruled that the estate tax, as a transfer tax (and not a tax on property by reason of its ownership) was an indirect tax. In the wake of "Knowlton" the Internal Revenue Code of the United States continues to refer to the Estate tax and the related Gift tax as "Transfer taxes."
The Uniform Gifts to Minors Act (UGMA) is an act in some states of the United States that allows assets such as securities, where the donor has given up all possession and control, to be held in the custodian's name for the benefit of the minor without an attorney needing to set up a special trust fund. This allows a minor in the United States to have property set aside for the minor's benefit and may achieve some income tax benefit for the child's parents. Once the child reaches the age of maturity (18 or 21 depending on the state), the assets become the property of the child and the child can use them for any purpose. Contributing money to an UGMA account on another person's behalf could be subject to gift tax; however, the Internal Revenue Code of the United States allows persons to give up to the annual gift tax exclusion to another person without any gift tax consequences, and gifts exceeding that amount as long as total gifts are below the lifetime limits.
Generally, if an interest in property is transferred during the giver's lifetime (often called an inter vivos gift) then the gift or transfer would not be subject to the estate tax. In 1976, Congress unified the gift and estate taxes limiting the giver's ability to circumvent the estate tax by giving during his or her lifetime. Notwithstanding, there remain differences between estate and gift taxes; such as the effective tax rate, the amount of the credit available against tax, and the basis of the received property.
In some countries, certain types of gifts above a certain monetary amount are subject to taxation. For the United States, see Gift tax in the United States.
Second, gifts in excess of the annual exclusion may still be tax-free up to the lifetime estate basic exclusion amount ($5,340,000 in 2014, $5,430,000 in 2015, $5,450,000 in 2016), although for estates over that amount such gifts might increase estate taxes. Taxpayers that expect to have a taxable estate may sometimes prefer to pay gift taxes as they occur, rather than saving them up as part of the estate.
There are also types of gifts which will be included in a person's estate; such as certain gifts made within the three-year window before death and gifts in which the donor retains an interest, such as gifts of remainder interests that are not either qualified remainder trusts or charitable remainder trusts. The remainder interest gift tax rules apply the gift tax on the entire value of the trust by assigning a zero value to the interest retained by the donor.
The gift tax is a backstop to the United States estate tax. Without the gift tax, large estates could be reduced by simply giving the money away prior to death, and thus escape any potential estate tax. Gifts above the annual exemption amount act to reduce the lifetime gift tax exclusion.[11] Congress initially passed the gift tax in 1932 at a much lower rate than the estate tax, a full 25% under the estate tax rate, while also providing a $50,000 exemption, separate from the $50,000 exemption under estate tax.[12] The benefits were clear: a $10,000,000 gift would be taxed only $2,300,000, effectively only 23.0%, well below the estate tax rate.[13]
Purchases of gift cards are not subject to sales tax in all states. These purchases are considered to be similar to exchange of cash. The sales tax will be charged when gift cards are used as a method of payment for taxable goods or services. There was a proposal in New York State to impose a sales tax when a gift card is purchased instead of imposing it when the card is used, but it failed.
Bogardus v. Commissioner, 302 U.S. 34 (1937), was a United States Supreme Court case discussing, under United States tax law, how to distinguish compensation from tax-exempt gifts under §102(a). It is notable (and thus appears frequently in law school casebooks) for the following holdings:
Is a sum of money paid to former stockholders and employees compensation which is subject to Federal Income Tax or a gift that is exempt from taxes?
If a person is a non-resident alien for purposes of gift tax, taxation of gifts is determined in a different way. If the property is not located in the U.S., there is no gift tax. If it is intangible property, such as shares in U.S. corporations and interests in partnerships or LLCs, there is no gift tax.
There are two levels of exemption from the gift tax. First, transfers of up to (as of 2013) $14,000 per (recipient) person per year are not subject to the tax. Individuals can make gifts up to this amount to each of as many people as they wish each year. In a marriage, a couple can pool their individual gift exemptions to make gifts worth up to $28,000 per (recipient) person per year without incurring any gift tax. Second, there is a lifetime credit on total gifts until a combined total of $5,250,000 (not covered by annual exclusions) has been given.
Taft v. Bowers, 278 U.S. 470 (1929), was a case heard before the United States Supreme Court dealing with taxation of a gift of shares of stock under the Sixteenth Amendment to the United States Constitution. The recipient of shares of stock, Elizabeth Taft, argued that she could not be taxed on the amount that the gift increased in value before she received it. She agreed that the IRS could tax the increase in value of the gift that occurred after her receipt of the gift.
Estate and gift taxes in the United States are imposed by the federal and some state governments. The estate tax is an excise tax levied on the right to pass property at death. It is imposed on the estate, not the beneficiary. Some states impose an inheritance tax on recipients of bequests. Gift taxes are levied on the giver (donor) of property where the property is transferred for less than adequate consideration. An additional generation-skipping transfer (GST) tax is imposed by the federal and some state governments on transfers to grandchildren (or their descendants).
Today, the estate tax is a tax imposed on the transfer of the "taxable estate" of a deceased person, whether such property is transferred via a will or according to the state laws of intestacy. The estate tax is one part of the "Unified Gift and Estate Tax" system in the United States. The other part of the system, the gift tax, imposes a tax on transfers of property during a person's life; the gift tax prevents avoidance of the estate tax should a person want to give away his/her estate just before dying.
The Federal Estate Tax was introduced in 1916, and Gift Tax in 1924. Unlike many inheritance taxes, the Gift and Estate taxes were imposed on the transferor rather than the recipient. Many states adopted either inheritance taxes or estate and gift taxes, often computed as the amount allowed as a deduction for federal purposes. These taxes remained under 1% of government revenues through the 1990s.
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