United States Gift (and Generation-Skipping Transfer) Tax Return

Nonresident Aliens

Nonresident aliens are subject to gift and GST taxes for gifts of tangible property situated in the United States. Under certain circumstances, they are also subject to gift and GST taxes for gifts of intangible property. (See section 2501(a).)

If you are a nonresident alien who made a gift subject to gift tax, you must file a gift tax return if: (a) you gave any gifts of future interests; or (b) your gifts of present interests to any donee other than your spouse total more than $10,000; or (c) your outright gifts to your spouse who is not a U.S. citizen total more than $106,000.

When To File

Form 709 is an annual return.

Generally, you must file the 2001 Form 709 on or after January 1 but not later than April 15, 2002.

If the donor died during 2001, the executor must file the donor's 2001 Form 709 not later than the earlier of (a) the due date (with extensions) for filing the donor's estate tax return or (b) April 15, 2002. Under this rule, the 2001 Form 709 may be due before April 15, 2002, if the donor died before July 15, 2001. If the donor died after July 14, 2001, the due date (without extensions) is April 15, 2002. If no estate tax return is required to be filed, the due date for the 2001 Form 709 (without extensions) is April 15, 2002. For more details, see Regulations section 25.6075-1.

Extension of Time To File

There are two methods of extending the time to file the gift tax return. Neither method extends the time to pay the gift or GST taxes. If you want an extension of time to pay the gift or GST taxes, you must request that separately. (See Regulations section 25.6161-1.)

By extending the time to file your income tax return. Any extension of time granted for filing your calendar year Federal income tax return will also extend the time to file any gift tax return. Income tax extensions are made by using Form 4868, 2688, or 2350, which have checkboxes for Form 709. See Form 4868 to get an automatic 4-month extension by phone using a credit card to pay part or all of the Federal income tax (but not gift or GST taxes) you expect to owe for 2001. You may only use one of these forms to extend the time for filing your gift tax return if you are also requesting an extension of time to file your income tax return.

By letter. You can request an extension of time to file your gift tax return by writing to the Cincinnati Service Center at the address shown below under Where To File. You must explain the reasons for the delay. You must use a letter to request an extension of time to file your gift tax return unless you are also requesting an extension to file your income tax return.

Where To File

Send Form 709 to:

Internal Revenue Service Center
Cincinnati, Ohio 45999

Adequate Disclosure

To begin the running of the statute of limitations regarding a gift, the gift must be adequately disclosed on Form 709 (or an attached statement) filed for the year of the gift.

In general, a gift will be considered adequately disclosed if the return or statement provides the following:

• A description of the transferred property and any consideration received by the donor,
• The identity of, and relationship between, the donor and each donee,
• If the property is transferred in trust, the trust's EIN and a brief description of the terms of the trust (or a copy of the trust instrument in lieu of the description), and
• Either a qualified appraisal or a detailed description of the method used to determine the fair market value of the gift.

See Regulations section 301.6501(c)-1(e) and (f) for details, including what constitutes a qualified appraisal, the information required if no appraisal is provided, and the information required for transfers under sections 2701 and 2702.

Penalties

The law provides for penalties for both late filing of returns and late payment of tax unless you have reasonable cause. There are also penalties for valuation understatements that cause an underpayment of the tax, willful failure to file a return on time, and willful attempt to evade or defeat payment of tax.

The late filing penalty will not be imposed if the taxpayer can show that the failure to file a timely return is due to reasonable cause. Those filing late (after the due date, including extensions) should attach an explanation to the return to show reasonable cause.

A valuation understatement occurs when the reported value of property entered on Form 709 is 50% or less of the actual value of the property.

Joint Tenancy

If you buy property with your own funds and the title to such property is held by yourself and the donee as joint tenants with right of survivorship and if either you or the donee may give up those rights by severing your interest, you have made a gift to the donee in the amount of half the value of the property.

If you create a joint bank account for yourself and the donee (or a similar kind of ownership by which you can get back the entire fund without the donee's consent), you have made a gift to the donee when the donee draws on the account for his or her own benefit. The amount of the gift is the amount that the donee took out without any obligation to repay you. If you buy a U.S. savings bond registered as payable to yourself or the donee, there is a gift to the donee when he or she cashes the bond without any obligation to account to you.

Transfer of Certain Life Estates

If you received a qualifying terminable interest (see page 9) from your spouse for which a marital deduction was elected on your spouse's estate or gift tax return, you will be subject to the gift tax (and GST tax, if applicable) if you dispose of all or part of your life income interest (by gift, sale, or otherwise).

The entire value of the property involved less (a) the amount you received on the disposition and (b) the amount (if any) of the life income interest you retained after the transfer will be treated as a taxable gift. That portion of the property's value that is attributable to the remainder interest is a gift of a future interest for which no annual exclusion is allowed. To the extent you made a gift of the life income interest, you may claim an annual exclusion, treating the person to whom you transferred the interest as the donee for purposes of computing the annual exclusion.

Part I - General Information

Split Gifts - Gifts by Husband or Wife to Third Parties

A married couple may not file a joint gift tax return.

However, if after reading the instructions below, you and your spouse agree to split your gifts, you should file both of your individual gift tax returns together (i.e., in the same envelope) to avoid correspondence from the IRS.

If you and your spouse agree, all gifts (including gifts of property held with your spouse as joint tenants or tenants by the entirety) either of you make to third parties during the calendar year will be considered as made one-half by each of you if:

• You and your spouse were married to one another at the time of the gift;
• If divorced or widowed after the gift, you did not remarry during the rest of the calendar year;
• Neither of you was a nonresident alien at the time of the gift; and
• You did not give your spouse a general power of appointment over the property interest transferred.

If you transferred property partly to your spouse and partly to third parties, you can only split the gifts if the interest transferred to the third parties is ascertainable at the time of the gift.

If you meet these requirements and want your gifts to be considered made one-half by you and one-half by your spouse, check the Yes box on line 12, page 1; complete lines 13 through 17; and have your spouse sign the consent on line 18. If you are not married or do not wish to split gifts, skip to Schedule A.

Line 15

If you were married to one another for the entire calendar year, check the Yes box and skip to line 17. If you were married for only part of the year, check the No box and go to line 16.

Line 16

Check the box that explains the change in your marital status during the year and give the date you were married, divorced, or widowed.

Consent of Spouse

To have your gifts (and generation- skipping transfers) considered as made one-half by each of you, your spouse must sign the consent. The consent may generally be signed at any time after the end of the calendar year. However, there are two exceptions:

1. The consent may not be signed after April 15 following the end of the year in which the gift was made. (But, if neither you nor your spouse has filed a gift tax return for the year on or before that date, the consent must be made on the first gift tax return for the year filed by either of you.)
2. The consent may not be signed after a notice of deficiency for the gift or GST tax for the year has been sent to either you or your spouse.

The executor for a deceased spouse or the guardian for a legally incompetent spouse may sign the consent.

The consent is effective for the entire calendar year; therefore, all gifts made by both you and your spouse to third parties during the calendar year (while you were married) must be split.

If the consent is effective, the liability for the entire gift and GST taxes of each spouse is joint and several.

When the Consenting Spouse Must Also File a Gift Tax Return

If the spouses elect gift splitting (described under Split Gifts on page 4), then both the donor spouse and the consenting spouse must each file separate gift tax returns unless all the requirements of either Exception 1 or 2 below are met.

Exception 1. During the calendar year:

• Only one spouse made any gifts;
• The total value of these gifts to each third-party donee does not exceed $20,000; and
• All of the gifts were of present interests.

Exception 2. During the calendar year:

• Only one spouse (the donor spouse) made gifts of more than $10,000 but not more than $20,000 to any third-party donee;
• The only gifts made by the other spouse (the consenting spouse) were gifts of not more than $10,000 to third-party donees other than those to whom the donor spouse made gifts; and
• All of the gifts by both spouses were of present interests.

If either Exception 1 or 2 is met, only the donor spouse must file a return and the consenting spouse signifies consent on that return. This return may be made on Form 709-A, United States Short Form Gift Tax Return. This form is much easier to complete than Form 709, and you should consider filing it whenever either of the above exceptions is met and the gifts consist entirely of present interests in tangible personal property, cash, U.S. Savings Bonds, or stocks and bonds listed on a stock exchange.

Specific instructions for Part 2 - Tax Computation are continued on page 12. Because you must complete Schedules A, B, and C to fill out Part 2, you will find instructions for these schedules below.

Schedule A - Computation of Taxable Gifts

Do not enter on Schedule A any gift or part of a gift that qualifies for the political organization, educational, or medical exclusions. In the instructions below, gifts means gifts (or parts of gifts) that do not qualify for the political organization, educational, or medical exclusions.

Valuation Discounts

If the value of any gift you report in either Part 1 or Part 2 of Schedule A reflects a discount for lack of marketability, a minority interest, a fractional interest in real estate, blockage, market absorption, or for any other reason, answer Yes to the question at the top of Schedule A. Also, attach an explanation giving the factual basis for the claimed discounts and the amount of the discounts taken.

Qualified State Tuition Programs

If your total 2001 contributions to a qualified state tuition plan on behalf of any individual beneficiary exceed $10,000, then for purposes of the annual exclusion you may elect under section 529(c)(2)(B) to treat up to $50,000 of your total contributions as having been made ratably over a 5-year period beginning in 2001.

You must report in 2001 the entire amount of the contribution in excess of $50,000.

You make the election by checking the box on line B at the top of Schedule A. The election must be made for the calendar year in which the contribution is made. Also attach an explanation that includes the following:

• The total amount contributed per individual beneficiary;
• The amount for which the election is being made; and
• The name of the individual for whom the contribution was made.

If you make this election, report only (20%) of your total contributions (up to $50,000) on the 2001 Form 709. You must then report an additional 20% of the total in each of the succeeding 4 years. If you are electing gift splitting for the contributions, apply the gift-splitting rules before applying these rules. In this case, both spouses must make the section 529(c)(2)(B) election on their respective returns.

Note: Contributions to qualified state tuition plans do not qualify for the educational exclusion.

How To Complete Schedule A

After you determine which gifts you made are subject to the gift tax and therefore should be listed on Schedule A, you must divide these gifts between those subject only to the gift tax (gifts made to nonskip persons - see page 6) and those subject to both the gift and GST taxes (gifts made to skip persons - see page 6). Gifts made to nonskip persons are entered in Part 1. Gifts made to skip persons are entered in Part 2.

If you need more space, attach a separate sheet using the same format as Schedule A.

Gifts to Donees Other Than Your Spouse

You must always enter all gifts of future interests that you made during the calendar year regardless of their value.

If you do not elect gift splitting. If the total gifts of present interests to any donee are more than $10,000 in the calendar year, then you must enter all such gifts that you made during the year to or on behalf of that donee, including those gifts that will be excluded under the annual exclusion. If the total is $10,000 or less, you need not enter on Schedule A any gifts (except gifts of future interests) that you made to that donee.

If you elect gift splitting. Enter on Schedule A the entire value of every gift you made during the calendar year while you were married, even if the gift's value will be less than $10,000 after it is split on line 2 of Part 3.

Gifts to Your Spouse

You do not need to enter any of your gifts to your spouse on Schedule A unless you gave a gift of a terminable interest to your spouse, you gave a gift of a future interest to your spouse as described below, or your spouse was not a citizen of the United States at the time of the gift.

Terminable interest. Terminable interests are defined in the instructions to line 8. If all the terminable interests you gave to your spouse qualify as life estates with power of appointment (defined on page 9) you do not need to enter any of them on Schedule A.

However, if you gave your spouse any terminable interest that does not qualify as a life estate with power of appointment, you must report on Schedule A all gifts of terminable interests you made to your spouse during the year.

You should not report any gifts you made to your spouse who is a U.S. citizen that are not terminable interests (except as described under Future interest on this page); however, you must report all terminable interests, whether or not they can be deducted.

Charitable remainder trusts. If you make a gift to a charitable remainder trust and your spouse is the only noncharitable beneficiary (other than yourself), the interest you gave to your spouse is not considered a terminable interest and, therefore, should not be shown on Schedule A. For definitions and rules concerning these trusts, see section 2056(b)(8)(B) and Regulations section 20.2055-2.

Future interest. Generally, you should not report gifts of future interests to your spouse unless the future interest is also a terminable interest that is required to be reported as described above. However, if you gave a gift of a future interest to your spouse and you are required to report the gift on Form 709 because you gave the present interest to a donee other than your spouse, then you should enter the entire gift, including the future interest given to your spouse, on Schedule A. You should use the rules under Gifts Subject to Both Gift and GST Taxes, below, to determine whether to enter the gift on Schedule A, Part 1 or Part 2.

Non-U.S. citizen spouse donee. If your spouse is not a U.S. citizen and you gave him or her a gift of a future interest, you must report on Schedule A all gifts to your spouse for the year. If all gifts to your spouse were present interests, do not report on Schedule A any gifts to your spouse if the total of such gifts for the year does not exceed $106,000 and all gifts in excess of $10,000 would qualify for a marital deduction if your spouse were a U.S. citizen (see the instructions for Schedule A, Part 3, line 8, on page 9). If the gifts exceed $106,000, you must report all of the gifts even though some may be excluded.

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