In a recent IRS Field Attorney Advice, we find out that messing up an employer identification number on a gift tax return can extend the gift tax statute of limitations. A person filing a proper gift tax return gives the IRS only three years to audit the return. However, if the information is not complete, the statute of limitations is extended for an unlimited time period. In some cases, the IRS has successfully assessed gift tax 30 years after the gift was made.
In FAA 20152201F, a taxpayer gifted units in a limited partnership and a limited liability partnership that held farmland to their daughter. In describing the gifts, Form 709 listed each of the partnerships by name and Employer Identification Number (EIN), however, on one of the partnerships, the EIN was only 8 numbers long instead of the normal 9 digits.
Another issue with the gift tax return was the appraisal done for the units transferred. The appraisal was actually only on the farmland itself and not on the units transferred. Remember, when land is put into a Limited Liability Entity, you no longer own land; you own units that owns the land. This results in a need for an appraisal of the actual units gifted, not the underlying land. An appraisal of the land may be needed to value the units, but an actual appraisal of the partnership must be done. In this case, a description of the appraisal of the farmland was listed on the return, however, this was not sufficient to indicate the value of the units gifted, etc.
Therefore, listing an EIN with only 8 numbers can extend the statute of limitations well beyond three years. If you make gifts of units in partnerships or closely held common stock, make sure to follow the reporting requirements. This case shows how it can cost you even if you make a minor mistake.