This method should be reserved for taxpayers who have no record of which tax year (s) a gift tax return was filed. If you donate more than the exclusion to a payee, you'll need to file tax forms to disclose those gifts to the IRS. Gifts must be made directly to an educational institution, not as reimbursements to the student or parent. Many people avoid paying gift taxes entirely in their lifetime, simply by following the tips above.
The IRS defines a gift as “any transfer to a person, either directly or indirectly, in which full consideration is not received in return. Citizens, all money paid directly to an educational institution to cover tuition, or all money paid directly to a medical institution to cover medical expenses. But you may still want to file one for cover in case the IRS later claims that the property was undervalued and that the transaction was actually a partial donation. The IRS will provide an account transcript for gift tax returns when Form 4506-T, Request for Tax Return Transcript, is successfully completed and submitted with justification.
Basically, this means that any gift with conditions or limits does not qualify for the annual tax-free exclusion. Money can be donated for tuition and other eligible expenses, as long as the donor pays the school or university and not the student. On a gift tax return, you report the fair market value of the gift on the date of the transfer, your tax base (as a donor), and the identity of the recipient. Individuals whose wealth exceeds the current exemption level should also consider giving and using these strategies as long as they are available to reduce wealth and gift taxes.
If you do not file a gift tax return, the IRS may question the valuation of the property at any time in the future. You will need to file a Form 709 each year you make a reportable gift, and each form must include all reportable donations made during the calendar year. Form 4506-T has multiple uses and special attention should be paid when completing the form for a gift tax inquiry. If the payee does not request a distribution, the money remains in the trust and is managed and distributed according to the terms of the trust.