A depressed asset (e.g. stock, partnership, real estate, private company) provides an opportunity to transfer (characterized as a gift) the value to the next generation. This strategy is successful when the asset’s value appreciates and is worth more in the future.
From the Chief Counsel Advice (CCA 201024059: Consequences of Gift Not “Adequately Disclosed”), per the IRS, gifts that are not “adequately disclosed” on a gift tax return provide the IRS the opportunity to assess the gift tax any time. The IRS is not barred by the three year statute of limitations. In a particular case, a taxpayer made a taxable gift of stock in a closely-held company. Per the IRS, the gift tax return did not disclose “(1) any information with respect to the method used to determine the Fair Market Value of the stock; and (2) any description of the discounts used to value the stock that were in fact used to value the stock.” The IRS differentiated between “adequately disclosed” and “adequately shown.” There are numerous Internal Revenue Code and Treasury Regulations dealing with these differences. If a gift tax can be assessed a long period of time after the actual gift has been made, penalties and interest can be added. There are more moving parts, but that is the general gist of this issue.
Bottom line: If you are planning to transfer assets with temporarily depressed values, have your CPA and estate attorney understand the nuances found in Chief Counsel Advise 201024059.
Always Asking, Never Assuming™
Christopher Holtby