On August 3, 2017 Ginger Grayson, a widow, transferred $55,000 to each of two Sec. 529 plans

Question:

On August 3, 2017 Ginger Grayson, a widow, transferred $55,000 to each of two Sec. 529 plans (qualified tuition programs), one for grandson Greg Grayson and one for granddaughter Gayle Grayson. Her tax preparer, not a CPA, prepared a Form 1040 (individual income tax return) for Ginger for 2017 and 2018. Ginger has engaged the CPA firm for which you work to prepare her 2019 individual income tax return. In a conversation with Ginger, you learned about her 2017 transfers to the two Sec. 529 plans and inquired whether a gift tax return was prepared for 2017 to report the transfers to the Sec. 529 plans. She checked her files and responded that the tax preparer stated that no gift tax return was necessary. The preparer’s rationale was that the transfers to the Sec. 529 plans could be treated as gifts in the amount of $11,000 ($55,000/5 years) per grandchild per year and, as a result, the gifts would be fully covered by the gift tax annual exclusion. Your supervisor requested that you prepare a memo addressing whether the transfers to the two Sec. 529 plans in 2017 are fully excludible from gift tax and whether a gift tax return should have been prepared for 2017. Your supervisor suggests that you consult authorities and sources listed below. The Beyer case is very long; therefore, concern yourself only with the portion of the case under the heading “Mr. Beyer’s Gift Tax Returns” and the part of the opinion entitled “Section 529 Plans.”