Gift Tax to friends

We have a friend that had a parent with assets over $675K when they dying in Florida. Just before the death, this friend gave $10K in gifts to family and friends, but asked to have the money returned from the friends within the year. I believe this is not an advisable thing to do. What is the worst that can happen to the person with the inheritance, and also the friends that participated in the act? Would the IRS be more lenient if they came forward before an audit found them out?

If the Estate Tax return has not yet been filed, the questionable “gifts” should be returned to the estate. They were not gifts because the donor did not intend to part with ownership. They are part of the taxable estate and should be included as such. If the return has been filed, the money should be returned to the estate and an amendment to the return should be filed, including those amounts.

The IRS would look much more favorably on that than if they found this in an audit. I don’t know what the chances are of an audit.