The federal transfers (gift and estate) are computed based on lifetime transfers—thus, in order to compute the current year’s gift tax the gifts made during the year are reported along with gifts made in prior years. In Chief Counsel Advice 201643020 the IRS was looking a situation where a taxpayer had reported the proper amount of current year’s gifts but had omitted prior years gifts from the Form 709.

The omission of the prior gifts caused the tax for the year in question to be calculated at a lower amount than what should have applied. Though the prior gifts had been properly reported on Forms 709 in the years in which the gifts was made, the IRS had not noticed the omission on the return in question until the three year statute of limitations on assessing additional tax under IRC §6501(a).

But IRC §6501(c)(9) provides an exception to that three statute in the case of certain unreported gifts. As the provision reads:

(9) Gift tax on certain gifts not shown on return

If any gift of property the value of which (or any increase in taxable gifts required under section 2701(d) which) is required to be shown on a return of tax imposed by chapter 12 (without regard to section 2503(b)), and is not shown on such return, any tax imposed by chapter 12 on such gift may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. The preceding sentence shall not apply to any item which is disclosed in such return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature of such item.

In this memorandum the question was asked of the Chief Counsel’s office if the omission of the prior gifts on the Form 709 triggered the application of the above provision, in which case the IRS could still recover the tax.

The memorandum concluded that the omission of the prior gifts does not trigger the extension of the statute under IRC §6501(c)(9). The memo begins noting that there are two steps that must be analyzed before determining that the statute has been extended

There are two rules in section 6501(c)(9) that limit when the special limitation period applies. The first rule is that it only applies to a gift that is not reported on the gift tax return. The second rule is that it does not apply to an item that was adequately disclosed on the return, or on an attachment to the return. As such, there is a two-step analysis for applying the special limitation period in section 6501(c)(9).

The memo concludes that the only relevant gift is the current year one—and that one was disclosed on the return. As the memorandum notes:

In this case, the $a gift was reported on the tax year Y31 gift tax return. Thus, step one is met and the matter is concluded. Therefore, despite X's failure to report prior years’ gifts on the Y31 return, the special limitation period in section 6501(c)(9) does not apply to the $a gift.

Implicit in the above statement is the view that what the statute keeps open is the assessment of tax on the gift for the year in question—so the only real issue is whether the gift that would be subject to tax (that is, the one made in the year covered by the Form 709) was properly disclosed—and in this case it was.