What does Treasury Regulation section 301.6501(c)-1(f) require for a gift to start the statute of limitations running?
It requires the gift to be adequately disclosed on the return or in an attached statement, and states the penalty first. Under paragraph (f)(1), if a transfer “is not adequately disclosed on a gift tax return (Form 709),” or in an attached statement filed for the calendar period in which the transfer occurs, “then any gift tax imposed by chapter 12 of subtitle B of the Internal Revenue Code on the transfer may be assessed, or a proceeding in court for the collection of the appropriate tax may be begun without assessment, at any time.”
That is the exception to an otherwise short period. Internal Revenue Code section 6501(a) provides that tax “shall be assessed within 3 years after the return was filed,” and section 6501(c)(9) makes gift tax on a gift “not shown on such return” assessable at any time — except as to “any item which is disclosed in such return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature of such item.”
The governing standard is a single sentence, and the list that follows is a safe harbor rather than the test. Paragraph (f)(2) provides that “[a] transfer will be adequately disclosed on the return only if it is reported in a manner adequate to apprise the Internal Revenue Service of the nature of the gift and the basis for the value so reported.” Paragraph (f)(8) fixes the reach: it applies “to gifts made after December 31, 1996, for which the gift tax return for such calendar year is filed after December 3, 1999.”
What are the elements of the description a gift tax return has to give?
Five, and the fourth is where closely held interests get into trouble. Treasury Regulation §301.6501(c)-1(f)(2) calls for “(i) A description of the transferred property and any consideration received by the transferor”; “(ii) The identity of, and relationship between, the transferor and each transferee”; at (iii), where the property went into trust, the trust’s tax identification number and either a brief description of its terms or a copy of the instrument; the valuation description at (iv); and at (v) “[a] statement describing any position taken that is contrary to any proposed, temporary or final Treasury regulations or revenue rulings published at the time of the transfer.”
Treasury Regulation §301.6501(c)-1(f)(2)(iv) is the valuation element, and it asks for the method, not the conclusion. Except where an appraisal is submitted under (f)(3), the return must give “a detailed description of the method used to determine the fair market value of property transferred, including any financial data (for example, balance sheets, etc. with explanations of any adjustments) that were utilized in determining the value of the interest,” along with any restrictions considered and “a description of any discounts, such as discounts for blockage, minority or fractional interests, and lack of marketability, claimed in valuing the property.”
For an entity that is not actively traded, the demands are heavier. Treasury Regulation §301.6501(c)-1(f)(2)(iv) requires “a description of any discount claimed in valuing the interests in the entity or any assets owned by such entity,” and provides that where value rests on net asset value, a statement must be given of “the fair market value of 100 percent of the entity (determined without regard to any discounts in valuing the entity or any assets owned by the entity),” the pro rata portion transferred, and the value of the transferred interest as reported. If 100 percent is not disclosed, “the taxpayer bears the burden of demonstrating that the fair market value of the entity is properly determined by a method other than” net asset value.
The look-through obligation in Treasury Regulation §301.6501(c)-1(f)(2)(iv) is most often missed. Where the transferred entity “owns an interest in another non-actively traded entity,” the information required by (f)(2)(iv) “must be provided for each entity if the information is relevant and material in determining the value of the interest” — which reaches tiered family structures by its terms. What the Code does and does not respect inside them is covered at Family entities and transfer restrictions, and the discount question itself at Minority discounts on gifts of family stock.
What are the appraisal requirements at paragraph (f)(3)?
Treasury Regulation §301.6501(c)-1(f)(3) is an alternative to the valuation description, not to the rest of the disclosure: “[t]he requirements of paragraph (f)(2)(iv) of this section will be satisfied if the donor submits an appraisal of the transferred property that meets the following requirements.” Under (f)(3)(i) the appraiser must be “an individual who holds himself or herself out to the public as an appraiser or performs appraisals on a regular basis” and “qualified to make appraisals of the type of property being valued,” on a background “described in the appraisal that details the appraiser’s background, experience, education, and membership, if any, in professional appraisal associations”; and must not be “the donor or the donee of the property or a member of the family of the donor or donee, as defined in section 2032A(e)(2), or any person employed by the donor, the donee, or a member of the family of either.”
The content conditions are at Treasury Regulation §301.6501(c)-1(f)(3)(ii), a list of eight items the appraisal must contain, of which three do most of the work. It must describe “the assumptions, hypothetical conditions, and any limiting conditions and restrictions on the transferred property that affect the analyses, opinions, and conclusions.” It must set out the information considered, “including in the case of an ownership interest in a business, all financial data that was used in determining the value of the interest that is sufficiently detailed so that another person can replicate the process and arrive at the appraised value.” And it must give “[t]he valuation method utilized, the rationale for the valuation method, and the procedure used in determining the fair market value of the asset transferred,” together with the specific basis for it. The rest are the dates and purpose of the appraisal, a description of the property, and the process followed.
Two features of Treasury Regulation §301.6501(c)-1(f)(3) are worth noticing. The replication requirement is a disclosure standard rather than a quality standard — it asks whether a reader outside the engagement could follow the work, not whether the work was right. And the independence rule is categorical, disqualifying by relationship and employment alone.
What happens when the disclosure is incomplete?
The year does not close. Example 4 of Treasury Regulation §301.6501(c)-1(f)(7) shows the rule operating on a return that was actually filed: the donor reported a transferred limited partnership interest and the value of 100 percent of the partnership, but did not disclose the partnership’s interest in a corporation, that corporation’s interest in a second partnership, or the discounts claimed at those levels. The regulation concludes that “the information on the lower tiered entities is relevant and material,” that the donor “failed to comply with requirements of paragraph (f)(2)(iv),” and that “the period of assessment for the transfer under section 6501 will remain open indefinitely.” Example 5 flips the result where a qualifying (f)(3) appraisal is submitted instead.
Incomplete is not always fatal. In Schlapfer v. Commissioner, T.C. Memo. 2023-65 (filed May 22, 2023), the United States Tax Court granted the taxpayer’s cross-motion for summary judgment, concluding that “the adequate disclosure requirements can be satisfied by substantial compliance.” Applying that doctrine, it asked whether the requirements relate “to the substance or essence of the statute,” quoting Bond v. Commissioner, 100 T.C. 32, 41 (1993), which in turn quotes Taylor v. Commissioner, 67 T.C. 1071, 1077 (1977). For the measure of adequacy it quoted Thiessen v. Commissioner, 146 T.C. 100, 114 (2016), which is itself quoting Estate of Fry v. Commissioner, 88 T.C. 1020, 1023 (1987): a disclosure is adequate if it is “sufficiently detailed to alert the Commissioner and his agents as to the nature of the transaction so that the decision as to whether to select the return for audit may be a reasonably informed one.” The taxpayer had not strictly satisfied paragraph (f)(2)(iv) — he “did not provide any statement describing how he determined the fair market value of the gift” — but the court held he had substantially complied, because the balance sheets and statements of net earnings and operating results he filed with his Forms 5471 supplied what the Form 709 instructions identified, and concluded “the period of limitations to assess the gift tax expired before the Commissioner issued the notice of deficiency.”
Read Schlapfer v. Commissioner narrowly. The opinion leans on Treasury’s own statement in T.D. 8845, the Treasury Decision that promulgated Treasury Regulation §301.6501(c)-1(f), published at 64 FR 67767 (December 3, 1999). Treasury declined to adopt an express substantial compliance rule, but wrote that “it is not intended that the absence of any particular item or items would necessarily preclude satisfaction of the regulatory requirements, depending on the nature of the item omitted and the overall adequacy of the information provided.” Pulling the other way, and relegated by the Tax Court to a footnote it then distinguished, is Badaracco v. Commissioner, 464 U.S. 386, 391 (1984), where the Supreme Court repeated that “Statutes of limitation sought to be applied to bar rights of the Government, must receive a strict construction in favor of the Government” — language it was quoting from E. I. du Pont de Nemours & Co. v. Davis, 264 U.S. 456, 462 (1924).
Why does the disclosure matter more than the appraisal in a dispute years later?
Because closing the period is what makes the reported value stick. Section 2001(f)(1) of the Internal Revenue Code provides that once the time has expired under section 6501 for assessing gift tax on a prior-period gift, “the value thereof shall, for purposes of computing the tax under this chapter, be the value as finally determined for purposes of chapter 12”; section 2504(c) does the same work inside the gift tax. Section 2001(f)(2)(A) treats a value as finally determined where it “is shown on a return under such chapter and such value is not contested by the Secretary” within that time, and adds that an item is treated as shown on a return “if the item is disclosed in the return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature of such item.” Finality runs on disclosure, not on the appraisal.
Example 2 of Treasury Regulation §301.6501(c)-1(f)(7) states the consequence plainly: where a transfer is adequately disclosed, “[a]fter the period of assessment has expired on the transfer, the Internal Revenue Service is precluded from redetermining the amount of the gift for purposes of assessing gift tax or for purposes of determining the estate tax liability.” That holds even where the gift, if the reported value was correct, would not have required a return at all.
The asymmetry is the practical point. A defensible appraisal never described on the return leaves the year open; a plain but complete disclosure closes it, and the appraisal behind it is then beyond redetermination for both gift and estate tax purposes. The cost lands when the file is coldest — the underlying financial statements gone, the appraiser retired, the question litigated against the estate rather than the donor.
Every statute, regulation and decision described here was read in a primary source on September 15, 2026. Nothing on this page states what governs any particular return, whether a specific disclosure was adequate, or what any interest is worth; that is counsel’s question and then the retained expert’s. This Institute publishes no discount figure and no table of discounts courts have accepted. The standard of value underlying all of it is covered at Estate and gift valuation, and the reasons there is no portable discount number at Is there a standard discount for lack of marketability?