Gifts, Checks, and the IRS

The holiday season is fast approaching, and that means many people are pulling out the checkbook to write gift checks to family and friends. Under current law the writer can make gifts of $13,000/per year / per person without triggering the gift tax. However, when the IRS is involved, it is important to look into the details.

What if a check is written on December 21, 2011 but not cashed until January 3, 2012. The IRS takes the position that the gift was actually made in 2012 because that is when the check was "negotiated" or cashed. If another gift is made at the end of 2012 and then cashed in 2012, the gift limit will have been exceeded. Why does this IRS take this position? Until the check is cashed, the giftor has the ability to stop payment. Until the check is cashed, the gift is not complete.

When writing checks intended to be a non-taxable gift keep in mind the time frame for it to be cashed, and if possible communicate your desire that the check be cashed in the current calendar year.

Thanks to R. Chistian Davis, Vice President, Private Client Group, US Bank, Madison, Wisconsin, for discussing this information at the 45th Annual CLEW Tax Workshop, presented by the University of Wisconsin Law School.

Remember, a blog is for discussion, and is not a substitute for legal or tax advice. Please consult your attorney and or tax person for advice specific to your situation.