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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, December 19, 2011

Federal Judge Allows IRS to Troll Through State Records for Unreported Gifts of Real Estate

Forbes, Federal Judge Green Lights IRS Search For California Gift Tax Cheats, by Janet Novack:

A federal district court judge has given the IRS permission to serve a “John Doe” summons on the California State Board of Equalization demanding the names of residents who transferred property to their children or grandchildren for little or no money, from 2005 to 2010. [In the Matter of the Tax Liabilities of John Does, No. 2:10-mc-00130 (E.D. CA Dec. 15, 2011)] The IRS wants those names as part of a crackdown on what it believes is the widespread failure to file required tax returns when real property is passed between family members.

The IRS has already received information about intra-family property transfers from county or state officials in Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington state and Wisconsin. But officials of California’s BOE said state law prohibited them from disclosing the information without a court approved summons.

In an affidavit filed in the California case in October, Josephine Bonaffini, the Federal/State Coordinator for the IRS’ Estate and Gift Tax Program, said the agency has so far examined 658 taxpayers identified as transferring property to relatives and concluded that 238 of them should have, but didn’t, file [gift tax returns].

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Given that such records must be open to the public so that title searches can be made by potential buyers and others such as citizens concerned about non-conforming uses, this hardly seems to rise to any great level of invasion of privacy.

Posted by: Bill | Dec 19, 2011 6:26:30 AM

It's not a question of invasion of privacy, but a waste of government resources. 238 people should have filed gift tax returns, but how many owe gift tax now or will owe estate tax later, short of winning a lottery jackpot?

How about a subpoena to the airlines for all non-citizen passengers leaving the country without an alien tax clearance, as the law requires even if it's for a week in Cozumel or Bermuda? Another waste of resources to enforce an idiotic law.

How about a line item on the Form 1040, or perhaps a Schedule G, to make it easier for taxpayers to comply with gift reporting? No, we certainly don't want to reduce compliance burdens.

Posted by: Bob | Dec 19, 2011 7:58:04 AM