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(DSUE) Amount and Restored Exclu-
sion.” Taxpayers are required to attach
the first four pages of Form 706 filed by
the estate of the deceased spouse, any
attachments related to the DSUE that
were filed with the Form 706, and the
calculations of any adjustments to the
DSUE amount (e.g., audit reports). The
DSUE amount is used first, before the
taxpayer’s own exemption.
10. Get the statute running — the
power of adequate disclosure
To start the statute of limitation, a gift
must be adequately disclosed on the gift
tax return. Whenever a gift is made with
assets that are hard to value (e.g., a part-
nership interest), tax preparers need to
consider the requirements of Regs. Sec.
301.6501(c)-1(e) and/or -1(f). These summarizes the deposit and payment Deposits
rules generally require that the gift be procedures taxpayers can use to stop Since 2004, the Internal Revenue Code
described in sufficient detail that the interest from accruing on the underly- has expressly allowed taxpayers to make
IRS can determine what property was ing tax and penalties while they dispute deposits. Before 2004, the concept of
given, the identity of and relationship the tax lability with the IRS or in court. a deposit was found in case law. In
between the transferor and transferee, Additionally, this item discusses recent Rosenman, the Supreme Court con-
details on any trusts involved, and how cases in this area and what they mean sidered whether the three-year refund
the value was determined. The volume for taxpayers. statute began to run from the date of a
of information required to be disclosed remittance by the taxpayer. The Court
will generally mean that the transfer Overview concluded the statute had not begun to
cannot be completely described on the If the IRS determines that a taxpayer run because the remittance was merely a
face of Schedule A of Form 709. In owes more tax than reported on its tax deposit to suspend interest from accru-
those cases, tax preparers should con- return, the taxpayer must pay interest ing and not a payment of the tax liability
sider including a disclosure for the gift on the underlying tax liability and, if (Rosenman, 323 U.S. 658, 660 (1945)).
so that it meets the adequate-disclosure any, penalties. Under Sec. 6601(a), the Since Rosenman, courts have developed
regulations and starts the statute of limi- taxpayer owes interest from the payment and applied a “facts and circumstance”
tation for the transfer. due date (generally, the unextended date test to determine whether a remittance
From Laura Hinson, CPA, Raleigh, the tax return was due) until the IRS was a deposit or a payment. The IRS
N.C., and Kathryn Neely, CPA, Houston receives the payment covering the entire issued Rev. Proc. 84-58, which provided
tax, penalties, and interest as of the date procedures for taxpayers to make remit-
the payment is received. The underpay- tances, or “deposits in the nature of a
Procedure & Administration ment interest rate is the federal short- cash bond,” to suspend the accrual of
term rate plus 3 percentage points (Sec. interest on deficiencies. Under Rev. Proc.
Analyzing the difference 6621(a)(2)). The rate for large corporate 84-58, a deposit in the nature of a cash
between tax payments and underpayments (exceeding $100,000), bond was not a payment of tax, was not
deposits once triggered, is the federal short-term subject to a claim for credit or refund,
IMAGE BY GOCMEN/ISTOCK should consider taking action to stop as “hot interest”) (Sec. 6621(c)). bear interest.
Taxpayers contesting a tax liability
rate plus 5 percentage points (referred to
and, if returned to the taxpayer, did not
In 2004, as part of the American Jobs
There are two primary methods
interest from accruing. Interest on the
Creation Act of 2004, P.L. 108-357,
taxpayers can use to stop interest from
tax liability and penalties can add up
quickly and, in some instances, can even
accruing when contesting a tax liability:
Congress codified a taxpayer’s ability
to make a deposit in Sec. 6603. Sec.
exceed the underlying tax. This item
deposits or advance payments.
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