Not Reporting Excessive Gift on Taxes

Question

My step-father naively, but with good intentions gave away my recently deceased mom's car to a family friend. I'm guessing the vehicle is worth $20k - over the $14,000 allowance for gift tax.

He certainly has no idea about the tax rules surrounding this, and likely neither does the recipient. Because of this, without any intervention by myself, he won't be reporting the gift on his taxes.

What are the ramifications of this - and how would the IRS even know this exchange took place? If it matters, there is probably no will, and with the recentness of my mother's passing, no probate things (not sure of the terminology) have taken place.

Please know, I'm not asking for ways to skirt the tax system, but some guidance on how this can come back to harm him, financially. This will help me decide how much (if at all) I need to butt in.

Answer 1

You may want to see this page: The Gift Tax Made Simple.

He'll should file a form 709, but unless his estate is high, like over 5 million, this will be meaningless. Estate tax laws could always change but I doubt they would that drastically.

Answer 2

In all likelihood, the IRS will not find out about the gift. If the IRS does find out about the gift, there will not be any penalty unless your father's estate is above $5.49 million (2017 estate tax exclusion), in which case the portion above $14,000 (2017 gift tax exclusion) will be subtracted from that lifetime limit.

Also note that if the car was gifted to a couple, the limit would be $28,000 ($14,000 for each recipient) and it wouldn't exceed the gift tax limit. If your mother were alive and she and your dad were co-owners of the car, they could give a $56,000 car to a couple, or a $28,000 car to an individual because that limit applies to each of the givers and each of the receivers separately.

None of the above removes the requirement to file the gift tax return that Pete mentioned.