2003 HTML Instructions for Form 709,

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Purpose of Form

Use Form 709 to report the following:

Transfers subject to the Federal gift and certain generation-skipping transfer (GST) taxes and to figure the tax, if any, due on those transfers, and
Allocation of the lifetime GST exemption to property transferred during the transferor's lifetime. (For more details, see the instructions for Part 2—GST Exemption Reconciliation on page 11, and Regulations section 26.2632-1.)

All gift and GST taxes must be computed and filed on a calendar year basis.

How To Complete Form 709

Determine whether you are required to file Form 709.
Determine what gifts you must report.
Decide whether you and your spouse, if any, will elect to split gifts for the year.
Complete lines 1–18 of Part 1, page 1.
List each gift on Part 1, 2, or 3, of Schedule A as appropriate.
Complete Schedule B, if applicable.
If the gift was listed on Part 2 or 3 of Schedule A, complete the necessary portions of Schedule C.
Complete Schedule A, Part 4.
Complete Part 2 on page 1.
Sign and date the return.

Remember, if you are splitting gifts your spouse must sign line 18, in Part 1, page 1.

Who Must File

In general. If you are a citizen or resident of the United States, you must file a gift tax return (whether or not any tax is ultimately due) in the following situations:

If you gave gifts to someone in 2003 totalling more than $11,000 (other than to your spouse) you probably must file Form 709. But see page 2 for information on specific gifts that are not taxable and for gifts to your spouse.
Certain gifts, called future interests, are not subject to the $11,000 annual exclusion and you must file Form 709 even if the gift was under $11,000. See page 3.
A husband and wife may not file a joint gift tax return. Each individual is responsible for his or her own Form 709.
You must file a gift tax return to split gifts with your spouse (regardless of their amount) as described in Part 1 — General Information on page 5.
If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return.
Likewise, each spouse must file a gift tax return if they have made a gift of property held by them as joint tenants or tenants by the entirety.
Only individuals are required to file gift tax returns. If a trust, estate, partnership, or corporation makes a gift, the individual beneficiaries, partners, or stockholders are considered donors and may be liable for the gift and GST taxes.
The donor is responsible for paying the gift tax. However, if the donor does not pay the tax, the person receiving the gift may have to pay the tax.
If a donor dies before filing a return, the donor's executor must file the return.

Who does not need to file. If you meet all of the following requirements, you are not required to file Form 709:

You made no gifts during the year to your spouse;
You did not give more than $11,000 to any one donee; and
All the gifts you made were of present interests.

Gifts to charities. If the only gifts you made during the year are deductible as gifts to charities, you do not need to file a return as long as you transferred your entire interest in the property to qualifying charities. If you transferred only a partial interest, or transferred part of your interest to someone other than a charity, you must still file a return and report all of your gifts to charities.

If you are required to file a return to report noncharitable gifts and you made gifts to charities, you must include all of your gifts to charities on the return.

Transfers Subject to the Gift Tax

Generally, the Federal gift tax applies to any transfer by gift of real or personal property, whether tangible or intangible, that you made directly or indirectly, in trust, or by any other means to a donee.

The gift tax applies not only to the gratuitous transfer of any kind of property, but also to sales or exchanges, not made in the ordinary course of business, where money or money's worth is exchanged but the value of the money (or property) or money's worth received is less than the value of what is sold or exchanged. The gift tax is in addition to any other tax, such as Federal income tax, paid or due on the transfer.

The exercise or release of a general power of appointment may be a gift by the individual possessing the power. General powers of appointment are those in which the holders of the power can appoint the property subject to the power to themselves, their creditors, their estates, or the creditors of their estates. To qualify as a power of appointment, it must be created by someone other than the holder of the power.

The gift tax may also apply to the forgiveness of a debt, to interest-free or below market interest rate loans, to the assignment of the benefits of an insurance policy, to certain property settlements in divorce cases, and to the giving up of some amount of annuity in exchange for the creation of a survivor annuity.

Bonds that are exempt from Federal income taxes are not exempt from Federal gift taxes.

Code sections 2701 and 2702 provide rules for determining whether certain transfers to a family member of interests in corporations, partnerships, and trusts are gifts. The rules of section 2704 determine whether the lapse of any voting or liquidation right is a gift.

Gifts to your spouse. You must file a gift tax return if you made any gift to your spouse of a terminable interest that does not meet the exception described in Life estate with power of appointment on page 9 or if your spouse is not a U.S. citizen and the total gifts you made to your spouse during the year exceed $112,000.

You must also file a gift tax return to make the Qualified Terminable Interest Property (QTIP) election described on page 10.

Except as described above, you do not have to file a gift tax return to report gifts to your spouse regardless of the amount of these gifts and regardless of whether the gifts are present or future interests.

Transfers Not Subject to the Gift Tax

Three types of transfers are not subject to the gift tax. These are transfers to political organizations and payments that qualify for the educational and medical exclusions. These transfers are not “gifts” as that term is used on Form 709 and its instructions. You need not file a Form 709 to report these transfers and should not list them on Schedule A of Form 709 if you do file Form 709.

Political organizations. The gift tax does not apply to a transfer to a political organization (defined in section 527(e)(1)) for the use of the organization.

Educational exclusion. The gift tax does not apply to an amount you paid on behalf of an individual to a qualifying domestic or foreign educational organization as tuition for the education or training of the individual. A qualifying educational organization is one that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. See section 170(b)(1)(A)(ii) and its regulations.

The payment must be made directly to the qualifying educational organization and it must be for tuition. No educational exclusion is allowed for amounts paid for books, supplies, room and board, or other similar expenses that do not constitute direct tuition costs. To the extent that the payment to the educational institution was for something other than tuition, it is a gift to the individual for whose benefit it was made, and may be offset by the annual exclusion if it is otherwise available.

Contributions to a qualified tuition program on behalf of a designated beneficiary do not qualify for the educational exclusion. See Qualified Tuition Programs on page 5.

Medical exclusion. The gift tax does not apply to an amount you paid on behalf of an individual to a person or institution that provided medical care for the individual. The payment must be to the care provider. The medical care must meet the requirements of section 213(d) (definition of medical care for income tax deduction purposes). Medical care includes expenses incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, or for transportation primarily for and essential to medical care. Medical care also includes amounts paid for medical insurance on behalf of any individual.

The medical exclusion does not apply to amounts paid for medical care that are reimbursed by the donee's insurance. If payment for a medical expense is reimbursed by the donee's insurance company, your payment for that expense, to the extent of the reimbursed amount, is not eligible for the medical exclusion and you have made a gift to the donee.

To the extent that the payment was for something other than medical care, it is a gift to the individual on whose behalf the payment was made and may be offset by the annual exclusion if it is otherwise available.

The medical and educational exclusions are allowed without regard to the relationship between you and the donee. For examples illustrating these exclusions, see Regulations section 25.2503-6.

Qualified disclaimers. A donee's refusal to accept a gift is called a disclaimer. If a person makes a qualified disclaimer with respect to any interest in property, the property will be treated as if it had never been transferred to that person. Accordingly, the disclaimant is not regarded as making a gift to the person who receives the property because of the qualified disclaimer.

Requirements. To be a qualified disclaimer, a refusal to accept an interest in property must meet the following conditions:

The refusal must be in writing;
The refusal must be received by the donor, the legal representative of the donor, the holder of the legal title to the property to which the interest relates, or the person in possession of the property within 9 months after the later of (a) the day on which the transfer creating the interest is made or (b) the day on which the disclaimant reaches age 21;
The disclaimant must not have accepted the interest or any of its benefits;
As a result of the refusal, the interest must pass without any direction from the disclaimant to either (a) the spouse of the decedent or (b) a person other than the disclaimant; and
The refusal must be irrevocable and unqualified.

The 9-month period for making the disclaimer generally is determined separately for each taxable transfer. For gifts, the period begins on the date the transfer is a completed transfer for gift tax purposes.

Annual Exclusion

The first $11,000 of gifts of present interests to each donee during the calendar year is subtracted from total gifts in figuring the amount of taxable gifts. For a gift in trust, each beneficiary of the trust is treated as a separate donee for purposes of the annual exclusion.

All of the gifts made during the calendar year to a donee are fully excluded under the annual exclusion if they are all gifts of present interests and they total $11,000 or less.

Note:

For gifts made to spouses who are not U.S. citizens, the annual exclusion has been increased to $112,000, provided the additional (above the $11,000 annual exclusion) $101,000 gift would otherwise qualify for the gift tax marital deduction (as described in the line 4 instructions on page 9).

A gift of a future interest cannot be excluded under the annual exclusion.

A gift is considered a present interest if the donee has all immediate rights to the use, possession, and enjoyment of the property or income from the property.

A gift is considered a future interest if the donee's rights to the use, possession, and enjoyment of the property or income from the property will not begin until some future date. Future interests include reversions, remainders, and other similar interests or estates.

Note:

A contribution to a qualified tuition plan on behalf of a designated beneficiary is considered a gift of a present interest.

A gift to a minor is considered a present interest if all of the following conditions are met:

Both the property and its income may be expended by, or for the benefit of, the minor before the minor reaches age 21;
All remaining property and its income must pass to the minor on the minor's 21st birthday; and
If the minor dies before the age of 21, the property and its income will be payable either to the minor's estate or to whomever the minor may appoint under a general power of appointment.

The gift of a present interest to more than one donee as joint tenants qualifies for the annual exclusion for each donee.

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 $11,000; or (c) your outright gifts to your spouse who is not a U.S. citizen total more than $112,000.

Transfers Subject to the Generation-Skipping Transfer Tax

You must report on Form 709 the GST tax imposed on inter vivos direct skips. An inter vivos direct skip is a transfer made during the donor's lifetime that is: (a) subject to the gift tax; (b) of an interest in property; and (c) made to a skip person. (See page 6.)

A transfer is subject to the gift tax if it is required to be reported on Schedule A of Form 709 under the rules contained in the gift tax portions of these instructions, including the split gift rules. Therefore, transfers made to political organizations, transfers that qualify for the medical or educational exclusions, transfers that are fully excluded under the annual exclusion, and most transfers made to your spouse are not subject to the GST tax.

Transfers subject to the GST tax are described in further detail in the instructions beginning on page 6.

Important:

Certain transfers, particularly transfers to a trust, that are not subject to gift tax and are therefore not subject to the GST tax on Form 709 may be subject to the GST tax at a later date. This is true even if the transfer is less than the $11,000 annual exclusion. In this instance, you may want to apply a GST exemption amount to the transfer on this return or on a Notice of Allocation. For more information, see Part 3 — Indirect Skips on page 9 and Part 2—GST Exemption Reconciliation on page 11.

Transfers Subject to an “Estate Tax Inclusion Period”

Certain transfers that are direct skips receive special treatment. If the transferred property would have been includible in the donor's estate if the donor had died immediately after the transfer (for a reason other than the donor having died within 3 years of making the gift), the direct skip will be treated as having been made at the end of the estate tax inclusion period (ETIP) rather than at the time of the actual transfer.

For example, if A transferred her house to her granddaughter, B, but retained the right to live in the house until her death (a retained life estate), the value of the house would be includible in A's estate if she died while still holding the life estate. In this case, the transfer to B is a completed gift (it is a transfer of a future interest) and must be reported on Part 1 of Schedule A. The GST portion of the transfer would not be reported until A died or otherwise gave up her life estate in the house.

Report the gift portion of such a transfer in Schedule A, Part 1, at the time of the actual transfer. Report the GST portion in Schedule A, Part 2, but only at the close of the ETIP. Use Form 709 only to report those transfers where the ETIP closed due to something other than the donor's death. (If the ETIP closed as the result of the donor's death, report the transfer on Form 706.)

If you are filing this Form 709 solely to report the GST portion of transfers subject to an ETIP, complete the form as you normally would with the following exceptions:

Write “ETIP” at the top of page 1;
Complete only lines 1–6, 8, and 9 of Part 1, General Information;
Complete Schedule A, Part 2, as explained in the instructions for that schedule on page 9;
Complete Schedule C. Complete Column B of Schedule C, Part 1, as explained in the instructions for that schedule on page 10;
Complete only lines 10 and 11 of Schedule A, Part 4; and
Complete Part 2 — Tax Computation.

Section 2701 Elections

The special valuation rules of section 2701 contain three elections that you must make with Form 709.

A transferor may elect to treat a qualified payment right he or she holds (and all other rights of the same class) as other than a qualified payment right.
A person may elect to treat a distribution right held by that person in a controlled entity as a qualified payment right.
An interest holder may elect to treat as a taxable event the payment of a qualified payment that occurs more than 4 years after its due date.

The elections described in 1 and 2 must be made on the Form 709 that is filed by the transferor to report the transfer that is being valued under section 2701. The elections are made by attaching a statement to Form 709. For information on what must be in the statement and for definitions and other details on the elections, see section 2701 and Regulations section 25.2701-2(c).

The election described in 3 may be made by attaching a statement to either a timely or a late filed Form 709 filed by the recipient of the qualified payment for the year the payment is received. If the election is made on a timely filed return, the taxable event is deemed to occur on the date the qualified payment is received. If it is made on a late filed return, the taxable event is deemed to occur on the first day of the month immediately preceding the month in which the return is filed. For information on what must be in the statement and for definitions and other details on this election, see section 2701 and Regulations section 25.2701-4(d).

All of the elections may be revoked only with the consent of the IRS.

When To File

Form 709 is an annual return.

Generally, you must file the 2003 Form 709 on or after January 1 but not later than April 15, 2004.

If the donor died during 2003, the executor must file the donor's 2003 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, 2004. Under this rule, the 2003 Form 709 may be due before April 15, 2004, if the donor died before July 15, 2003. If the donor died after July 14, 2003, the due date (without extensions) is April 15, 2004. If no estate tax return is required to be filed, the due date for the 2003 Form 709 (without extensions) is April 15, 2004. 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 2003 Federal income tax return will also extend the time to file your 2003 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 2003. You may only use 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 above 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

File Form 709 at the Internal Revenue Service Center listed below.

If you are located in ▼	Then the address is: Internal Revenue Service Center ▼
The 50 states or the District of Columbia	Cincinnati, OH 45999
A foreign country, American Samoa, Guam, the Virgin Islands, Puerto Rico, or have an APO or FPO address	Philadelphia, PA 19255

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 Received From Spouse

If you received a qualified terminable interest (see page 10) 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.

General Instructions