Estate and Elder Law

Federal Government Access to Real Estate Transfer Information

By Adam J. Gottlieb

There are many positives of the information and technological advances that private citizens have enjoyed over the past several decades. For example, we can now access information at break-neck speed on our handheld phones. We can watch a movie on a very small electronic device. We can search for and find information that we could only dream of finding twenty years ago.  But just as we can find all these wonderful things out there in the world using technology, so can the federal government.

The state and local governments have for many years tracked transfers of real property. Normally and for many decades, a transferor and a transferee of real property have been required to file with state or local governments certain forms containing information about transfers. The governments have then isolated certain transfers, in particular those transfers between one person (the "transferor") and another who is not the transferor's spouse. Further, the federal government can access this information by requesting it from the state or local government.  If the federal government prepares the proper request and complies with applicable laws, it can access the transfer information.

The significance of the federal government's request and ultimate access is profound. Now it can examine the data and seek out those transfers for no consideration which it believes are taxable gifts. It can then compare the questioned transactions with filed gift tax returns, if any, reflecting those types of transfers. To the extent that there is a discrepancy between the filed gift tax returns and the transfer information, the government can and does ask the transferor/taxpayer to explain why a return was not filed. The government is concerned that taxpayers have not reported a gift-taxable transaction to the federal government and thus have given property away without paying the appropriate gift tax.

Many years ago, New York State had a similar program whereby it reviewed its own state and local real estate transfer records. Now the federal government has asked the states to provide the information so that it can request gift tax returns for those who had not previously filed. In some cases, the taxpayer can explain why a gift tax return was not filed. In many other cases, a gift tax return perhaps should have been filed but was not. The effect of making a gift is that the transferor may use all or a portion of his or her gift tax exemption by taxable gifts made during lifetime, which exemption is $5,120,000 for gifts made in 2012. To the extent that all of the transferor's exemption is not completely used during lifetime by cumulative gifts totaling more than the exemption, the unused exemption amount is available at death.  However, if the transferor's cumulative gifts exceed the exemption amount, a gift tax is due.

So, in the age of technological and computer advances, governments now have an ability to access information that it couldn't access until more recently.  Progress is good, right?

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