Academic journal article Journal of Accountancy

Gift Was Completed When Check Was Deposited; Relation-Back Doctrine Applied to Noncharitable Gift

Academic journal article Journal of Accountancy

Gift Was Completed When Check Was Deposited; Relation-Back Doctrine Applied to Noncharitable Gift

Article excerpt

Albert Metzger wanted his property to be given to his heirs before he died. He executed a power of attorney giving his son John the authority to make such gifts (in addition to other powers).

As part of a plan to carry out his father's wishes, John wrote two $10,000 checks on Albert's account, payable to himself and his wife Shirley. The checks were written on December 14, 1985, and deposited to John and Shirley's account on December 31, 1985. They cleared on January 2, 1986.

Later that year, John repeated this process, writing two more $10,000 checks to himself and his wife. Both checks were deposited and cleared in 1986.

Albert died in 1987. On his father's estate tax return, John reported Albert had made no lifetime taxable gifts since in his view all of Albert's gifts were covered by the $10,000-per-donee annual gift tax exclusion.

The Internal Revenue Service audited the estate tax return and increased the amount of taxable gifts by $20,000, claiming Albert made taxable gifts of $10,000 each to John and Shirley in 1986.

The IRS argued that under the laws of their home. state, Maryland, a gift by check is completed only after the check is presented for payment and accepted by the bank. Under this view, the checks drafted in 1985 were incomplete until they were paid in 1986. Thus, the gifts made to John and Shirley in 1986 totaled $20,000 each, not $10,000, leaving $10,000 in gifts to each donee uncovered by the gift tax exclusion.

Generally, under regulations section 25. …

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