IRS Form 709, United States Gift (and Generation-Skipping) Transfer Tax Return, is filed with a federal tax return if the taxpayer owes gift or GST tax. "Generation-Skipping" applies to gifts to a recipient that is a second-generation or more remote relation to the giver, such as a grandparent to a grandchild.
A taxpayer uses Form 709 to calculate federal taxes due on personal gift or generation-skipping transfers of money, real estate and other assets. Gift taxes also apply if an asset is transferred for less than its true value -- the taxpayer is taxed on the difference -- and on forgiven debt. To avoid penalties, these taxpayers must file Form 709 under IRS rules must do so by the date the federal income tax return is due.
A penalty applies if a taxpayer does not file Form 709 and owes taxes. The is subject to penalties for tax evasion if the IRS determines that the act was a willful attempt to avoid the gift tax. Other penalties apply if the taxpayer files late or makes errors. A penalty for intentionally underestimating the value of a gift applies if the value shown on the form is less than 66 percent of the true market value. Interest is charged on the taxes due.
The penalty is one-half of 1 percent of the taxes due on the form, as of 2011. The penalty is charged each month until the taxes are paid, but cannot exceed 25 percent of the original tax due. A penalty of 20 percent is charged on underpayment of gift taxes due to an intentional undervaluation of the gift. Penalties for tax evasion -- failing to file the form to avoid tax -- vary by situation, but cannot exceed $100,000, as of 2011. Criminal sentences for tax evasion cannot exceed five years.
The taxpayer can avoid some penalties if he can prove he had an acceptable reason for not filing the form, as determined by the IRS on an individual basis. Penalties are not usually applied if the gift is exempt from the federal tax, and the first $13,000 of gift transfer to any person is excluded from gift tax each year, as of 2011.
A taxpayer can extend the time to file Form 709 by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to get an extension on his income tax return. The extension applies to Form 709 as well, per the IRS. Form 8892 is used to request an extension for Form 709 only if the taxpayer is filing his income tax return on time. Penalties are charged for overdue tax even if an extension is granted.
- IRS -- Instructions for Form 709 (2010): Purpose of Form
- IRS -- Instructions for Form 709 (2010): Extension of Time to File
- IRS -- Instructions for Form 709 (2010): Penalties
- IRS -- Instructions for Form 709 (2010): Transfer Subject to the Gift Tax
- Alvin Brown and Associates: Background Information on IRS Tax Penalty
- Cornell University Law School: Tax Evasion