Big-Money Untaxed Gifts Quadrupled as Rich Raced Congress

The wealthiest Americans poured $335 billion into tax-free gifts amid worries in 2012 that Congress would clamp down on the practice, according to data released today by the Internal Revenue Service.

The data cover tax returns filed in 2013 and thus mostly include gifts made in 2012. That’s more than four times the amount reported on returns filed in 2012.

The gifts were made when the U.S. Congress was approaching the so-called fiscal cliff and debating whether to extend rules that let married couples pass about $10 million onto their heirs without paying estate or gift taxes.

Congress eventually extended the rules indefinitely, though that didn’t happen until January 2013. In the meantime, wealth advisers were urging their clients to take advantage of what they portrayed as a once-in-a-lifetime opportunity to move assets to children without giving the IRS a cut.

“It was all hands on deck,” said Bobbi Bierhals, an estate-planning attorney and partner at McDermott Will & Emery in Chicago. “We were working around the clock.”

The money moved in response to incentives dangled by Congress. In 2010, the estate tax was temporarily repealed and the gift tax exemption was set at $1 million per person.

After Democrats lost the majority in the House of Representatives in the 2010 election, Republicans and President Barack Obama reached a deal that put the combined estate and gift tax exemption at $5 million per person and set it to expire at the end of 2012.

Shifting Assets

The increase spurred action as people shifted assets outside of their estates. Previously released figures for gift tax returns covering 2011 showed that Americans made $122.3 billion in nontaxable gifts, with $83.5 billion coming from gifts exceeding $1 million.

The bigger decisions happened during 2012, when the fiscal cliff showdown over expiring tax cuts raised the possibility that the $5 million-per-person exemption would lapse, reverting to $1 million per person.

“The political environment was such that a lot of people were predicting that it would happen,” Bierhals said. “People looked at the situation as a use-it-or-lose-it opportunity. For many people who wouldn’t have normally considered making a gift, they were motivated by the perceived deadline.”

What resulted was $391 billion in nontaxable gifts. More than 85 percent of that, or $335 billion, came from the 110,117 households that each gave more than $1 million.

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