New gift tax SOL rules incorporate Chapter 14 disclosure requirements.The Taxpayer Relief Act of 1997 (TRA TRA Training TRA Transfer TRA Transition TRA Tennessee Regulatory Authority TRA Telecommunications Regulatory Authority (Oman) TRA Tax Reform Act (1976, 1984, or 1986) TRA Teachers Retirement Association '97) added a new requirement for proper gift reporting. Amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. Sec. 6501 (c)(9) now provides that the value of any item disclosed in a gift tax return or in a statement attached to the return, in a manner adequate to apprise the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. of the nature of the item, may not be redetermined after expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of the three-year statute of limitations A type of federal or state law that restricts the time within which legal proceedings may be brought. Statutes of limitations, which date back to early Roman Law, are a fundamental part of European and U.S. law. (SOL). However, gift tax may be assessed, or a proceeding in court for the collection of the gift tax may begin without assessment, at any time if a transfer is not adequately disclosed. The provision is intended to extend the pre-TRA '97 disclosure requirements for gifts subject to Chapter 14's special valuation rules to all gifts. Regs. Sec. 301.6501(c)-1(e) provides the following disclosure requirements for transfers subject to Chapter 14: (i) A description of the transactions, including a description of transferred and retained interests Retained interest (also colloquially known as a payout penalty) is future, currently unpaid, interest that some lenders add to the remaining principal of a loan to determine a payout figure in the event that the loan is terminated before the completion of the original term. and the method (or methods) used to value each; (ii) The identity of, and relationship between, the transferor, transferee, all other persons participating in the transactions, and all parties related to the transferor holding an equity interest in any entity involved in the transaction; and (iii) A detailed description (including all actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin factors and discount rates used) of the method used to determine the amount of the gift arising from the transfer (or taxable event Taxable event An event or transaction that has a tax consequence, such as the sale of stock holding that is subject to capital gains taxes. ), including, in the case of an equity interest that is not actively traded, the financial and other data used in determining value. Financial data should generally include balance sheets and statements of net earnings, operating results, and dividends paid for each of the five years immediately before the valuation date. Clearly, not all gifts will require this much detail, but with no guidance available, how should these disclosure requirements be applied? Given the diversity of gifts and the various types of assets that will be transferred, gift tax return preparers face practical issues in applying the Chapter 14 adequate disclosure standard. Regs. Sec. 301.6501(c)-1(e)(i), which deals with the description of the transaction and valuation methods, does not pose significant problems. Information regarding the valuation of any asset should be reasonably attainable for disclosure purposes. Regs. Sec. 301.6501(c)-1(e)(ii) requires that "...all parties related to the transferor holding an equity interest in any entity involved in the transaction..." be disclosed. Currently, there is no guidance as to who is included in the phrase "all parties related." This phrase could be interpreted to include everyone remotely related to the taxpayer (e.g., second cousins second cousin n. 1. A child of a first cousin of one's parent. 2. A child of one's first cousin; a first cousin once removed. , great-aunts, father-in-law, etc.). However, the broadest definition of "family" provided under Chapter 14 is found in Regs. Sec. 25.2702-2(a)(1), which defines "member of a family" to include "the individual's spouse, any ancestor ANCESTOR, descents. One who has preceded another in a direct line of descent; an ascendant. In the common law, the word is understood as well of the immediate parents, as, of these that are higher; as may appear by the statute 25 Ed. III. De natis ultra mare, and so in the statute of 6 R. or lineal descendant lineal descendant n. a person who is in direct line to an ancestor, such as child, grandchild, great-grandchild and on forever. A lineal descendant is distinguished from a "collateral" descendant which would be from the line of a brother, sister, aunt or uncle. of the individual or the individual's spouse, any brother or sister of the individual, and any spouse of the foregoing." Until further guidance is issued, it would appear reasonable to also use this definition for the new gift tax disclosure rules. The same Chapter 14 disclosure requirements could literally apply to publicly traded securities. All parties related to a transferor with an equity interest in any entity involved in the transaction would need to be disclosed. Although this information gathering is time-consuming and seems unreasonable, no further guidance is yet available. Regs. Sec. 301.6501(c)-1(e)(iii) requires financial data for nonactively-traded equity interests. Many entities do not routinely prepare financial statements. Does this extension of the Chapter 14 rules require all entities in which equity interests will be gifted to prepare financial statements? The practical application of the Chapter 14 disclosure rules provides tax professionals with a challenge. Since these extended disclosure requirements apply to gifts made in 1997 and subsequent years, all gifts made after 1996 must be disclosed under these rules to be reasonably assured that SOL protection will be obtained. |
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