Tuesday, December 10, 2013
Jay Soled (Rutgers), Paul Caron (Pepperdine), Charles Davenport (Rutgers) & Richard Schmalbeck (Duke), Rethinking the Penalty for the Failure to File Gift Tax Returns, 141 Tax Notes 757 (Nov. 18, 2013):
For the past several decades, penalties for failure to file a gift tax return have rarely been applied. That is in dramatic contrast to the number of times taxpayers have endured the failure-to-file penalty in the income tax sphere. Those dichotomous outcomes are attributable to one source — the applicable exclusion amount, which shields most taxable gifts from gift tax exposure and simultaneously from the failure-to-file penalty. As currently constructed, the penalty for failure to file a gift tax return is thus ill-designed and demands congressional reformation.
Our proposal to establish a minimum penalty threshold coupled with a net worth requirement would spark filing compliance among economically well-to-do taxpayers (that is, the population of taxpayers most likely to be subject to transfer tax). Implementation of this proposed reform would not only bode well for gift tax compliance, but due to the close kinship between the gift tax and estate and GSTTs, it would enhance the compliance rates associated with both of these taxes as well.
We acknowledge that our proposed reform measure would not constitute a panacea for transfer tax revitalization. Instead, our reform initiative is much more modest in nature, simply seeking to ensure that taxpayers fulfill their tax return filing obligations. The importance of tax return filing obligations, however, should never be minimized; to emphasize this point, Congress should immediately enact the proposed legislative compliance measure.
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