The annual exemption is applicable where the aggregate gifts to a donee are $3,000 or less. Where the annual gifts to a donee exceed $3,000 the exemption operates as to the first $3,000 of the gifts. Thus, for example, if A makes gifts of money to B in the calendar year 1974 totaling $2,500 in amount, the entire $2,500 is within the exemption. On the other hand, if the gifts total $3,500 in amount, $3,000 would be within the exemption and the excess would be subject to the tax imposed, unless also within one of the other exemptions specified in the law (i.e., the specific exemption, the intangible exemption, or the charitable exemption).

In view of this exemption a donor may, during a calendar year, make as many gifts not exceeding $3,000 in amount or value to as many different persons as he may desire without incurring a tax thereon. For example, A may give $3,000 in cash to each of ten persons during any calendar year. Since the gift to each individual donee would not exceed $3,000, no tax would be due.

The $3,000 annual exemption referred to above applies to gifts made on or after July 29, 1967. The annual exemption for gifts made prior thereto is $4,000 and the same principles otherwise apply.

Note: Reference: Section 15401, Revenue and Taxation Code.