By: Martin M. Shenkman, CPA, MBA, JD
529 plans are ubiquitous in the planning world, but do not let the fact that they are so common lull you into thinking that there are no technical pitfalls. You can contribute up to $12,000 per year per person to such plans, and even front load five years at one time to accelerate the tax benefits. But to take advantage of this 5-year up front gift you have to meet several requirements. A recent Private Letter Ruling 200743001 provides some insight into these rules. In the ruling, Grandma gave substantial funds to eight separate QTP (qualified tuition plans) accounts — one for each of her grandchildren. All of the gifts were reported on Grandma's Gift Tax Return, Form 709. Grandma attached a statement to the return, indicating her intent to prorate each contribution over the 5-year period. However, Grandma failed to check the box on Line B of Schedule A to make the election under section 529(c)(2)(B), to treat each gift as ratably made over the 5-year period. The IRS concluded that an attachment to Grandma's gift tax return for the year contained sufficient information to constitute substantial compliance with the requirements for making the election for 5-year front loading under Code Section 529(c)(2)(B). The IRS was forgiving because literal compliance with all the nuances of making an election is not always necessary. Hewlett Packard Co. v. Comr., 67 T.C. 736 (1977), acq. in result, 1979-1 C.B. 1. hen the election is properly made the gifts to the QTP would be treated as if made ratably over 5 years beginning with the year of the gift. Anything more than 5 x the annual gift amount ($60,000) is treated as a taxable gift in the year made.
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