Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 - Free CRPC Practice Questions and Study Guide

The federal gift tax applies to inter vivos transfers primarily because the donor does not receive full value for the property given away. In the case of a gift, the donor divests themselves of a property or asset without receiving equivalent compensation. This lack of full market value creates a situation where the IRS may view the transfer as a benefit to the recipient that should be taxed, as the donor has effectively transferred wealth without an equal exchange.

The rationale behind the gift tax is to ensure that individuals cannot avoid tax liabilities on wealth transfers by simply gifting their assets instead of selling them. If the donor were to sell the property at full market value, there would be no gift because the value exchanged would equate to the worth of the transferred asset. The tax serves to prevent wealth from being passed down through gifts tax-free, thereby ensuring fair taxation across different forms of asset transfer.