There are special rules for determining the fair market value of particular types of property, such as stocks and bonds, shares of mutual funds, interests in a business, annuities, life insurance, life estates, terms for years, remainders, and reversions. These rules are generally the same as those for the determination of fair market value for Federal estate tax purposes.

COMPUTATION AND RATES OF THE FEDERAL GIFT TAX

The total amount of gross gifts made by a donor during any calendar quarter is determined by adding the fair market value of all his gifts for the calendar quarter. If the donor is married and both spouses consent to split their gifts for the quarter, his total amount of gross gifts is equal to one-half the value of his gifts to people other than his wife, plus one-half the value of her gifts to people other than him, plus the full value of all gifts he made to her during the calendar quarter. Her total amount of gross gifts for the quarter would be the same except that instead of including gifts he made to her, she would include the full value of gifts she made to him.

The total amount of net gifts made by a donor during any calendar quarter is the amount of gross gifts less any applicable $3,000 annual exclusions per donee still available to him.

The total taxable gifts made by a donor for the quarter is the total amount of net gifts less (1) one-half the value of any gifts that qualify for the marital deduction; (2) the full value of any gifts that qualify for the charitable deduction; and (3) any portion of his $30,000 specific lifetime exemption that may still remain. (The specific exemption cannot exceed $30,000 for this computation, even if some of the gifts were made during periods when the specific exemption was greater than $30,000.)

The tax liability is computed by adding together the total taxable gifts for the current quarter plus taxable gifts made in all prior years beginning in 1932 and in all prior quarters beginning with the first quarter of 1971, applying to the results the rates of tax contained in the above table. The resulting tax is then reduced by the Federal gift taxes that have been previously paid (or should have been paid) and the remainder is the gift tax liability due for the calendar quarter.

CREDITS AGAINST THE FEDERAL GIFT TAX

No credits against the gift tax are provided by law. Donors who are citizens or residents of the United States may, however, be allowed a credit for gift tax paid to a foreign country with which the United States has concluded a gift tax convention. There are, at present, conventions in force with Australia and Japan. Credit under these conventions is allowable for tax paid to a foreign country for a transfer of property that is also taxable by the United States.

GIFTS BY NONRESIDENTS, NOT CITIZENS

Gifts by donors who are neither citizens nor residents of the United States are subject to the Federal gift tax only if the gifts involve real property or tangible personal property situated in the United States. However, if the donor is an expatriate who lost his United States citizenship after March 8, 1965, but within a 10-year period ending with his gift, he may be subject to the Federal gift tax not only on the gifts involving real property or tangible personal property situated within the United States, but also on certain intangible property noted below.

A. Situs of Property

Property transferred by a donor who is neither a citizen or a resident of the United States is considered situated in the United States if it is: (1) real property located in the United States; (2) tangible personal property located in the United States; or (3) intangible personal property of the following types, but only if located within the United States at the time of transfer and only if transferred by an expatriate U.S. citizen described above:

(a) Shares of stock issued by a domestic corporation;

(b) A debt obligation of a citizen or resident of the United States, a domestic partnership, a domestic corporation (including moneys on deposit with a domestic corporation or its foreign branch), and any estate or trust (other than a foreign estate or trust); and

(c) A debt obligation of the United States, a State or any political subdivision thereof, or the District of Columbia. The United States has concluded conventions for the avoidance of double taxation in the matter of gift taxes with two foreign countries, Australia and Japan. These conventions, in addition to making available to donors who are citizens or residents of the United States credit for gift taxes paid to the foreign countries involved, provide certain rules for determining the situs of property. These rules, which in some cases differ from those discussed above, are used in determin

ing the credit allowable to donors who are citizens or residents, and for determining the property subject to tax on gifts by donors who are neither citizens nor residents, and who come within the scope of the conventions. For Australia, the rules of situs apply to the taxation of gifts by persons domiciled in Australia. For Japan, the rules of situs apply in cases where the donor's beneficiary is domiciled in Japan. B. Exclusions, Specific Exemption, and Deductions

1. Exclusions.-The $3,000 annual exclusion from gifts is available to nonresident alien donors on the same basis and to the same extent as in the case of gifts by citizens and residents of the United States. 2. Specific exemption. The lifetime exemption of $30,000 is not available in the case of gifts by nonresident alien donors, except to the extent provided by an applicable convention. The conventions with Australia and Japan provide for a prorated specific exemption.

3. Charitable and similar gifts.-The deduction for charitable and similar gifts by nonresident alien donors is governed by the same rules as apply with respect to citizens and residents, with the following exceptions. Gifts to or for the use of a corporation are deductible only if the corporation was created under the laws of the United States or any State thereof. Gifts to or for the use of a trust, community chest, fund or foundation, or a fraternal society, order, or association operating under the lodge system, are deductible only if made for use within the United States exclusively for charitable, religious, etc., purposes.

4. Gift to spouse (marital deduction).-The marital deduction allowable to donors who are citizens and residents is not allowable for gifts to the spouse made by nonresident alien donors. However, if the donor spouse was a citizen or resident of the United States at the time of the gift, the marital deduction will be allowable even though the donee spouse is not a citizen or resident.

C. Credits

There are no credits against the gift tax available to nonresident alien donors, either under the gift tax statute or under gift tax

conventions.

D. Gift by Husband or Wife to Third Party

The provisions relating to split gifts between spouses when given to third parties, do not apply if either spouse is a nonresident alien.

THE GIFT TAX RETURN

A Federal gift tax return, if required, is due on or before the 15th day of the second month following the close of the calendar quarter in which a gift is made.

If the gift is made during-
January, February, March

April, May, June

July, August, September

October, November, December

The return is due

May 15.
August 15.
November 15.
February 15.

A return is not required for any gift of a present interest to any

calendar year do not exceed $3,000. This $3,000 annual exclusion is applied to gifts of a present interest made during any calendar year in the order in which they are made until the $3,000 exclusion per person is exhausted. When a gift of a present interest to any one person, when added to all previous present interest gifts to that person during the calendar year, exceeds $3,000, a gift tax return must be filed for that quarter and all the gifts to that person must be reported.

Furthermore, in the calendar quarter, when the total gifts to a donee exceed $3,000, the donor is required to identify on his gift tax return all gifts for which his spouse has consented to the gift-splitting provisions, including those gifts made in quarters when the gifts under $3,000 were made.

Any gift of a future interest must be reported on a gift tax return for the quarter in which the gift is made, regardless of the amount of the gift. Any gift to a qualified charitable organization must be reported on a return for the fourth calendar quarter, or on an earlier quarterly return, if one is required for a noncharitable gift.

Form 709 is used for reporting gifts. This form is to be used by citizens, residents, and noncitizens not residents if a return is required and must be filed even though no gift tax is due. It should be filed with the Internal Revenue Service Center serving the State in which the individual who is making the gift has his legal residence or principal place of business. If he has no legal residence or principal place of business in a State served by an IRS Service Center, the return must be filed with the Internal Revenue Service Center, 11601 Roosevelt Boulevard, Philadelphia, Pa. 19155.

The return must be accompanied by certain documents pertaining to the determination of tax liability. These include copies of instruments executed in connection with transfers of property, statements by insurance companies on Form 938 in connection with every insurance policy listed on the return, copies of appraisals of real property, etc. If the return lists shares of stock in closely held corporations, documents must be submitted pertinent to their valuation, such as balance sheets, profit and loss statements for each of the 5 vears preceding the valuation date, and statements of dividends paid during that period. Penalties are provided for willful failure to file a return on time and for willful attempt to evade or defeat payment of the tax.

EXTENSION OF TIME TO FILE

If sufficient reason is shown, the Internal Revenue Service Centers are authorized to grant reasonable extensions of time for the filing of the return. Unless the donor is abroad, no extension in excess of 6 months may be granted. Application for extension must be addressed to the Internal Revenue Service Center where the return is required to be filed. The application must be made before the due date of the return and must contain a full report of the causes for the delay. An extension of time to file the return does not extend the time for payment of the tax.

PAYMENT OF THE TAX

The tax shown on the gift tax return is to be paid by the donor at the time and place fixed for the filing of the return. As pointed out in

the preceding section, the time for payment is not extended by the granting of an extension of time to file the return. The time for payment may, however, be extended under conditions discussed in the next section. Certain obligations of the United States may be used in payment if their acceptability is expressed provided by the terms of their issue.

If the donor should die before the gift tax is paid, the executor or administrator of the donor's estate is responsible for payment out of the donor's estate. Additionally, under certain circumstances, the donee or the heirs or beneficiaries of the donor may be liable for the payment.

EXTENSION OF TIME TO PAY TAX

A reasonable extension of time, not to exceed 6 months unless the donor is abroad, may be granted by the Service Center, at the request of the donor, for the payment of the tax shown on the return. The extension will be granted only upon a satisfactory showing that payment on the due date will result in undue hardship.

INTEREST ON TAX UNDERPAID OR POSTPONED

Interest at the rate of 7 percent per annum must be paid on any amount of tax that is not paid on or before the last date prescribed for the payment of the tax.

The interest rates on underpaid or postponed taxes will be periodically adjusted to conform to the prime interest rate charged by banks. The interest rate will be adjusted to the prime interest rate, rounded to the nearest full percentage, charged by banks during September of any year if the prime rate is a full percentage point more or less than the interest rate then in effect. This adjusted rate will be established by October 15 of that year and become effective on February 1 of the succeeding year. However, an adjustment may not be made earlier than 23 months following the date of any preceding adjustment. An additional penalty of one-half percent per month of the unpaid balance up to a maximum of 25 percent will also be imposed unless the failure to pay was for reasonable cause.