Category: Estate and Gift Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Background Taxpayers are married individuals. Taxpayers would like to provide annual support for both sets of parents in amounts exceeding the annual gift tax exclusion. It has been suggested that if the circumstances were such that the parents could be claimed as the taxpayer's dependents, that would shield the taxpayers from gift tax on the annual support payments. Issue Does the ability to claim the taxpayer's parents as dependents for income tax purposes affect the taxability of the support payments for gift tax purposes? Answers Claiming the parents as dependent does not prevent the support payments from being taxable gifts. Discussion There is no gift tax exclusion or exemption for payments made to or on behalf of a dependent. A gift is a voluntary transfer of property for less than adequate consideration in money or money's worth. There are numerous cases holding that a parent's payments on behalf of a minor child in satisfaction of the parent's legal obligation to support the child are not subject to gift tax. The theory, of course, is since the payments are made to satisfy the parent's legal obligation, such payments are not voluntary and thus do not fall within the definition of a taxable gift. See Hooker v Commr, 10 TC 388 (1948), affd 174 F2d 863 (5th Cir 1949), 49-1 USTC ¶10,724, 37 AFTR 1530; Commr v Converse, 163 F2d 131 (2d Cir 1947), 47-2 USTC ¶10,567, 35 AFTR 1607. This is only the link I can find between dependent status for income tax purposes and the gift tax: normally, a minor child for whom the parent has a legal support obligation is in fact a dependent for income tax purposes. Absent a legal obligation for support, dependency means nothing as far as gift tax is concerned. |
