Trust Updates Archive

IRA trust estate gift tax returns 1041 706 709 trust regulatory news a.m. publishing trust companies banks Bernard Garbo IRS Audit Focus Expands to Gift Taxes; More Taxes Owed

(April 21, 2015 --Chicago, IL) -- Total taxes owed following trust, estate, and gift tax (TEG) audits in 2014 were greater than those collected in any of the prior five years -- excluding 2013, which was an anomaly. Total additional taxes owed on TEG returns in 2014 were nearly $2.2 billion.

Though the total number of TEG returns filed has fluctuated since 2007, the error rate on returns selected for an IRS audit has remained fairly constant year over year; that's the good news.

The bad news is that average additional taxes owed on audited returns continue to increase. Over the last few years, IRS focus seems to have been on estates, specifically large estates, those over $10 million. In 2014, the focus expanded to gift tax returns and to smaller estates.

In 2014, additional taxes owed on gift tax returns accounted for 61 percent of total TEG additional tax paid. This is more than double the next highest rate, which was seen last year: 26 percent.

While the total additional taxes paid by estates declined, this reflects lower taxes owed by large estates.

The average adjustment paid by small estates, those under $5 million, was more than double that paid last year and the highest paid over the last seven years.

Taxes owed by midsized estates, those between $5 million and $10 million, was up nearly 50 percent over the prior year and the highest since the IRS began reporting the category five years ago.

The IRS declines to comment on what drives spikes in tax revenue. However, a spokesman insisted the agency was not "targeting" TEG returns, adding that "many factors" can result in variations year over year.

TEG returns include the forms 1041 (trust or fiduciary return), 706 (estate tax return), and 709 (gift tax return).

Given how lucrative TEG returns are for the IRS, it is reasonable to expect that audit scrutiny of these tax returns will continue.

For more detailed information on TEG audits, see the current issue of Trust Regulatory News.

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