What is the status of amounts paid in gift taxes on gifts made shortly before death?

Amounts paid in gift taxes on gifts made shortly before death enhance the taxable estate. This is due to the federal estate tax rules that dictate how gifts are treated if made within three years of the donor's death. Any gift made during this period—where gift taxes were also incurred—can be included in the donor's taxable estate as a means of ensuring that the IRS collects taxes on the overall wealth transferred at death.

When assessing a decedent's estate, the fair market value of all assets, including previously gifted amounts for which gift taxes were paid, must be considered to determine the estate tax liability accurately.

The other options reflect misunderstandings of how gift taxes interact with estate taxation. For instance, while amounts paid in gift taxes may influence the overall estate tax calculation, they are not permanently excluded, and they certainly do not get reported as income since gifts themselves are generally not taxable to the recipient. Additionally, they do not simply get deducted from the estate; rather, their treatment includes the necessity of including those amounts in the estate's total value for tax purposes.