AboutMike Wellman Expertise I was a former Manager with Price Waterhouse, now PricewaterhouseCoopers, the largest accounting firm in the world. I have had clients in almost every industry and of every size.
I will only answer questions dealing with IRS problems such as delinquent tax returns, Offers in Compromise (Tax Settlement), IRS collection matters including installment agreements, liens, levies, seizures, audits, appeals, innocent spouse claims and injured spouse claims. All other will be referred to the question pool.
Experience Over 25 years experience in taxation specializing in IRS collections, examinations and appeals.
Publications New York Times, Wall Street Journal, Your Money.
Education/Credentials BBA, Baylor University.
Awards and Honors IRSOS.com won the Knowledgeweb award for educational excellence for content.
Expert: Mike Wellman Date: 1/21/2008 Subject: taxes
Question In 2006 my mother in-law transferred about $150,000 in stocks to my husbands account as a gift to purchase a house. He cashed out the stocks about 2 or 3 days after he received them. I spoke to a lawyer and he told me that we would not pay taxes on it because we are allowed up to to $2,000,000 of gifts in our lifetime. I asked our accountant to claim the capital gains that we had from the day we received the gift until the day we sold it and for some reason he did not do it. I think he just did not know how to handle it. Now we received a letter from the IRS and they want us to pay taxes on all 150,000. Is there a gift exception? And shouldn't my mother in law be somehow responsible for some of these taxes? What are my husband's tax liabilities? By the way we file separate.
Answer First, the lifetime gift exclusion is $1,000,000.
When property of given to someone, the donee inherits the basis of the donor. Therefore, your basis in the stock would be his mother's basis. Therefore your gain would be the sale price less his mother's basis. She would also have to file a gift tax return if her basis exceeded $24,000 - the annual gift tax exclusion for a couple.
Had you mother sold the stocks first and given you the cash, she could have used the lifetime exclusion, but she would have paid capital gain tax on the sale.
Your husband's liability will be a lot less than tax on $150,000, but it will be a lot more than zero.
