Mark Bole wrote:

- quote -

It depends who the IRS is auditing. If they are auditing
person A, the maximum penalty is $50 for not filing a 1099.
(Which is highly unlikely since person A does not have to
file a 1099 since they are not in a trade or business). I
am not sure what the penalty is for not filing a gift tax
return, especially if they won't owe gift tax (I am assuming
that they have not used up their lifeitme exemption).

The bigger issue is if the IRS is auditing person B. The
IRS will want to know why $70,000 suddenly appeared in their
bank account. If it was a gift, person B will have to
provide some type of documentation from person A that it was
a gift. Without person A's cooperation, the IRS will deem
it income to person B.

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Mark Bole <makbo[at]pacbell.net> wrote:

- quote -

If they're on good terms, the IRS gets a lot less if A files
a gift return (probably nothing, the estate is "modest")
than if B has earned income. (That's true if they aren't on
good terms, but in that case they might want to hurt each
other more than the IRS; on the other hand, in that case A
might claim embezzlement.)

I would think that a claim of gift is sustainable in those
circumstances.

Seth

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

A recent thread on 1099-MISC, plus "beer for payment"
prompts me to ask this:

Instructions for Form 1099-MISC state to use it "only when
payments are made in the course of your trade or business.
Personal payments are not reportable."

Suppose person A makes a one-time transfer of $70,000 to
person B.

From person A's viewpoint, this was payment for services
received from B over a period of 18 months, based on a
verbal agreement for B to provide bookkeeping, household
management, selection of other personal service providers,
and so on, for the benefit of A. B was also reimbursed for
out-of-pocket expenses such as travel to A's home to provide
these services.

From person B's viewpoint, this sum was simply a gift, and
had nothing to do with any services provided. B does not
consider himself in the business of providing such services.

So, person A would like to issue a 1099-MISC to B, but is
precluded from doing so by the instructions (A does not have
a W-9 from B, but does have B's TIN and other personal
information). Person A does not want to file a gift tax
return, and would not benefit from any deduction for the
payment. Person B wants the opposite - to not pay any
self-employment or income tax on the amount, rather to
simply have it treated as a gift.

What does the IRS want to happen in this situation? As it
stands, they will receive neither a 1099-MISC (because of
their own instructions), nor a report of "other income"
(Form 1040 line 21) from B, nor a gift tax return (because
of the disagreement as to the nature of the transfer).

Oh, and if you hadn't guessed already, person A is an
elderly, widowed parent with very little income and modest
assets, while person B is her adult child. At the beginning
of the 18-month period, A had added B as a joint tenant to
A's bank account to facilitate the provision of bill-paying
services by B. The $70,000 transfer was initiated by B out
of the joint account into his own account, on the last day
of the 18-month period.

Does this additional information change the situation
significantly?

-Mark Bole

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >