@Opus 17 wrote:
....all income is assumed to be taxable unless proven otherwise.
I agree; all income is generally taxable unless specifically excluded under §§101-140. Gifts are specifically excluded, but if an examination involves reviewing various financial records, such as bank statements for example, then the individual under review had better be able to explain large deposits to accounts.
@Opus 17 wrote:
For the taxpayer, the important point is going to be to document exactly how each property transfer occurred in order to document the basis.
In fact, there is language in the Code (I believe §6001) that specifically requires documentation (statements and records) be retained to comply with promulgated rules and regulations.
@Opus 17 wrote:
....If a required return is not filed, the clock on the statute of limitations never starts running....
Correct (again) but merely because the statute of limitations does not start it does not follow that a penalty is assessed and/or deductions, exemptions, et al, are lost.
For example. with respect to gift tax returns, Treas. Reg. §25.6019-1(f) provides:
The return is required even though, because of the deduction authorized by section 2522 (charitable deduction) or the unified credit under section 2505, no tax may be payable on the transfer.
The language clearly implies that the unified credit is not lost if a return is not filed and that should not come as a surprise.
For instance, a federal income tax return for 2019 is generally required to be filed by a single person whose gross income exceeds $12,200 but there is no penalty if a refund is due (and the return is not filed because, perhaps, the refund is miniscule). The taxpayer does not, out of nowhere, lose the $12,200 standard deduction as a result of failing to file a return.
