In 1972 ... Sumner Redstone, who wasn't yet a global media mogul, made a taxable gift to his children and failed to file a return. At least that's what the Internal Revenue Service is maintaining 41 years later. The IRS told Redstone earlier this year that he owes $1.1 million in taxes and penalties, plus interest, because of the gift.
So, how long does (or can) the IRS scour your financial history to find taxable gifts? Well, it seems they do (or can) go back some 41 years. Whether you are a billionaire or a regular "Joe," a recent case is worthy of note.
Enter the case of Sumner Redstone and a 1972 inter-family legal proceeding. The IRS has elected to call this "proceeding" a gift with much in past due taxes and penalties.
Bloomberg recently reported on this unique fact pattern in an article titled "Billionaire Redstone Challenges IRS on Tax for 1972 Gift." Normally the IRS is bound by a statute of limitations set to about three years. However, an exception to this rule includes the failure to file a tax return like the allegedly missing gift tax return of Mr. Redstone.
Apparently, the difficulty arose over certain shares of National Amusements Inc., and a family legal agreement resulting in a "transfer" of shares. The IRS is now calling that "transfer" a "gift" with $1.1 million in taxes, penalties, and interest due and owing.
According to Richard Behrendt, a former estate and gift tax auditor turned director of estate planning, "This is unheard of... I can't remember ever hearing of anybody going back 41 years to raise an issue. It's really unprecedented in my experience."
Note: Mr. Redstone may have become a target, given the fact he is the chairman of both Viacom and CBS, not to mention National Amusements and all the related subsidiaries of the three. Reportedly, Mr. Redstone is worth approximately $4.9 billion. Nevertheless, this 41-year-look-back is a strange precedent.