A Valuation Report Does Not Meet Gift Tax Disclosure Regulations

Article excerpt

Filing a gift tax return, once a simple task, has evolved into a delicate process that requires a high level of due diligence to comply with the regulations.

On December 3, 1999, the IRS issued final regulations regarding the adequate disclosure of information necessary to trigger the statute of limitations on transfers made after December 31, 1996. The new regulations prescribe how to prevent the revaluation of gifts on later gift tax returns and on the transferor's estate tax return. If the return meets the adequate disclosure requirements of Treasury Regulations section 301.6501(c)l, then the normal three year reassessment period applies, and the IRS is time barred from revaluing the gift after the running of the statute of limitations.

Under the final regulations, a transfer is adequately disclosed on the gift tax return if it apprises the IRS of the nature of the gift and the basis for the reported value. The IRS will consider the transfer adequately disclosed [Treasury Regulations section 301.6501(fj(2)) if the return includes the following information or has it attached: A description of the transferred property and any consideration paid to the transferor;

The identity of and relationship between transferor and transferee;

If the property is transferred in trust, the trust identification number and a brief description of the terms of the trust (in lieu of a description, a complete copy of the trust instrument can be attached);

A detailed description of the method used to determine the fair market value of the property transferred, including disclosure of any discounts taken and the fair value of the underlying assets (the taxpayer bears the burden of demonstrating that fair market value is properly determined); and

A statement describing any position contrary to any proposed or temporary Treasury regulations or revenue rulings published at the time of the transfer.

Valuation Report Requirements

A valuation report will suffice in lieu of a detailed description of the method used to determine the fair market value of the property transferred. To qualify, the report must be prepared by an appraiser that is held out in the community as such and performs appraisals on a regu lar basis. In addition, the report must describe the appraiser's qualifications, and the appraiser must be independent.

The appraisal report must contain the following information:

Date of the transfer, date the appraisal was performed, and purpose of the appraisal

Description of the property transferred Description of the appraisal process and procedures followed

Descriptions of assumptions, conditions, or restrictions on the transferred property that affected the analysis or conclusion. …