Amazingly, it appears that most people who have given away real estate to family members in recent years have not filed a gift tax return with the IRS.

The IRS requires a gift tax return to be filed any time a person makes a gift to someone other than a spouse of more than the annual exemption amount (which is currently $13,000). So if a person gives a piece of real estate to a child, or sells it to them for $1, or even sells it to them for a price that is more than $13,000 below its actual value, a gift tax return must be filed. That’s true for residences, vacation homes, and investment properties.

The IRS has begun digging through state property records looking for such “discount” transfers, to see if the transfers were properly reported. So far, it has focused on 15 states, but it plans to expand into other states. And it has discovered some remarkable figures.

The non-compliance rate in Wisconsin is 50%, the IRS says – but that’s better than any of the other states it’s checked. “Lowball” transfers were not reported on tax returns about 60% of the time in Connecticut, about 80% of the time in Washington, and about 90% of the time in Florida and Virginia.

In Ohio, the IRS says it has hardly found a single case where a below-market transfer was properly reported.

If you know of anyone who has transferred a home for less than fair market value and hasn’t filed a tax return, they should file one as soon as possible. It’s much better to file a late return than to not file one at all and have the IRS discover it through an audit.

Many below-market real estate transfers will not trigger any gift tax. That’s true as long as the value of the gift was less than the donor’s lifetime gift exemption.

However, any gift of more than the annual exclusion amount – again, it’s currently $13,000 – can reduce the person’s estate tax exclusion. If the IRS finds out about the non-disclosure, it could result in additional estate taxes, gift taxes, interest, and perhaps penalties.