In a lawsuit recently filed by the IRS, the Internal Revenue Service wants to order California’s Board of Equalization (a state tax agency) to provide its computer database of everyone who transferred real estate to relatives for little or no consideration from 2005 to 2010. The BOE oversees property tax issues.
If granted, the lawsuit could expose many Californians to IRS audits as well as federal penalties or even significant back taxes. This is especially threatening to those who didn’t file federal gift tax returns.
California’s Proposition 13 limits annual property assessment increases to 2% or less unless the property is sold. Two other initiatives permit property transferred to children and, in certain situations, grandchildren, to retain the 2% cap. To claim the exclusion from reassessment and save a lot of money every year by the new owner/family member, paperwork has to be filed with the county where the property is located. Data from that paperwork is sent to the BOE where it is entered into a database.
The IRS identified that database and has asked for access to it.
Discuss your California real estate transfers with a tax attorney. Call Mitchell A. Port at (310) 559-5259 for tax help.