Are parents liable for gift tax when they give (or gift) their
college-age kid  (over 18) money to pay for rent, food, clothing, and
whatever that's for their basic upkeep?

I understand that when I write the tuition check directly to the
university, then it is not gift-taxable under the educational
exclusion.  But what about other money that are for this child's
upkeep while he attends school?

Because of the location of this university, we are expected to give
him more than $10,000 each year for the basics like rent, food, books,
and winter clothing, not to mention other necessities like computer
and travels.

So, am I liable for gift tax when all the money I give him throughout
the year totals more than $10,000?  Can I reduce the "gift" by writing
checks directly to the landload and such?

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Clarification of Question by ok74074-ga on 23 Jun 2005 15:09 PDT

Thanks to jack_of_few_trades in enlighten me to the fact that "we" do
have double the allowance for gift tax.  That is a relief, for now.

I guess I was cought up at the moment and could not think straight. 
There is this example given at the IRS website on gift tax and it just
scares me.  The example says that the parent who gives a 25-year-old
son $25,000 is liable for gift tax on the amount over $10,000.  From
that reading, my imagination took off.

Even though we now have a $20,000 cushion to avoid gift tax, we're not
out of the woods yet.  Sooner or later, "we" will have to buy him a
car and that might just push the total amount we put into the upkeep
of this child more than $20,000 for whenever that time comes.

I would like to think that there's no limit to how much or even how
long parents can support (or gift) their grown-up children for their
upkeep as long as needed.  But I don't want to get in trouble with any
tax issues.  We will be claiming this college bound child a dependent
for as long as he's in college.  Is that enough to avoid gift tax ??

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Request for Question Clarification by richard-ga on 24 Jun 2005 15:49 PDT

You're right in thinking that the answer is related to your legal
obligation of support.  Please let us know what US state you live in -
- that might make a difference.

Richard-ga

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Clarification of Question by ok74074-ga on 24 Jun 2005 19:03 PDT

Yes, Richard.  We live in the state of Oklahoma.  Hope this helps your
research.  And thanks for taking an interest to this question.

Hello and thank you for your question.

Strictly speaking, the answer to your question is yes, upkeep money
for a child (over 18) in college is taxable as gift.  On the other
hand you could well be the first parent ever to report such expenses,
paid on behalf of a dependent child, on a gift tax return.

Clearly the direct payment of tuition bills, plus $22,000 from the two
of you (the former $10,000 present interest gift exclusion is now
$11,000) is gift-tax free.

It seems to be an informal rule that education costs, including room
and board, etc., are not looked at as gifts when the parent is paying
them and is claiming the child as a dependent.  But you won't find
that in the actual law.

One indication that education payments are properly subject to gift
tax is that Section 529 plan contributions do count as gifts (they do
qualify as present interest gifts and one can elect to make 10-years'
gifts at once, but that shows they are taxable).
http://www.irs.gov/instructions/i709/ch01.html#d0e280

And Oklahoma is one of a minority of states that will not require a
parent, after a divorce, to support a child beyond age 18 unless
there's an agreement to that effect.
"Oklahoma Title 10 Section 16
Where a child, after attaining majority, continues to serve and to be
supported by the parent, neither party is entitled to compensation in
the absence of an agreement therefor."
http://oklegal.onenet.net/statutes.basic.html

That Oklahoma law represents further evidence that the payments should
properly be considered gifts.  [Unless you can distinguish that
statute as only applying to noncustodial parents or in a post-divorce
contect.]

Of course the good news is you can make $1.5 million of taxable gifts
($3 million for the two of you) before you need to pay a penny of gift
tax.
http://www.irs.gov/pub/irs-pdf/p950.pdf

That doesn't make it a non-gift, nor does it technically mean you
shouldn't report the gift on Form 709, but again, I don't think
anybody really expects you to.

Search terms used:
post-secondary  oklahoma child support education
oklahoma statutes post-secondary "title 10" 
dependent support "gift tax" education
"qualified tuition program" "form 709" instructions  site:irs.gov
unified credit gift 2005 site:irs.gov

Thanks again for letting us help
Richard-ga

Thank you, Richard, for helping to clear my mind on this issue.  I
guess it's all technical in the ways how people deal with it, or not. 
It's also nice to know how my state's view is on this matter.

You mention: "we are expected".  If that means a husband and wife then
each of you are able to give $10,000 without a gift tax.  That brings
the gift up to $20,000 which I would hope to be enough.

I don't know the official law, but it sounds to me that this person is
your dependant which seems to suggest that you're not gifting him any
money, but simply supporting him as many parents do for their
children.