How does the IRS monitor gift-giving behaviors?

The IRS primarily monitors gift-giving behaviors through reported forms, especially Form 709, which is the United States Gift (and Generation-Skipping Transfer) Tax Return. This form is specifically designed for reporting gifts that exceed a certain value, and it provides the IRS with information about the donor, the recipient, and the amount of the gift.

When individuals make gifts, especially those that are substantial, they are required to file Form 709 if the total gifts exceed the annual exclusion limit. By collecting this data, the IRS can closely ascertain the levels of gift giving taking place and ensure compliance with tax laws. This system not only helps in monitoring gift transactions but also aids in the calculation of tax liability associated with those gifts, ensuring that both donors and recipients adhere to the required reporting standards and tax obligations.

Other options may suggest alternative means of monitoring, but they do not have the same level of formalized tracking or regulatory backing as the reporting forms mandated by the IRS.