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Dan’s newsletter Pilla Talks Taxes is published ten times per year with articles designed to help you stay current on new laws, strategies and defenses. Dan will show you how to protect and defend your clients' rights, new ways to cut taxes and how to avoid problems with the IRS. If it is important for you to know, you will find it in this newsletter! You'll be among the first to know what's going to happen, even before it happens, making you invaluable to your clients.

Pilla Talks Taxes is a must-have for any tax professional. Subscriptions are available direct from WINNING Publications, Inc. for $99/year, however TFI Members receive a free subscription as part of their membership benefits. In addition, our members are able to access a searchable archive of past Pilla Talks Taxes articles. Below is a example of the no-nonsense information you will find in Dan's newsletters.

Featured Article


Compliance Initiative Gets Wings from Federal Court

As a measure of just how desperate the federal government is for revenue, the IRS is moving on a compliance initiative pointed at the federal gift tax laws. As I stated in the October/November 2011, issue of Pilla Talks Taxes, the compliance initiative involves determining the identities of people who may have avoided gift tax return filing and payment obligations incurred in connection with real estate title transfers. To discover this, the IRS will now begin combing through California property title records.

In May 2011, the IRS applied to the federal court in California for permission to issue a so-called “John Doe” summons to the California State Board of Equalization (BOE). This is the agency that handles real estate taxation in the State of California.

What is a “John Doe” Summons?

The summons power of the IRS derives from code section 7609. That provision gives the IRS very broad authority to summons “any person” in connection with an inquiry into a real or potential tax liability. The summons authority allows the IRS to require the summonsed person to “produce such books, papers, records, or other data, and to give such testimony” as may be relevant to the IRS’s inquiry.

The summons authority is so broad that the IRS need not know the identity of the person whose liability is under investigation. The IRS uses the summons process against an organization to discover the names of people who might fit a particular class of taxpayer. Hence, the phrase “John Doe” summons. This is exactly the procedure the IRS used to choke information out of UBS. The class of taxpayer sought there was a U.S. citizen holding a foreign bank account.

The summons sought to be served on the California BOE would require the agency to provide the following: “the identities of California residents, between the years 2005 and 2010, who were involved in real property transfers from parents to their children or grandparents to their grandchildren for little or no consideration.”

Potential Gift Tax Liability

The fact that there was a real property conveyance between such relatives, and that little or no consideration was paid in connection with the conveyance, might imply a gift of such property to the transferee. The problem is that if there was a gift of such property, there might also be a gift tax liability. At the very least, the law generally requires the filing of a gift tax return, Form 706, to report the gift, if the value of the gift exceeds the annual gift tax exclusion. For tax years 2011 and 2012, the annual exclusion is $13,000. The exclusion was less in the earlier years.

The IRS claims that as many as 60 to 90 percent of the people who make reportable gifts (those the value of which exceeds the annual exclusion) fail to file a gift tax return. As a result of such failures, the IRS claims a need to use its “John Doe” summons power to discover who such individuals might be.

On December 15, 2011, a California federal court agreed. The United States District Court for the Eastern District of California entered an order authorizing the IRS to issue a John Doe summons on the California BOE. See In Re John Does, E.D. Cal., No. 2:10-mc-00130-MCE-EFB (December 15, 2011). The IRS will soon get access to all the requested records, and from there, can be expected to build gift tax audits based upon what they find.

This is Just the Beginning

You can be sure that the California BOE will not be the end of the “gift tax inquiry.” The John Doe summons that was issued to UBS started an avalanche of subsequent summonses on other Swiss banks, which in turn led to summonses on other European banks, which then led to summonses on banks in the far east.

I have no reason to believe that the fallout from this California summons will be any different. As the IRS gathers “fruitful” audit targets from its first volley, it will attack with more summons to other states taxing authorities across the nation. The ultimate goal is to squeeze every dime from every person everywhere possible.

What You Should Do Now

If you made a gift (other than a charitable contribution) in excess of the annual exclusion, you should seek counsel as to the tax implications of that gift. Most people know that the recipient of a gift is not subject to income tax on the gift, but most people don’t realize that the donor may be liable for a gift tax based upon the fair market value of the gift at the time of the transfer. You need to evaluate your exposure to the gift tax and develop a plan to deal with that exposure.

January 2012 issue of Pilla Talks Taxes

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Featured Article

IRS To Limit How Much It Will Seize

A common question with delinquent citizens is whether the IRS can levy social security benefits. The answer, unfortunately, is yes they can, and worse, they do so regularly. Before intercepting an SS payment, the IRS generally sends notice CP91, Final Notice Before Levy On Social Security Benefits. This letter informs you of the impending levy and invites you to call the IRS to set up payments if you cannot pay in full. 

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