- 18 -
"net gift" is made, the donor and donee agree that the donee will
bear the burden of the gift tax. The value of the property
transferred is reduced by the amount of the gift tax paid by the
donee, resulting in the net amount transferred by gift, or the
"net gift". The IRS has provided an algebraic formula for
determining the amount of gift tax owed on a "net gift" in Rev.
Rul. 75-72, 1975-1 C.B. 310. It is important to keep in mind
that once the "net gift" is calculated, the full amount of the
gift tax is paid on that "net gift".
When a "net gift" is made, a portion of the property is
transferred by gift and the remaining portion is transferred by
sale. The Supreme Court in Diedrich v. Commissioner, 457 U.S.
191 (1982), held that the donor realizes taxable income to the
extent that the amount of the gift tax assumed by the donee
exceeds the donor's basis in the property. Thus, the donee's
payment of the gift tax is the consideration for the amount
transferred by sale, and the balance is transferred by gift. In
the present case, however, there was no sale of a portion of the
property to the donees. This case does not involve a net gift,
and the amount of the gift is the total value of the property
transferred.
Petitioners' reliance on the "net gift" concept and Rev.
Rul. 75-72, supra, shows a misunderstanding of the nature of
their liability. Petitioners here are not liable for the tax
stemming from the transfer of property to them as the donee,
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011