Is an engagement ring worth more than $10,000 subject to gift tax?
Sam Yorko
Sam
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Ed Zollars
> Subject line asks it all..
Short answer--yes <grin>.
Interestingly enough, I was listening to a lecture from
someone who mentioned a client of his that caught caught in
a double whammy in such a situation by the IRS. Daddy wired
$1.8 million (yes, million) to Sonny to buy an engagement
for his future daughter in law. Sonny gives ring to said
woman, who clearly is not his wife at this time (key point).
In that case, there were two taxable gifts--one from Dad to
Sonny, and a second from Sonny to his future wife.
The attorney's comment was that this is the reason why you
do the ring exchange *AFTER* the marriage vows are formally
exchanged <grin>, since at least then the transfer is
subject to the unlimited exclusion for transfers between
husband and wife.
Michael T. Wing, CPA
> Subject line asks it all..
Just thinking out loud... Gifts between spouses are not
subject to gift tax, so that handles the situation *if* the
couple actually gets married. Prior to the marriage, I
suppose there might be an issue as to whether the gift is
technically "completed" since there is probably an implied
obligation to return the ring if the marriage is called off.
I suppose that if the giver of the ring calls off the
marriage and does not request the return of the ring, a
"gift" occurs at that point.
Didn't Oprah, or one of those people, just do a show on this
topic? <g>
MTW
Please reply to newsgroup - email address is munged.
David Woods EA MST
Off the cuff, I'd say yes so long as they didn't get married
in the same year.
David M. Woods, EA, MST
(617) 723-2422
Boston, MA
www.rytercpa.com
evild...@aol.com
This advice does not constitute a client relationship.
If you are not a client, you are on your own.
Drewremedy
I'll bet there is actually case law on point.
Lin706
Whether or not there is gift tax depends on if the donor
has used his lifetime unified credit.
Dick Adams
> Subject line asks it all..
The answer is "It depends". If you live in a State where
the ring must be returned if the marriage does not occur,
then the gift is not completed until the marriage and should
come under the exclusion of spousal transactions.
I'm either too frugal or too cautious, but in return for
a $10,000+ engagement ring, I'd ask for an unlimited and
irrevocable power of attorney.
Dick
Steve Bentley
> Subject line asks it all..
Yes - there is no general exception to the applicability
of gift taxes due to relationships or intent.
Steve Bentley, MBT, CFO
Better Business Systems
Ed Zollars
> Subject line asks it all..
Short answer--yes <grin>.
Interestingly enough, I was listening to a lecture from
someone who mentioned a client of his that caught caught in
a double whammy in such a situation by the IRS. Daddy wired
$1.8 million (yes, million) to Sonny to buy an engagement
for his future daughter in law. Sonny gives ring to said
woman, who clearly is not his wife at this time (key point).
In that case, there were two taxable gifts--one from Dad to
Sonny, and a second from Sonny to his future wife.
The attorney's comment was that this is the reason why you
do the ring exchange *AFTER* the marriage vows are formally
exchanged <grin>, since at least then the transfer is
subject to the unlimited exclusion for transfers between
husband and wife.
<< -------------------------------------------------- >>
Michael T. Wing, CPA
> Subject line asks it all..
Just thinking out loud... Gifts between spouses are not
subject to gift tax, so that handles the situation *if* the
couple actually gets married. Prior to the marriage, I
suppose there might be an issue as to whether the gift is
technically "completed" since there is probably an implied
obligation to return the ring if the marriage is called off.
I suppose that if the giver of the ring calls off the
marriage and does not request the return of the ring, a
"gift" occurs at that point.
Didn't Oprah, or one of those people, just do a show on this
topic? <g>
MTW
Please reply to newsgroup - email address is munged.
<< -------------------------------------------------- >>
David Woods EA MST
Off the cuff, I'd say yes so long as they didn't get married
in the same year.
David M. Woods, EA, MST
(617) 723-2422
Boston, MA
www.rytercpa.com
evild...@aol.com
This advice does not constitute a client relationship.
If you are not a client, you are on your own.
<< -------------------------------------------------- >>
Drewremedy
I'll bet there is actually case law on point.
<< -------------------------------------------------- >>
Lin706
Whether or not there is gift tax depends on if the donor
has used his lifetime unified credit.
<< -------------------------------------------------- >>
Dick Adams
> Subject line asks it all..
The answer is "It depends". If you live in a State where
the ring must be returned if the marriage does not occur,
then the gift is not completed until the marriage and should
come under the exclusion of spousal transactions.
I'm either too frugal or too cautious, but in return for
a $10,000+ engagement ring, I'd ask for an unlimited and
irrevocable power of attorney.
Dick
Steve Bentley
> Subject line asks it all..
Yes - there is no general exception to the applicability
of gift taxes due to relationships or intent.
Steve Bentley, MBT, CFO
Better Business Systems
<< -------------------------------------------------- >>
Frederick E. Jorden
> "Sam Yorko" <JOATno...@computer.org> wrote:
>> Subject line asks it all..
> Short answer--yes <grin>.
>
> Interestingly enough, I was listening to a lecture from
> someone who mentioned a client of his that caught caught in
> a double whammy in such a situation by the IRS. Daddy wired
> $1.8 million (yes, million) to Sonny to buy an engagement
> for his future daughter in law. Sonny gives ring to said
> woman, who clearly is not his wife at this time (key point).
> In that case, there were two taxable gifts--one from Dad to
> Sonny, and a second from Sonny to his future wife.
>
> The attorney's comment was that this is the reason why you
> do the ring exchange *AFTER* the marriage vows are formally
> exchanged <grin>, since at least then the transfer is
> subject to the unlimited exclusion for transfers between
> husband and wife.
Additionally, you have an executor contract with a
significant prepayment. She must be a real find.
Is there a prenuptial agreement?
--
Frederick E. Jorden http://fejcpapc.com/
Frederick E. Jorden, CPA PC
10049 Midlothian Tpk - 2-H Richmond, VA 23235 EMAIL fej...@erols.com
(804) 320-6210 FAX (804) 320-6211
Paul Thomas
> It's subject to being the object of a gift tax return.
> Whether or not there is gift tax depends on if the donor
> has used his lifetime unified credit.
Isn't an engagement ring given in anticipation of marriage,
and if that marriage doesn't take place, the engagement ring
is given back?
I don't see this as a "gift" in tax law, because it IS given
as a sign of a mutual agreement to wed. In short, doesn't
the recipient of an engagement ring HAVE to complete the
agreement to keep the ring?
I just don't see this as having gift tax connotations, and I
doubt there is any case law about this, where the wedding
took place.
--
Paul A. Thomas, CPA
Athens, Georgia
tax...@negia.net
http://www.pat-cpa.com
D. Stussy
> Short answer--yes <grin>.
>
> Interestingly enough, I was listening to a lecture from
> someone who mentioned a client of his that caught caught in
> a double whammy in such a situation by the IRS. Daddy wired
> $1.8 million (yes, million) to Sonny to buy an engagement
> for his future daughter in law. Sonny gives ring to said
> woman, who clearly is not his wife at this time (key point).
> In that case, there were two taxable gifts--one from Dad to
> Sonny, and a second from Sonny to his future wife.
>
> The attorney's comment was that this is the reason why you
> do the ring exchange *AFTER* the marriage vows are formally
> exchanged <grin>, since at least then the transfer is
> subject to the unlimited exclusion for transfers between
> husband and wife.
OK, but it's a little difficult to exchange an ENGAGEMENT
ring after MARRIAGE vows.... Wedding rings are a different
story.
A $1.8M engagement ring? I have to wonder what the wedding
ring cost!
Ed Zollars
> Prior to the marriage, I
> suppose there might be an issue as to whether the gift is
> technically "completed" since there is probably an implied
> obligation to return the ring if the marriage is called off.
An interesting problem--and, as I noted, in at least one
case the IRS *did* assert a gift tax was due. The issue, at
least from the IRS's perspective, is that there would not be
a *legal* obligation to return the gift and there does not
appear to be a relationship that would support an "implied"
agreement to return the item unless the marriage actually
takes place <grin>.
Look at it this way--it's a good reason someone could offer
for capping the cost of the engagement ring at $10K <grin>.
I would note that most of us don't really have this
problem...
A.G. Kalman
> Sam Yorko <JOATno...@computer.org> wrote:
>> Subject line asks it all..
>
> The answer is "It depends". If you live in a State where
> the ring must be returned if the marriage does not occur,
> then the gift is not completed until the marriage
I am in agreement here. I believe state law governs whether
an engagement ring is a completed gift or not. If it is not
a completed gift, then there is no gift tax issue.
Unfortunately, I believe one will find that most states are
silent on this issue. Therefore, one would probably have to
look to various court decisions within one's jurisdiction. I
did a quick search and found cases in Montana, Iowa, New
Jersey & Pennsylvania ruling the gift was conditional.
--
Alan
Tax Resources on the Web
http://pages.prodigy.net/agkalman/
William Brenner
that not many reportable +$10,000 rings...or other jewelry
gifts...are actually reported to IRS.
What say you, tax preparers? How many clients have told you
of such gifts?
Gene E. Utterback
> Subject line asks it all..
Generally, yes - there is a gift tax issue IF the couple are
not married by the end of the calendar year in which the
gift is made. I suppose the argument could be made that the
taxability of the gift depends on the marital status of the
parties at the time of the gift regardless of the date of
the marriage, but I think the IRS would have a hard time
pushing that IF they married before 12/31 - remember your
marital status on the last day of the year is your marital
status for the entire year for purposes of your filing
status. I would try to apply that same logic to the gift,
though I'm not sure it would fly.
As a side note, I recall when the actor Tony Randall got
engaged some time back. He gave an engagement ring to his
fiancée that was worth quite a bit of money, just over $1
Million I believe. Interestingly, his fiancée was more than
35 years younger than he was so it triggered the Generation
Skipping Tax. If the ring was real expensive and the couple
are more than 35 years apart in age, this could apply to
your clients as well.
Gene E. Utterback, EA
Sam Yorko
> Sam Yorko <JOATno...@computer.org> wrote:
>> Subject line asks it all..
>
> Yes - there is no general exception to the applicability
> of gift taxes due to relationships or intent.
Couldn't someone argue that the engagement ring was part of
an implied contract, and therefor wasn't a gift? Of course
that brings up other possibilities (explored in other
answers) about breaking off the engagement. It could then
be considered a penalty for the breaking of the contract....
Adam H. Kerman
> The answer is "It depends". If you live in a State where
> the ring must be returned if the marriage does not occur,
> then the gift is not completed until the marriage and should
> come under the exclusion of spousal transactions.
Heh. In which state has a jilted spouse not had to return
the ring? [Is it no longer traditional to fling the ring in
the face upon the breaking of the engagement?]
> I'm either too frugal or too cautious, but in return for
> a $10,000+ engagement ring, I'd ask for an unlimited and
> irrevocable power of attorney.
Uh, just with respect to the ring, or with respect to the
entire marriage?
Bernie
> The answer is "It depends". If you live in a State where
> the ring must be returned if the marriage does not occur,
> then the gift is not completed until the marriage and should
> come under the exclusion of spousal transactions.
it would then NOT be gift...for if the marriage does not
occur the item is returned (not gifted again) and therefore
"nothing" was transacted...
i assume this would fall under the gift of a future
interest ???
bernie
"pondered but not researched"
Harlan Lunsford
> Sam Yorko <JOATno...@computer.org> wrote:
>> Subject line asks it all..
> Just thinking out loud... Gifts between spouses are not
> subject to gift tax, so that handles the situation *if* the
> couple actually gets married. Prior to the marriage, I
> suppose there might be an issue as to whether the gift is
> technically "completed" since there is probably an implied
> obligation to return the ring if the marriage is called off.
> I suppose that if the giver of the ring calls off the
> marriage and does not request the return of the ring, a
> "gift" occurs at that point.
>
> Didn't Oprah, or one of those people, just do a show on this
> topic? <g>
You're probably thinking about a letter to Dear Abby;
after all, who better to ask this question?
Cheer$,
Harlan Lunsford
Lin706
> taxability of the gift depends on the marital status of the
> parties at the time of the gift regardless of the date of
> the marriage, but I think the IRS would have a hard time
> pushing that IF they married before 12/31 - remember your
> marital status on the last day of the year is your marital
> status for the entire year for purposes of your filing
> status. I would try to apply that same logic to the gift,
> though I'm not sure it would fly.
Line 15, page 1 of the form 709 asks if the couple were
married for the entire calendar year. So I think your
solution might not fly.
But to answer yet another comment in this thread of answers,
most likely, few tax professionals are filing gift tax
returns to report gifts of jewelry. Heck..........it's hard
enough to get clients to file gift tax returns for transfers
of cash and stock and real property let alone other items.
Linda, EA in PA
Frederick E. Jorden
>>> Subject line asks it all..
>> Just thinking out loud... Gifts between spouses are not
>> subject to gift tax, so that handles the situation *if* the
>> couple actually gets married. Prior to the marriage, I
>> suppose there might be an issue as to whether the gift is
>> technically "completed" since there is probably an implied
>> obligation to return the ring if the marriage is called off.
>> I suppose that if the giver of the ring calls off the
>> marriage and does not request the return of the ring, a
>> "gift" occurs at that point.
>> Didn't Oprah, or one of those people, just do a show on this
>> topic? <g>
> You're probably thinking about a letter to Dear Abby;
> after all, who better to ask this question?
Yes she is the appropriate source for legal advice.
--
Frederick E. Jorden http://fejcpapc.com/
Frederick E. Jorden, CPA PC
10049 Midlothian Tpk - 2-H Richmond, VA 23235 EMAIL fej...@erols.com
(804) 320-6210 FAX (804) 320-6211
<< -------------------------------------------------- >>
Dick Adams
several years ago on misc.legal.moderated. In the end
I was compelled to acknowledge that Mr. Woodman was correct.
The ring must be returned unless there was fraud in the
engagement.
I do not have any basis with which to argue the tax effect
of not being married in the same calendar year as the
conveyence of the ring.
Dick
Adam H. Kerman
> "Michael T. Wing, CPA" <mike...@compuserve.com> wrote:
>> Prior to the marriage, I suppose there might be an issue as to whether
>> the gift is technically "completed" since there is probably an implied
>> obligation to return the ring if the marriage is called off.
> An interesting problem--and, as I noted, in at least one
> case the IRS *did* assert a gift tax was due. The issue, at
> least from the IRS's perspective, is that there would not be
> a *legal* obligation to return the gift and there does not
> appear to be a relationship that would support an "implied"
> agreement to return the item unless the marriage actually
> takes place <grin>.
Where in the tax code did Congress give IRS control over
rules of etiquette?
Steve Bentley
>> It's subject to being the object of a gift tax return.
>> Whether or not there is gift tax depends on if the donor
>> has used his lifetime unified credit.
> Isn't an engagement ring given in anticipation of marriage,
> and if that marriage doesn't take place, the engagement ring
> is given back?
>
> I don't see this as a "gift" in tax law, because it IS given
> as a sign of a mutual agreement to wed. In short, doesn't
> the recipient of an engagement ring HAVE to complete the
> agreement to keep the ring?
>
> I just don't see this as having gift tax connotations, and I
> doubt there is any case law about this, where the wedding
> took place.
I don't think this is the case, because why else would all
the Dear Abby and Ann Landers columns always have people
asking if so and so has to give the ring back. My guess is
that under most state law, the gift is not contingent on the
completion of the marraige contract, and so the gift is
complete once the guy gets off his knee(s).
Steve Bentley, MBT, CFO
Better Business Systems
<< -------------------------------------------------- >>
Paul Thomas
> As I opined in a thread several months ago, I would guess
> that not many reportable +$10,000 rings...or other jewelry
> gifts...are actually reported to IRS.
>
> What say you, tax preparers? How many clients have told you
> of such gifts?
Nary a one.
Has anyone mentioned that marriage is a three ring circus?
The Engagement Ring, the Wedding Ring, and Suffering.
--
Paul A. Thomas, CPA
Athens, Georgia
tax...@negia.net
http://www.pat-cpa.com
<< -------------------------------------------------- >>
Harlan Lunsford
>>> It's subject to being the object of a gift tax return.
>>> Whether or not there is gift tax depends on if the donor
>>> has used his lifetime unified credit.
>> Isn't an engagement ring given in anticipation of marriage,
>> and if that marriage doesn't take place, the engagement ring
>> is given back?
>>
>> I don't see this as a "gift" in tax law, because it IS given
>> as a sign of a mutual agreement to wed. In short, doesn't
>> the recipient of an engagement ring HAVE to complete the
>> agreement to keep the ring?
>>
>> I just don't see this as having gift tax connotations, and I
>> doubt there is any case law about this, where the wedding
>> took place.
> I don't think this is the case, because why else would all
> the Dear Abby and Ann Landers columns always have people
> asking if so and so has to give the ring back. My guess is
> that under most state law, the gift is not contingent on the
> completion of the marraige contract, and so the gift is
> complete once the guy gets off his knee(s).
you are correct about that, but I seem to recall there are a
few states who's law read that the ring must be returned in
case the marriage doesn't go through. Can't remember which
they are of course.
Didn't Dick say something about wanting an irrevocable power
of attorney? Good idea, to which I would add that legalese:
"And other valuable considerations." (grinning)
Cheer$,
Harlan Lunsford