Gift question

[tax_info_seeker987]

How can a recipient prove, if they are ever audited, that the money that they received from someone was a gift and therefore tax exempt? How can you then get a statement/letter from giftor if they already died?

[tagteam]

Is there a reason you started a new thread on the same issue? It would be better if you kept all of your questions in the same thread.

Re: How irs can tell if money received is income or gift? (intuit.com)

[tax_info_seeker987]

Sorry, this new question is along the same lines but more focused. Since the earlier question was worded differently and I got so many responses, I figured I won't get an answer to this more focused question in the same thread.

[tagteam · Accepted solution]

The short answer involves "facts and circumstances" and there are presumptions that apply thereto, virtually all of which are rebuttable.

Two quick examples: 

1) One of your parents gives you $25,000 in cash. This is going to be presumed to be a gift.

2) Your employer gives you $25,000 in cash. This is not going to be presumed to be a gift.

[Mike9241]

If you think that you might not be able to prove that property given to you is a  gift,  then there are a few steps you can take to help you prove your case in the event of a dispute.

Take photographs of the object in question. Photographic documentation is a good way to prove that a gift was delivered to you. If there is no evidence to prove acceptance, then a claim is much harder to prove.
Write up a statement describing what occurred between you, the donee, and the person who gave you the property, the donor. Just like taking photos, having a journal entry or a written statement supporting your account could help strengthen your claim.
This step is best to be done at the time of delivery, but you can also write down an account of the event after the dispute has been raised. Just be sure to add in as much detail as possible. If there were any witnesses, list their names.

there is also the requirement that the donor file a gift tax return if the value of the gift was over $15,000 but admittedly many times the donor doesn't do this.

if audited, the agent will also consider the blood relationship between you and the donor.  if you were an employee it could be virtually impossible to convince the IRS it was a gift

[fanfare]

@tax_info_seeker987 

The Gift Tax Return, Form 709, filed by the donor, is one method of proof that you received a gift and nothing but a gift.

Generally a gift is not reported by the recipient so the IRS is not interested in gifts, unless you are subject to the full audit treatment, which is unusual.

See Comey and McCabe.

https://www.nytimes.com/2022/07/06/us/politics/comey-mccabe-irs-audits.html

[tagteam]

A multitude of gifts, however, are given by donors to donees in cash which do not exceed the annual exclusion. Hence, Form 709 is not likely to be filed in those instances.

The result is typically a deposit (credit) in one of the donee's accounts with a financial institution. There should, obviously, be a corresponding debit in one of the donor's accounts.

The optimal method is to secure a copy of the donor's statement or at least a gift letter signed and dated by the donor. If neither of the foregoing is possible, then the donee should simply make (and retain) a notation of the time, date, and amount of the gift with as much information about the donor as is known.