Abstract

This study has examined the carryover-basis taxation for the spouse or lineal ascendantsdescendants,one of the taxation on the donor’s capital gain, and sought its problems and solutionsthrough studying related theories, foreign legislation cases and precedents. The results are as follows. The carryover-basis taxation for the spouse or lineal ascendants-descendants has numerousproblems such as the issue of discrimination between donees, the issue of tax-exemptions andtax-cuts of the donor and donee, the issue of differently applied tax rates, the issue of fairnesswhen a capital loss occurs during the donor’s period of posession, the issue of gift tax amountincluded in necessary expenses, the issue of nontaxability on the donor’s capital gain when theconcerned item is transferred later than 5 years after the gift, and finally the issue of the scopeof the property. The underlying solution to solve these problems is to apply gifts as transfers and taxing thedonor gift tax when the gift is made. If gifts are applied as transfers and the donor is imposedwith gift tax, the current carryover-basis taxation for the spouse or lineal ascendants-descendantswould be no longer necessary. A practical alternative would be applying the carry-over basis taxation utilized in the U.S. andJapan. In other words, the scope of the current carryover-basis taxation for the spouse or linealascendants-descendants should not be limited to those cases where the spouse or linealascendants-descendants are the donee but to be applied regardless of who the donee is. Also, theproperty concerned should not be limited to the right of use to land, buildings, or particularfacilities but to be applied to all gift tax taxable properties. Further, the article should be appliedregardless of the period of transfer, not only to those transfers that are made within 5 years of thegift. Through a full-scale implement of the carryover-basis taxation, taxation on the donor’scapital gain would be imposed when the donee receives the transfer, enhancing fairness andefficiency regardless of who the donee is, what form of property is gifted, and when the giftedproperty is transferred.

Keywords

• the deemed-realization approach
• the carryover-basis approach
• capital gain tax

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