Cherish your tax law experts; you need them - Albuquerque Journal

Cherish your tax law experts; you need them

I am irritated when people say, “Why would someone want to learn tax law? All of that work will soon be done by computers.”

People who say this have never practiced tax law. They wrongly assume tax practice is just memorizing some set of rules and fitting them to each client’s situation.

This is wrong on at least two counts. First, the law is seldom clear, requiring interpretation and judgment. Judgment is then subject to the risk preferences of the client.

Second, for any common business transaction, no two people will do things the same way. In many cases, their choice is not for a rational reason.

In an episode of the old “All in the Family” sitcom, Archie watched his son-in-law put on one sock, then one shoe, then the other sock, then the other shoe. No one does it that way, Archie protested.

Technology will not be able to handle irrational client behavior. It will not be able to handle different solutions for the same facts based on risk attitudes.

Zillow started a home-buying business in 2018. They just ended it after experiencing large losses. Seems that a computer-based pricing model could not capture the intricacies of the local housing markets.

In an old episode of “The Office,” Michael drove a car into a lake when his GPS told him to turn right. My GPS told me to turn left on an interstate highway divided by a concrete barrier.

John Henry was a steel driving man. No machine could beat John. Tax consultants can still beat machines. Our work is so cushy we won’t even die after the victory.

Q: I am working on year-end family tax planning and have what I hope are two simple questions. My wife and I plan to give $60,000 to my son and his wife. We will transfer funds to our joint checking account to make these payments. We will each give $15,000 to our son and $15,000 to his wife, and we know this is within the allowed annual gift amount. Question 1 is whether we should write one check (easiest), two checks, or four checks. I have read that a gift from community funds is treated as made one-half by each spouse. My son and his wife also live in New Mexico, so their deposit will be to a community account. Will one check be treated as made one-half by each of us to one-half of each of them? If not, could we write two $30,000 checks to each of them? Or do we actually need four $15,000 checks? Question 2 is, if we plan to do this again the next year, do we need to wait more than 12 months from the first gift or can we make the second transfer in January?

A: I think two checks will work. One check from your joint account to your son and one to your daughter-in-law should be deemed made one-half by each of you.

I am relying on your representation that community funds are used for the gifts. No gift tax return would then be required because you have each transferred $15,000 to each recipient.

If the funds are separate property, a gift tax return can be required just so the non-donor spouse elects to treat the gift as made half by him or her. Two returns are required because there are two recipients.

A single check is not a good idea. This is so because property received by gift is separate property. So you cannot think about the gifts as being community for the recipients.

This all said, many people would be more comfortable with four checks. Many tax advisors would even recommend four checks.

It really isn’t a big deal to write four checks and the recipients may even be more excited about receiving two checks each. I don’t think it is required, but you may be more comfortable with four checks.

Your second question is easier. The $15,000 limit on non-reported gifts is per calendar year. You can make one gift in December 2021 and a second in January 2022. Be sure to make the first gift early enough that it will be cashed in 2021.

James R. Hamill is Director of Tax Practice at Reynolds, Hix & Co. in Albuquerque. He can be reached at jimhamill@rhcocpa.com.

 

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