When individuals make significant gifts as part of their estate or wealth transfer plans, they often focus on whether they owe gift tax. However, proper reporting matters just as much as tax liability. To protect against future Internal Revenue Service (IRS) challenges, taxpayers must understand and apply the concept of adequate disclosure when filing a U.S. gift tax return (Form 709).
Adequate disclosure ensures transparency. It also ensures the statute of limitations begins to run, which typically limits how long the IRS can review or challenge a reported gift.
What adequate disclosure means on a gift tax return
Adequate disclosure requires taxpayers to provide enough information on a gift tax return for the IRS to evaluate the gift’s nature and value. When a return meets the standard, the IRS generally has three years from the filing date to assess additional tax or dispute the reported value.
If a taxpayer fails to adequately disclose a gift, the statute of limitations may never begin. As a result, the IRS can revisit the gift years—or even decades—later, often during an estate tax audit.
Why adequate disclosure matters
Although most taxpayers will not owe gift tax due to the historically high lifetime exemption, inadequate disclosure can create long-term risk. The IRS frequently examines prior gifts when reviewing an estate tax return. Clear, thorough disclosure helps taxpayers reduce uncertainty, avoid valuation disputes, and protect long-term planning strategies.
Adequate disclosure matters most for non-cash gifts or transactions that involve valuation judgment. These gifts include real estate, closely held business interests, family limited partnerships, artwork, and other hard-to-value items, whether gifted outright to an individual or in a trust.
What taxpayers must include on Form 709
To meet adequate disclosure requirements, taxpayers should typically include the following information on Form 709 or in attached statements:
- A clear description of the gift. Taxpayers should describe the transferred property in detail, including what they gave, when they made the gift, and to whom.
- The relationship between donor and recipient. The IRS expects disclosure of the donor’s and recipient’s identities and their relationship.
- Relevant legal documents. For gifts to trusts, taxpayers should attach the trust agreement or provide a summary of its key terms, along with any applicable identification numbers.
- A complete explanation of valuation. Taxpayers must explain how they determined the gift’s fair market value. For complex or illiquid assets, a qualified appraisal often plays a critical role in fulfilling this requirement.
- Disclosure of restrictions or special features. Any transfer restrictions, retained interests, or rights affecting value should appear clearly in the return.
Common disclosure pitfalls
Taxpayers often assume they do not need detailed disclosure because they owe no tax. Others report a value without explaining how they calculated it or without attaching supporting documentation. These mistakes can prevent the statute of limitations from starting, allowing for the IRS to apply their own valuation method that may cause results contrary to the client’s overall estate and gifting plan.
Helping you get there…
Adequate disclosure plays a critical role in protecting estate plans and limiting future IRS scrutiny. Addressing disclosure early and thoroughly helps create clarity, consistency, and long-term confidence with gift planning. Your estate planning attorneys and advisors can help you through adequate disclosure requirements and support well-documented, defensible gift tax reporting.
This article is provided for general informational purposes only and is not intended as legal advice. Legal services are offered through Andrew Kremer Law, an independent law practice affiliated with Boulay. Boulay does not provide legal services.