Is it possible to avoid gift tax if I return the gifted property?

If you receive property as a gift from your parents, you must report gift tax. If you receive a gift this month, you must report it within three months of the end of this month. However, what happens if you return the gifted property after receiving it?

 

Gift tax must be reported within three months from the last day of the month in which the gift was received. The answer lies within this three-month period. If you return the gifted property within three months, you will not be subject to gift tax. Therefore, there is no need to report it. However, if you return the property after three months, you will be subject to gift tax and must pay it within the payment deadline. Note that if you return the property more than three months after receiving it, you will be subject to gift tax again, as you will be treated as having gifted the property again.

 

If it is monetary property

In the case of cash assets, even if you return the gifted property within the reporting period, you may still be subject to gift tax. When you receive cash as a gift, it is added to your existing cash assets. This makes it difficult to verify the identity of the cash you received and the cash you returned. If gift tax is not levied on such behavior, gifting and returning can be repeated indefinitely, making it difficult to properly apply tax laws. Therefore, it is likely that the reporting period will be abused. If the gifted property is not cash, it may be possible to return it without reporting or paying tax if it is returned within three months. However, if you use the three-month reporting period to gift cash and then return it, it may be difficult to avoid being taxed.

 

Taxability of gift tax by situation

The following examples summarize the taxability of acts of returning after donation in various situations. This is a case where A gives a gift to B and B returns it to A

 

A gives a gift to B in January and returns it by the end of April.

A: Non-taxable

B: Non-taxable

 

A gives a gift to B in January and returns it by the end of July.

A: Taxable

B: Non-taxable

 

A gives a gift to B in January and returns it after the end of July.

A: Taxable

B: Taxable

 

Cases where gift tax is cancelled

If the act of giving a gift is considered an act of reconciliation, the gift tax that was imposed may be cancelled even after a long time has passed since the gift was given. Below is an actual case.

 

A woman named G and her husband E divorced. After the divorce, G sold real estate she owned to C and transferred the real estate payment to E's account, her ex-husband. Based on this transfer record, the tax office imposed a gift tax on E, as he received money. In addition, since G did not report the transfer income after selling the real estate, she was also subject to a transfer income tax.

 

G did not pay the transfer income tax she was imposed. The tax office filed a lawsuit against E for cancellation of the act of reconciliation, claiming that G had defaulted on the tax payment. Eventually, it was concluded that there was no act of giving a gift, and the gift tax imposed on E was cancelled. As a result of the winning lawsuit, G paid the transfer income tax, including a surcharge.

 

When money is transferred, the record remains in the bank transaction records. Since the record is stored and managed, the tax authorities can check it. Even if you withdraw cash, the tax authorities will eventually find out. It's just a matter of time.

 

 

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