Gift Tax Return

Dear Client:

HTJ.TAX (“firm,” “we,” “us,” or “our”) is pleased to provide you with the professional services described below. This letter, and the attached Terms and Conditions Addendum[1] and any other attachments incorporated herein (collectively, “Agreement”), confirm our understanding of the terms and objectives of our engagement and the nature and limitations of the services we will provide. The engagement between you and our firm will be governed by the terms of this Agreement.

Engagement Objective and Scope

Federal and state law governs your obligation to file gift tax returns and pay gift taxes. The Internal Revenue Service (“IRS”) considers a gift to be any transfer to an individual or entity, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return. Under federal tax law, certain gifts are not taxable. Gifts that are taxable  are subject to an annual gift tax exclusion amount. State law governing gift taxes, including the lifetime exclusion, varies by jurisdiction.

We will not prepare any tax returns other than those identified above, without your written request, and our written consent to do so. We will rely upon the completeness and accuracy of the information and representations you provide to us to prepare your tax returns. We have not been engaged to and will not prepare financial statements. We will not audit or otherwise verify the data you submit to us, although we may ask you to clarify certain information.

We will prepare the above-referenced tax returns solely for filing with the IRS and applicable state and local tax authorities. Our work is not intended to benefit or influence any third party, either to obtain credit or for any other purpose.

You agree to indemnify and hold us harmless with respect to any and all claims arising from the use of the tax returns for any purpose other than filing with the IRS, state and local tax authorities regardless of the nature of the claim, including the negligence of any party.

The scope of our engagement is limited to the preparation of the gift tax returns listed above. It includes tax advice provided to you, as donor, regarding elections that can be made on gift tax returns.

Our engagement does not include any procedures designed to detect errors, fraud, or theft. Therefore, our engagement cannot be relied upon to disclose such matters. In addition, we are not responsible for identifying or communicating deficiencies in your internal controls. You are responsible for developing and implementing internal controls applicable to your operations.

This engagement is limited to the professional services outlined above.

Firm Responsibilities

Unless otherwise noted, we will perform our services in accordance with the Statements on Standards for Tax Services (“SSTSs”) issued by the American Institute of Certified Public Accountants (“AICPA”) and U.S. Treasury Department Circular 230 (“Circular 230”). It is our duty to perform services with the same standard of care that a reasonable tax return preparer would exercise in this type of engagement. It is your responsibility to safeguard your assets and maintain accurate records pertaining to transactions. We will not hold your property in trust for you, or otherwise accept fiduciary duties in the performance of the engagement.

We will prepare your tax returns based upon the information and representations that you provide to us. We may make inquiries of you and your attorneys or advisors on issues related to the gift tax returns. By signing this Agreement, you agree to permit us to discuss the returns with your attorneys and advisors in order to prepare them. You should discuss the returns with your attorneys or advisors before filing the returns with the IRS, state and local tax authorities, as applicable.

HTJ.TAX, in its sole professional judgment, reserves the right to refuse to take any action that could be construed as making management decisions or performing management functions on your behalf.

Arguable positions

We will use our professional judgment to resolve questions in your favor where a tax law is unclear, provided that we have a reasonable belief that there is substantial authority for doing so. If there are conflicting interpretations of the law, we will explain the possible positions that may be taken on your return. We will follow the position you request, provided it is consistent with our understanding of tax reference materials. Tax reference materials include, but are not limited to, the Internal Revenue Code (“IRC”), tax regulations, Revenue Rulings, Revenue Procedures, Private Letter Rulings, court cases, and similar state and local guidance. If the IRS, state or local tax authorities later contest the position you select, additional tax, penalties, and interest may be assessed. We assume no liability, and you hereby release us from any liability, including but not limited to, additional tax, penalties, interest, and related professional fees you may incur.

Prior year review

Our review of the prior year’s tax return will necessarily be limited and may not find all errors. We will, however, bring to your attention any errors that we find. If you ask us to prepare amended tax returns and address any other matters arising as a result of any error, and we agree to amend the returns, we will confirm this engagement in a separate agreement.

Tax planning services

Tax planning services are not within the scope of this engagement. During the course of preparing the tax returns identified above, we may bring to your attention potential tax savings strategies for you to consider as a possible means of reducing your taxes in subsequent tax years. However, we have no responsibility to do so, and will take no action with respect to such recommendations, as the responsibility for implementation remains with you, the taxpayer. If you ask us to provide tax planning services, and we agree to provide them to you, we will confirm this engagement in a separate agreement.

Government inquiries

This engagement does not include responding to inquiries by any governmental agency or tax authority. If your tax return is selected for examination or audit, you may request our assistance in responding to such an inquiry. If you ask us to represent you, and we agree to represent you, we will confirm this engagement in a separate agreement.

Third-party requests

We will not respond to any request from banks, mortgage brokers or others for verification of any information reported on these tax returns. We do not communicate with third parties or provide them with copies of tax returns.

Tax advice

Any advice we may provide is based upon tax reference materials, facts, assumptions, and representations that are subject to change. We will not update our advice after the conclusion of the engagement for subsequent legislative or administrative changes or future judicial interpretations. To the extent we provide written advice concerning federal tax matters, we will follow the guidance contained in Circular 230, §10.37, Requirements for Written Advice.

Reliance on others

If you wish to take a tax position based upon the advice of another tax advisor, we must comply with Circular 230, §10.37(b) and AICPA SSTS No. 1 and related Interpretations 1-1 and 1-2, which requires the position to meet the “realistic possibility,” “substantial authority,” or “more likely than not” standard, as applicable. You agree to obtain a written statement from the advisor confirming the standard that should apply so the position may be properly disclosed. If additional research or disclosure is required, you agree to pay for the additional charges necessary to complete the disclosure or research.

Tax return preparer standards, reportable transactions and tax shelters

Pursuant to the standards prescribed in Circular 230 and IRC §6694, we, as tax return preparers, are prohibited from signing a tax return unless we have a reasonable belief that there is substantial authority for a tax position taken on the tax return or we have a reasonable basis for the tax return position taken on the return and we disclose this tax position in a separate attachment to the tax return.

The law imposes substantial penalties on taxpayers and tax advisors for failure to disclose listed and other reportable transactions on Form 8886, Reportable Transaction Disclosure Statement. In general, reportable transactions are potentially abusive transactions identified by the IRS that have a primary purpose of tax avoidance, including but not limited to listed transactions, confidential transactions, transactions with contractual protection, loss transactions, and transactions of interest (a definition of “reportable transactions” is located at https://www.irs.gov/instructions/i8886 and includes a link to a summary of listed transactions).

The law imposes substantial penalties on taxpayers and tax advisors for failure to disclose tax shelters on Form 8271, Investor Reporting of a Tax Shelter Registration Number. A tax shelter is defined in IRC §6662((d)(2)(C) as a partnership or other entity, investment plan or arrangement, or any other plan or arrangement if a significant purpose of such partnership, entity, plan or arrangement is the avoidance or evasion of federal income tax.

You agree to advise us of any tax shelters and/or reportable transactions identified in tax reference materials. Unless a reportable transaction is more likely than not to be sustained on its merits, IRC §6662A, Imposition of Accuracy-Related Penalty on Understatements with Respect to Reportable Transactions, requires us to disclose the reportable transaction in a separate attachment to the tax return. Similarly, unless a tax shelter is more likely than not to be sustained on its merits, IRC §6662(d)(2)(C)(ii), Imposition of Accuracy-Related Penalty on Underpayments, requires us to disclose tax shelters in a separate attachment to the tax return.

If you do not consent to a required disclosure, we may be unable to prepare your tax returns.

You agree to hold our firm harmless with respect to any liability including but not limited to, additional tax, penalties, interest and professional fees resulting from your failure to timely notify us, in writing, of any tax shelters and/or reportable transactions identified in tax reference materials in order to facilitate the timely preparation and filing of your tax returns.

Client Responsibilities

You agree to provide us with all information and documentation requested by our firm. This information and documentation is necessary to determine your federal and state gift tax filing obligations.

In addition, you must complete the tax organizer, which we utilize to compile information needed to prepare the returns.

 

Elections

Gift tax returns include elections that may materially affect the taxes owed. Preparation of the gift tax return requires you to make decisions regarding these elections.

We will explain tax return elections that you may make and provide recommendations based upon the information you provide. However, you remain responsible for consulting with your attorney, as needed, regarding the advisability of making such elections. After all discussions are completed, the decision of whether or not to make an election is yours, as the donor.

You agree to instruct us in writing regarding the tax return elections to be made by you. You agree that any tax return elections reflected on the completed return are made at your instruction following consultation with your attorney.

Appraisals and valuations

Determining the value of property, other than cash or publicly traded securities, may require an appraisal or valuation. You acknowledge that you are responsible for timely engaging a qualified independent third party to determine values of assets other than cash or publicly traded securities. Appraisals and valuations may take a significant amount of time. If a required appraisal or valuation is not timely received, the gift tax returns may require an extension of the filing deadline. In preparing the tax returns, we will not determine values nor will we review or investigate the values provided to us. You agree to hold us harmless from any liability including but not limited to, additional tax, penalties, interest and professional fees resulting from any change to an appraisal or valuation determined by third party appraisers or other valuation professionals.

Documentation

You are responsible for maintaining adequate documentation to substantiate the accuracy and completeness of your tax returns. You should retain all documents that provide evidence and support for gifts, deductions, and other information reported on your returns, as required under applicable tax laws and regulations. You represent that you have such documentation and can produce it, if necessary, to respond to any audit or inquiry by tax authorities. You agree to hold our firm harmless from any liability including but not limited to, additional tax, penalties, interest and professional fees resulting from the disallowance of tax deductions due to inadequate documentation.

Additionally, you should retain copies of all previously filed gift tax returns until the date of your death to support the impact of the lifetime exclusion.

Foreign filing obligations

You are responsible for complying with the gift reporting and tax filing requirements of any tax authority outside of the U.S. You acknowledge and agree that we have no responsibility to raise these issues with you and that foreign filing obligations are not within the scope of this engagement.

Gifts received from foreign persons

If you received a gift or bequest from a foreign person or trust, you may be required to file a separate IRS Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts or Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner. If you ask us to prepare this return, and we agree to prepare it, we will confirm this engagement in a separate agreement.

Virtual currency

The IRS considers virtual currency (e.g., Bitcoin) as property for U.S. federal income tax purposes. As such, any transactions in, or transactions that use, virtual currency are subject to the same general tax principles that apply to other property transactions.

If you had virtual currency activity during the tax year, you may be subject to tax consequences associated with such transactions and may have additional reporting obligations. You agree to provide us with complete and accurate information regarding any transactions in, or transactions that have used, virtual currency during the applicable tax year.

Consultations

It is your responsibility to consult with your attorneys and estate planning professionals, as needed, prior to filing the returns with taxing authorities. Positions taken on gift tax returns may affect your estate taxes and the future income and estate taxes owed by the beneficiaries of your estate.

Crummey notices

A Crummey trust is created for the purpose of excluding gifts intended to benefit individuals from gift and estate taxes. A gift in trust qualifies for the annual exclusion from gift tax only under certain circumstances. Generally, the beneficiary must have at least the temporary right to withdraw from the trust all or a portion of the gift. In addition, the beneficiary must be notified of the gift and his or her withdrawal right to the gift (a Crummey notice) at the time the gift is made. The notification letter is sent by the trustee to the beneficiary of the trust. You acknowledge that you are responsible for ensuring that the trustee sends the Crummey notices and retains such notices in the event of a future audit.

Ultimate responsibility

You have final responsibility for the accuracy of your tax returns. We will provide you with a copy of your tax returns and accompanying schedules and statements for review prior to filing with the IRS, state and local tax authorities, as applicable. You agree to review and examine them carefully for accuracy and completeness prior to your signing them and your filing them timely with the tax authorities.

If you want us to contact the IRS for you that would be separately chargeable and out of the scope of the engagement for preparing returns.  We respond to queries about our calculations but queries about source documents or follow up on returns that are late in being processed are your responsibility only.

Timing of the Engagement

We expect to begin our services upon receipt of this executed Agreement, and all information and documentation requested by our office.

Our services will conclude upon the earlier of:

• mailing or delivery of your gift tax returns to you for your review and your filing with the appropriate tax authorities,
• written notification by either party that the engagement is terminated

Extensions of Time to File Tax Returns

Due to the high volume of tax returns prepared by our firm, you must provide the information needed to prepare the tax returns no later than one month before the due date. Failure to do so may result in the inability to complete your returns by the original filing due dates.

It may become necessary to apply for an extension of the filing deadline if there are unresolved issues or delays in processing, or if we do not receive all of the necessary information from you on a timely basis. Applying for an extension of time to file may extend the time available for a government agency to undertake an audit of your return or may extend the statute of limitations to file a legal action. All taxes owed are due by the original filing due date. Additionally, extensions may affect your liability for penalties and interest or compliance with governmental or other deadlines.

To the extent you wish to engage our firm to apply for extensions of time to file tax returns on your behalf, you must notify us of this request in writing. Our firm will not file these applications unless we receive an executed copy of this Agreement and your express written authorization to file for an extension. In some cases, your signature may be required on such applications prior to filing. Failure to timely request an extension of time to file can result in penalties for failure to file tax returns, which accrue from the original due date of the returns, and can be substantial.

Penalties and Interest Charges

Federal, state, and local tax authorities impose various penalties and interest charges for non-compliance with tax laws and regulations, including failure to file or late filing of returns, and underpayment of taxes. You, as the taxpayer, remain responsible for the payment of all tax, penalties, and interest charges imposed by tax authorities.

The IRS describes fair market value as the price for which property would sell on the open market. Taxing authorities closely scrutinize excessive valuation discounts from fair market value. IRC §6662, Imposition of Accuracy-Related Penalty on Underpayments, imposes significant penalties on substantial gift tax valuation understatements and gross valuation misstatements. You agree to hold us harmless for any liability, including but not limited to, additional tax, penalties, interest, and professional fees resulting from changes to valuations.

The IRS can assess a gift tax liability within three (3) years after the due date of the return, or three (3) years after the return is actually filed, whichever is later. Failure to disclose all asset transfers or inadequate disclosure of gifts may result in the imposition of penalties and interest charges in addition to extending the period of time in which the IRS may assess an additional liability.

Professional Fee

You agree that you will deliver all records requested and respond to all inquiries made by our staff to complete this engagement on a timely basis. You agree to pay all fees and expenses incurred whether or not we prepare the tax returns. We do not issue refunds.

We require that all outstanding invoices be paid prior to releasing the completed tax returns. We do not release incomplete tax returns.

If you have questions regarding your gift tax return filing obligations, please contact our office.

We appreciate the opportunity to be of service. Please date and execute this Agreement and return it to us to acknowledge your acceptance. We will not initiate services until we receive the executed Agreement and retainer

[1] See the Terms and Conditions Addendum that is included in the AICPA Tax Section’s Annual Tax Compliance Kit.

 

Very truly yours,

HTJ.TAX

___________________

Derren Joseph

 

 

Access Terms and Conditions Addendum