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Good news for you. Gifts are tax-free to the recipient. You don't pay taxes on the gift, this year, next year or ever. You don't have to tell the IRS, or anyone else, about your good fortune. Enjoy.

Bad news for your brother. He has to file a gift tax return. But unless he's been giving away money for a long time, he won't actually have to pay anything just now. That comes much later.

In a nutshell, it works like this:

Anyone can give anyone else up to $11,000 per year, no strings attached, and no one pays taxes, neither giver nor recipient. If you give someone over $11,000 in a year (as your generous brother has) then you have to file a gift tax return - but you generally don't actually pay a tax. That's because each of us has a lifetime estate/gift tax credit, which these days is large enough to offset total lifetime gifts of around $750,000 (I think). So your brother does have to do some paperwork (file a gift tax return) but instead of actually paying tax, he just takes a little off that lifetime credit. If/when he has given enough to use up the credit, then he starts actually paying gift taxes. And note that I said that this was an estate/gift thing. When he dies, his estate has a much smaller estate/gift credit to work with (because he's used some of it up) so estate taxes kick in much sooner. In other words, eventually he'll pay.
(Well, maybe not. The laws they are a-changin', the gift/tax credit is going up, and the plan is to get rid of all of this stuff by 2010 or so. And then maybe it all comes back the next year, depending on the whims of congress...)

Bottom line: you don't need to do anything. Your brother has some paperwork to do, and he might want to see a tax professional.

Lorenzo
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