Saturday, October 13, 2012

Determining IRS Tax Gifts

When determining whether something is a gift for taxation purposes, the critical consideration is the transferor's INTENTION. This is a question of fact that must be determined on a "case-by-case basis".

This is an OBJECTIVE inquiry that looks to "the mainsprings of human conduct to the totality of the fact of each case." Must consider totality of situation and determine if the transferor's intention was either disinterested or involved:

GIFT STANDARD: Gifts result from "detached and disinterested generosity." Gifts are often given out of "affection, respect, admiration, charity or like impulses." Contrast payments given as an "involved and intensely interested" There is a benefit, CONSIDERATION

IRS wanted a new rule that works for business situations. Lots of discretion given to the trier of fact to make a determination if something is really a gift.

Section 274(b) and Surrogate Taxation- §274(b) denies the transferor a business expense deduction for any business gift, to the extent the total value of gifts made by the taxpayer to the recipient exceeds $25.   

§ 102(c) declares that § 102(a) cannot apply to “any amount transferred by or for an employer to, or for the benefit of, an employee. No Gifts to Employees. Makes the tax advantage less desirable.

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