Form 709 (2016) Federal Gift Tax Return Checklist
Overview
Form 709 for 2016 reports gifts and generation-skipping transfers made during calendar year 2016. The annual exclusion is $14,000 per donee, with a basic exclusion amount of $5,450,000 and applicable credit of $2,125,800. Rev. Proc. 2016-49 clarified QTIP election procedures when portability is elected. The annual exclusion for non-citizen spouses is $148,000.
Critical 2016 Amounts
Annual Exclusion: $14,000 per donee for gifts of present interest
Non-Citizen Spouse Exclusion: $148,000
Basic Exclusion Amount: $5,450,000
Applicable Credit: $2,125,800
GST Exemption: $5,450,000
Top Tax Rate: 40%
Key 2016 Updates
Rev. Proc. 2016-49 provides updated procedures for disregarding and treating as null and void for transfer tax purposes a QTIP election where the election was not necessary to reduce estate tax liability to zero. However, such procedures are unavailable where QTIP elections are made in estates in which the executor elected portability of the DSUE amount. If no DSUE election was made and the QTIP election qualifies to be treated as null and void, enter “Filed pursuant to Revenue Procedure 2016-49” at the top of Form 709.
Filing Requirements
File Form 709 if you gave gifts exceeding $14,000 to any one person (other than citizen spouse) in 2016, OR claiming DSUE amount from predeceased spouse, OR making gift-splitting election, OR transferring property subject to generation-skipping transfer tax.
Due Date: April 15, 2017 (or next business day if weekend/holiday)
Extension: Automatic six-month extension via Form 8892 or income tax extension
Where to File: IRS Cincinnati, OH 45999; if using private delivery service: IRS Covington, KY 41011
Transfers Not Subject to Gift Tax
Transfers to political organizations, transfers to specific exempt organizations under sections 501(c)(4), 501(c)(5), or 501(c)(6), tuition paid directly to educational institutions, and medical expenses paid directly to providers are not subject to gift tax and should not be reported on Form 709.
Ten-Step Filing Checklist
Step 1: Determine Filing Requirement
Verify you must file Form 709 if gifts to any one person (other than a citizen spouse) exceeded $14,000 in 2016. File also if claiming a DSUE amount, making a gift-splitting election, or making transfers subject to GST tax. Future interests require filing regardless of the amount. Answer line 11a regarding prior Form 709 filings. If no prior forms were filed, skip line 11b.
Step 2: Gather Required Documentation
Collect the donor’s Social Security Number, all donee names and complete addresses, gift dates, fair market value substantiation (appraisals, tax assessments, or detailed valuation descriptions), adjusted basis of gifted property, a copy of the predeceased spouse’s Form 706 if claiming DSUE, and prior Forms 709 if applicable.
For adequate disclosure, gather documentation showing property description, consideration received by donor, donor-donee identity and relationship, trust EIN and terms if transferred in trust, and either a qualified appraisal or a detailed valuation method description, as per Regulations section 301.6501(c)-1(e) and (f).
Step 3: Complete Part 1—General Information (Lines 1-19)
Enter the donor’s name, address, Social Security Number, legal residence (domicile), and citizenship on lines 1 through 7. Check line 8 only if the donor died during 2016 and enter the death date. Mark line 9 if an extension is filed. Enter the total number of donees on line 10 (count each person once).
Answer line 11a regarding prior Form 709 filings. If “Yes,” complete Schedule B showing prior period gifts. If “No,” skip line 11b.
Line 19 requires an indication of whether the donor is applying or has applied a DSUE amount from a predeceased spouse to gifts reported on this or previous Form 709. If you are claiming DSUE, complete Schedule C before Part 2.
Step 4: Elect Gift Splitting (Lines 12-18) If Applicable
Check “Yes” on line 12 only if you were married for the entire 2016 calendar year and both spouses are U.S. citizens or residents. Neither spouse gave the other a general power of appointment over transferred property. Gift splitting requires that all gifts made by both spouses to third parties during the calendar year (while married) be treated as if made one-half by each spouse.
Enter the spouse’s name and Social Security Number on lines 13 and 14. Line 15 asks if married for the entire year. If married only part of the year, check “No” and complete line 16 to explain the marital status change. The spouse must sign the consent on line 18 for the gift-splitting election to be valid. If the conditions are not met or gift splitting is not desired, proceed to line 19.
Step 5: Complete Schedule A—List All 2016 Gifts
Divide gifts between Part 1 (gifts subject only to gift tax to non-skip persons), Part 2 (direct skips subject to both gift and GST tax to skip persons), and Part 3 (indirect skips to trusts). For each gift, provide the item number, donee name, and complete address, relationship to donor, detailed property description, donor’s adjusted basis, date of gift, fair market value at date of gift, and split amount if applicable.
If any value includes discounts for lack of marketability, minority interest, fractional interest in real estate, blockage, market absorption, or other reasons, answer “Yes” at the Schedule A header and attach an explanation with the discount basis and amounts. Exclude any gift or part of a gift that qualifies for political organization, educational, or medical exclusions.
Step 6: Apply Annual Exclusion
Claim $14,000 annual exclusion per donee for gifts of present interest on Schedule A, Part 4. No yearly exclusion applies to gifts of future interests. A gift is a present interest if the doer has immediate rights to use, possess, and enjoy property or income. A gift is a future interest if the donee’s rights will not begin until some future date.
For gift splitting, verify that the combined exclusion of $28,000 ($14,000 per spouse) is correctly calculated. For non-citizen spouse gifts, the annual exclusion is $148,000 if the additional $134,000 gift, above $14,000, would otherwise qualify for the marital deduction.
Step 7: Report Qualified Tuition Programs (529 Plans)
If you contributed more than $14,000 to a QTP in 2016 for any one person, you may elect to treat up to $70,000 as made ratably over five years. Report one-fifth (20%) each year in Schedule A, Part 1. List the gift date as the calendar year it was deemed made. In years 2 through 5, Form 709 is required only if other reportable gifts are made. QTP contributions do not qualify for the educational exclusion.
Step 8: Complete Schedule B—Prior Gifts (if applicable)
If line 11a answered “Yes,” list all prior period gifts in chronological order. Column A shows the calendar year or quarter for pre-1982 gifts. Column B shows the IRS office where the initial return was filed. Column C shows the applicable credit used, as per the IRS table. Column D shows a specific exemption for pre-1977 gifts. Column E shows the final taxable gift amount.
Prior period gifts reduce available credit for the current year's computation. If there are no prior gifts, please skip Schedule B.
Step 9: Complete Schedule C—DSUE Amount (if applicable)
If the surviving spouse of a predeceased spouse who died after December 31, 2010, AND the executor elected portability on the spouse’s Form 706, complete Schedule C. Enter the deceased spouse’s name and death date. The executor must have elected on a timely and complete Form 706 to allow use of the DSUE amount.
Calculate the DSUE available from the predeceased spouse. Enter DSUE applied to current and prior gifts. Attach the first four pages of the predeceased spouse’s Form 706, any attachments related to DSUE filed with Form 706, and calculations of adjustments to DSUE amount, such as audit reports or previously filed Forms 709. The applicable exclusion amount consists of the basic exclusion amount ($5,450,000 in 2016) plus any DSUE from the last deceased spouse.
Step 10: Complete Schedule D—GST Transfers (if applicable)
If any gift is listed on Schedule A Part 2 (direct skips to skip persons) or Part 3 (indirect skips to trusts), complete Schedule D. A direct skip is a transfer subject to gift tax of an interest in property, made to a skip person (an individual two or more generations below the donor).
Part 1 lists transfers with values, nontaxable portions, net transfers, GST exemption allocation, inclusion ratios, and GST tax. Part 2 reconciles GST exemption showing $5,450,000 available in 2016 minus prior allocations. Part 3 computes tax using the inclusion ratio formula.
Report GST transfers even if the GST exemption completely shields the transfer from tax. File an election statement if opting out of automatic allocation to indirect skips.
Step 11: Compute Tax and Sign Return
Complete Part 2—Tax Computation. Line 1 equals Schedule A Part 4, line 11 (total taxable gifts). Line 2 equals Schedule B, line 3 (prior period taxable gifts). Line 3 totals lines 1 and 2. Use the Table for Computing Gift Tax in the instructions for lines 4 and 5 (tentative tax computation). The table imposes rates from 18% on the first $10,000 to 40% on amounts over $1,000,000.
Lines 7 through 12 apply the applicable credit. Line 7 enters applicable credit from the table in the instructions. For 2016, the basic credit is $2,125,800, increased by any DSUE from Schedule C. Line 12 displays the smaller of the two amounts, between line 6 and the available credit. Lines 13 through 15 apply foreign gift tax credits if applicable. Line 16 reports the GST tax from Schedule D. Line 17 displays the total tax due.
Donor signs and dates under penalties of perjury. If the preparer signs, include the preparer's name, signature, date, and PTIN.
Step 12: Assemble Complete Return
Attach all completed schedules (A, B if applicable, C if appropriate, and D if applicable) and required documents: qualified appraisals or written valuation method descriptions per Regulation 301.6501(c)-1(e) and (f), a copy of the deceased spouse’s Form 706 and DSUE documentation if claimed, election statements (such as election out of GST automatic allocation), and discount explanations if applicable. Ensure that you complete page 1 and all applicable schedules in their entirety. Returns filed without entries in each field will not be processed.
Do not file more than one Form 709 for 2016. File by April 15, 2017, or the next business day if a weekend or holiday. If an extension is requested via Form 8892, payment of the estimated tax due must accompany Form 8892 by the original April 15 deadline to avoid interest and penalties.
Special Circumstances
Gifts to Spouse
You must file Form 709 if you made any gift to your spouse of a terminable interest that does not meet the life estate with power of appointment exception, or if your spouse is not a U.S. citizen and total gifts to your spouse during the year exceed $148,000.
Terminable interests are property interests that will terminate or fail upon the occurrence or non-occurrence of an event. Except for terminable interests that require reporting, you do not need to file a gift tax return to report gifts to a citizen spouse, regardless of the amount.
Nonresident Noncitizens
Nonresidents who are not citizens of the United States are subject to gift and GST taxes only for gifts of real and tangible property situated in the United States. Under certain circumstances, they may also be subject to gift and GST taxes for gifts of intangible property. Nonresident noncitizens cannot claim marital deduction (except the $148,000 annual exclusion for a noncitizen spouse) or applicable credit beyond the annual exclusion.
Joint Tenancy and Joint Accounts
Creating a joint tenancy with right of survivorship results in a gift of half the property's value, which either party can sever. Creating a joint bank account does not constitute a gift until the donor withdraws funds for their own benefit without any obligation to repay the funds. The gift amount equals the withdrawal amount.
Transfer of Life Estates from Spouse
If you received a qualified terminable interest from your spouse for which a marital deduction was elected on the spouse’s estate or gift tax return, disposing of all or part of your life income interest (by gift, sale, or otherwise) triggers gift tax and GST tax if applicable. Generally, the entire property value transferred, less any amount received for the life income interest and any amount determined under section 2702 for retained life income interest, is treated as a taxable gift.
Section 2701 Elections
Three elections are available under the special valuation rules of section 2701. First, a transferor may elect to treat a qualified payment right as a separate and distinct right from a qualified payment right. Second, a person may elect to treat a distribution right held in a controlled entity as a qualified payment right. Third, an interest holder may elect to treat as a taxable event the payment of a qualified payment that occurs more than four years after its due date.
The first two elections must be reported on Form 709, which requires the transfer to be attached with a statement. The third election may be made by attaching a statement to Form 709, filed by the recipient for the year in which payment is received. All elections may be revoked only with the IRS.
Penalties and Compliance
Section 6651 imposes penalties for both late filing and late payment unless reasonable cause is shown. If you receive a notice about penalties after filing Form 709, send an explanation, and the IRS will determine if you meet reasonable cause criteria.
A substantial valuation understatement occurs when the reported property value is 65% or less of the actual value. A gross valuation understatement occurs when the reported value is 40% or less of the actual value. Penalties apply to both types of understatements.
Gift tax return preparers who prepare any return or claim for refund with an understatement of tax liability due to willful or reckless conduct face penalties of $5,000 or 75% of income received (whichever is greater) for each return.
Key Reminders
• File a separate Form 709 for each calendar year. Both spouses must file individual returns when splitting gifts unless specific exceptions apply. Spouses may not file a joint gift tax return.
• Annual exclusion applies only to gifts of present interest. Future interests never qualify for the annual exclusion, regardless of amount.
• DSUE from the predeceased spouse requires the executor’s timely portability election on Form 706. Attach the first four pages of the spouse’s Form 706 and related DSUE documentation.
• For adequate disclosure to start the statute of limitations, provide complete Form 709, property description and consideration received, donor-donee identity and relationship, trust information if applicable, and either a qualified appraisal or a detailed valuation method.
• Rev. Proc. 2016-49 clarifies that the procedures for electing QTIP treatment as null and void are not available if the executors have elected portability of the DSUE amount. If qualifying for relief under Rev. Proc. 2016-49, enter “Filed pursuant to Revenue Procedure 2016-49” at the top of Form 709.
• Form 709 for 2016 requires accurate reporting, proper valuations, adequate disclosure, and timely filing to ensure compliance with federal gift and GST tax requirements while preserving statute of limitations protections.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
