Kwambe is thinking of making a substantial gift of stock to his fiancée, Maya. The wedding is scheduled for October 1 of the current year. Kwambe already has exhausted his unified credit. He also is considering giving $28,000 cash this year to each of his three children by a previous marriage. What tax issues should Kwambe consider with respect to the gifts he plans to make to Maya and his three children?
> From a tax standpoint, which of the following alternatives is more favorable for a client’s estate? a. Buying a new insurance policy on his life and soon thereafter giving it to another person b. Encouraging the other person to buy the policy with fund
> A decedent transferred land to an adult child by gift two years before death. Is the land included in the decedent’s gross estate? In the estate tax base?
> Explain how shares of stock traded on a stock exchange are valued. What is the blockage rule?
> Compare the valuation for gift and estate tax purposes of a $150,000 group term life insurance policy on the transferor’s life.
> A client requests that you explain the valuation rules used for gift tax and estate tax purposes. Explain the similarities and differences of the two sets of rules.
> Three individuals recently formed Krypton Company as a limited liability company (LLC). The three individuals—Jeff, Susan, and Richard—own equal interests in the company, and they all have substantial income from other sources. Krypton is a manufacturing
> In general, at what amount are items includible in the gross estate valued? (Answer in words.) Indicate one exception to the general valuation rules and the reason for this exception.
> In general, when is the estate tax due? What are some exceptions?
> Assume the same facts as in Problem C:13-57 except the joint tenancy land was held in the names of Bonnie and her son Doug, joint tenants with right of survivorship. Also assume that Bonnie provided 55% of the consideration to buy the land and that Bonni
> Bonnie died on June 1, 2017, survived by her husband, Abner, and two sons, Carl and Doug. Bonnie’s only lifetime taxable gift was made in October 2015 in the taxable amount of $6.25 million. She did not elect gift splitting. By the time of her death, the
> Your client is Jon Jake, the executor of the Estate of Beth Adams, a widow. Mrs. Adams died 11 years after the death of her husband, Sam. Mr. Jake seeks assistance in the preparation of the estate tax return for Mrs. Adams, whose estate consists primaril
> Your long-time client, Harold (Hal) Holland will meet with your supervising partner next week for an estate planning appointment. Hal has been married to Winona Holland for 25 years. Hal is age 68 and retired. Winona, age 60, retired early to spend more
> Ilene Ishi is planning to fund an irrevocable charitable remainder annuity trust with $100,000 of cash. She will designate her sister, age 60, to receive an annuity of $5,000 per year for 15 years and State University to receive the remainder at the end
> George and Martha, spouses, made a number of gifts during 2017. Their accountant is trying to help them decide whether to elect gift splitting. If they elect gift splitting, each spouse will have $4 million of taxable gifts. If they do not elect gift spl
> What was the Sec. 7520 rate for May, June, and July 2016?
> Your manager wants you to participate in delivering a staff training course on the basics of gift taxation. Your assignment is to discuss Crummey trusts. You want to increase your knowledge of some of the advantages and disadvantages of such trusts. Cond
> Alex owns 60% of the Hot Wheels LLC, which is treated as a partnership. He plans to give 15% of the LLC (one fourth of his interest) to his daughter Haley for her high school graduation. He plans to put her interest in a trust, and he will serve as the t
> On August 3, 2014 Ginger Grayson, a widow, transferred $55,000 to each of two Sec. 529 plans (qualified tuition programs), one for grandson Greg Grayson and one for granddaughter Gayle Grayson. Her tax preparer, not a CPA, prepared a Form 1040 (individua
> Consult the case Estate of Edward S. Redstone, 145 T.C. No. 11 (2016), a rather complicated case, and answer the following uncomplicated questions: a. When did the alleged gift occur, and when did the IRS issue a notice of deficiency? b. Why was the IRS
> Janet Mason timely filed a 2015 gift tax return to report the gift on June 3, 2015, of closely held stock in Mason Meat Co., Inc. The tax return, which your firm prepared, reflected a value of $1,500 per share (determined by an appraiser) and a taxable g
> In July of the current year, Horace Hiatt, a widower, transferred $14,000 worth of publicly traded stock to an irrevocable trust with Benton National Bank as trustee. He named his granddaughter, Heather, then age 15, the beneficiary. The trust instrument
> Your manager advises you that clients Mike and Winona Marsh, residents of Bath, Maine, acquired beachfront property in Maine in 2002 and titled the property in their names as joint tenants with right of survivorship. Under Maine law, either joint tenant
> Siu is considering giving her son stock in Ace Corporation or Gold Corporation. Each has a current FMV of $500,000, and each has the same estimated future appreciation rate. Siu’s basis in the Ace stock is $100,000, and her basis in the Gold stock is $45
> In June 2016, Karen transferred property with a $75,000 FMV and a $20,000 adjusted basis to Hal, her husband. Hal dies in March 2017; the property has appreciated to $85,000 in value by then. His gross estate is $1 million. a. What is the amount of Kare
> In 2017, Henry and his wife, Wendy, made the gifts shown below. All gifts are of present interests. What is Wendy’s gift tax payable for 2017 if the couple elects gift splitting and Wendy’s previous taxable gifts (made in 1995) total $1 million? Wendy’s
> In 2017, Homer and his wife, Wilma (residents of a non–community property state) make the gifts listed below. Homer’s previous taxable gifts consist of $100,000 made in 1975 and $1.4 million made in 1996. Wilma has made no previous taxable gifts. Wilma’
> Tien (age 70) transfers a remainder interest in a vacation cabin (with a total value of $100,000) to a charitable organization and retains a life estate in the cabin for herself. a. What is the amount of the gift tax charitable contribution deduction, i
> Explain the differences between the way the following items are reported by a C corporation and an S corporation: a. Ordinary income or loss b. Dividend income c. Capital gains and losses d. Tax-exempt interest income e. Charitable contributions f.
> Mariel has a $60,000 basis in her partnership interest just before receiving a parcel of land as a liquidating distribution. She has no remaining precontribution gain and will receive no other distributions. Under what conditions will Mariel’s basis in
> In the current year, Louise makes the transfers described below to Lance, her husband, age 47. Assume 4% is the applicable interest rate. What is the amount of her marital deduction, if any, attributable to each transfer? a. In June, she gives him land
> Hugh makes the gifts listed below to Winnie, his wife, age 37. What is the amount of the marital deduction, if any, attributable to each? a. Hugh transfers $500,000 to a trust with a bank named as trustee. All the income must be paid to Winnie monthly f
> In earlier years, neither Hugo nor Wanda, his wife, made any taxable gifts. In 2016, Hugo gave $14,000 cash to each of his nieces, nephews, and grandchildren, 30 persons in total. In 2017, Wanda gives $34,000 of stock to each of the same people. What is
> During 2017, Will gives $40,000 cash to Will, Jr. and a remainder interest in a few acres of land to his friend Suzy. The remainder interest is valued at $32,000. Will and his wife, Helen, elect gift splitting, and during the current year Helen gives Joy
> For each of the following transactions that occur in the current year, indicate the amount of the annual exclusion available. Explain your answer. a. Tracy creates a trust in the amount of $300,000 for the benefit of her eight-year-old daughter, May. Sh
> In June, Tina makes cash gifts of $700,000 to her husband and $100,000 to the City Art Museum. What are the amounts of the deductions available for these gifts when calculating Tina’s income tax and gift tax liabilities if she does not elect gift splitti
> In March 1976, Sue made a taxable gift of $200,000. In arriving at the amount of her taxable gift, Sue elected to deduct the $30,000 specific exemption then available. In 2017, Sue makes her next gift; the taxable amount is $6.5 million. a. What unified
> Determine the amount of the completed gift, if any, arising from each of the following occurrences. a. A parent sells real estate valued at $1.8 million to an adult child, who pays $1 million in consideration. b. A furniture store holds a clearance sal
> In the current year, Marge (age 67) engages in the following transactions. Determine the amount of the completed gift, if any, arising from each of the following events. Assume 4% is the applicable interest rate. a. Marge transfers $100,000 of property
> Refer to the facts of Problem C:12-36 and assume the current year is 2017. Emily’s prior gifts are as follows: What is Emily’s 2017 gift tax liability? From problem 36: In the current year, Emily, a widow, engages in
> David owns a 60% interest in the DDD Partnership, a general partnership, which he sells to the two remaining partners—Drew and Dana. The three partners have agreed that David will receive $150,000 in cash from the sale. David’s basis in the partnership i
> In the current year, Emily, a widow, engages in the following transactions. Determine the amount of the completed gift, if any, arising from each of the following occurrences. a. Emily names Lauren the beneficiary of a $100,000 life insurance policy on
> Yolanda and Xavier, spouses, have four adult children, Andy, Betty, Cathy, and Danny. In 2017, they made a number of gifts. Yolanda gave Andy cash of $40,000 and Betty stock valued at $60,000. Xavier gave Cathy stock valued at $38,000 and deposited $80,0
> In the current year, David gives $180,000 of land to David, Jr. In the current year, David’s wife gives $200,000 of land to George and $44,000 cash to David, Jr. Assume the couple elects gift splitting for the current year. a. What are the couple’s taxa
> In the current year, Beth, who is single, sells stock valued at $40,000 to Linda for $18,000. Later that year, Beth gives Linda $12,000 in cash. a. What is the amount of Beth’s taxable gifts? b. How would your answer to Part a change if Beth instead ga
> Amir made taxable gifts as follows: $800,000 in 1975, $1.2 million in 1999, and $600,000 in 2017. What is Amir’s gift tax liability for 2017?
> In 2017, Sondra makes taxable gifts aggregating $300,000. Her only other taxable gifts amount to $200,000, all of which she made in 1997. a. What is Sondra’s 2017 gift tax liability? b. What is her 2017 gift tax liability under the assumption that she
> On October 1, Sam lends Tom $10 million. Tom signs an interestfree demand note. The loan is still outstanding on December 31. Explain the income tax and gift tax consequences of the loan to both Sam and Tom. Assume that the federal shortterm rate is 5%.
> Melvin funds an irrevocable trust with Holcomb Bank as trustee and reserves the right to receive the income for seven years. He provides that at the end of the seventh year the trust assets will pass outright to his adult daughter, Pamela, or to Pamela’s
> Janet (who has made no taxable gifts) is considering transferring assets valued at $9 million to an irrevocable trust (yet to be created) for the benefit of her son, Gordon, age 15, with Farmers Bank as trustee. Her attorney has drafted a trust agreement
> Scott sells his one­third partnership interest to Sally for $43,000 when his basis in the partnership interest is $33,000. On the date of sale, the partnership has no liabilities and the following assets: The partnership has claimed $5,400 of
> In general, what is the due date for the gift tax return? What are two exceptions?
> Describe for a client five advantages and two disadvantages of disposing of property by gift instead of at death.
> Carlos has heard about the unified transfer tax system and does not understand how making gifts can be beneficial. Explain to Carlos how a lifetime gift fixes (freezes) the gifted property’s value for transfer tax purposes.
> Assume the same facts as in Problem C:12-21 and that Marcy has decided to give Phil property valued at $5.48 million. Phil probably will leave the gifted property to their children under his will. a. What are the gift tax consequences to Marcy and the e
> Phil and Marcy have been married for a number of years. Marcy is very wealthy, but Phil is not. In fact, Phil, who has only $10,000 of property, is very ill, and his doctor believes that he probably will die within the next few months. Make one (or more)
> A mother is trying to decide which of the two assets listed below to give to her adult daughter. The mother’s marginal income tax rate exceeds her daughter’s. Describe the pros and cons of giving each of the two prope
> A donor made large taxable gifts beginning in 1999 and a taxable gift in the current year. In the intervening years, the highest gift tax rates declined. In calculating the tax on taxable gifts of previous periods, which rate schedule is applicable: the
> Both Damien and Latoya make taxable gifts of $250,000 in the current year. Will their current year gift tax liabilities necessarily be identical? Explain.
> Describe to a married couple three advantages of making the gift-splitting election.
> A client is under the impression that a donor cannot incur a gift tax liability if he or she makes gifts to only U.S. charitable organizations. What should you say to the client?
> Joel receives a $40,000 cash distribution from the JM Partnership, which reduces his partnership interest from onethird to onefourth. The JM Partnership is a general partnership that uses the cash method of accounting and has substantial liabilities. J
> Explain the requirements for classifying a transaction as a transfer of a qualified terminable interest property (QTIP).
> From a nontax standpoint, would a parent probably prefer to make a transfer to a minor child by using a Sec. 2503(c) trust or a Crummey trust?
> Compare and contrast a Sec. 2503(c) trust and a Crummey trust.
> In what circumstances might a potential donor be interested in making a net gift? Explain the potential income tax problem with making a net gift.
> Dick wants to transfer property with a $600,000 FMV to an irrevocable trust with a bank as the trustee. Dick will name his distant cousin Earl to receive all of the trust income annually for the next eight years. Then the property will revert to Dick. In
> Steve is considering the following transactions. Explain to him which actions will constitute gifts for gift tax purposes. a. Transferring all his ownership rights in a life insurance policy to another person b. Depositing funds into a joint bank accou
> In 2007, Frank made an installment sale of real property to Stu, his son, for $1 million with payments due over a 10-year period. Frank did not file a gift tax return. For 2015, Frank reported taxable gifts so large that he used all of his unified credit
> In 2017, Ginger Graham, age 46 and wife of Greg Graham, engaged in the transactions described below. Determine Ginger’s gift tax liability for 2017 if she and Greg elect gift splitting and Greg gave their son Stevie stock valued at $80,000 during 2017. G
> Morris Jory, a long-time tax client of the firm that employs you, has made substantial gifts during his lifetime. Mr. Jory transferred Jory Corporation stock to 14 donees in December 2016. Each donee received shares valued at $14,000. Two of the donees w
> Your client, Karen Kross, recently married Larry Kross. Karen is age 72, quite wealthy, and in reasonably good health. To date, she has not made any taxable gifts, but Larry made taxable gifts totaling $900,000 in 1998. Karen is considering giving each o
> When Kayla’s basis in her interest in the JKL Partnership is $30,000, she receives a current distribution of office equipment. The equipment has an FMV of $40,000 and basis of $35,000. Kayla will not use the office equipment in a business activity. What
> Assume the corporation in Problem C:11-61 (and C:6-56) had been an S corporation for its first 12 years, during which it distributed just enough cash for the shareholder to pay taxes on the pass-through income. Thus, the S corporation reinvested after-ta
> Problem C:6-56 considered two alternative forms for doing business. Now consider a third alternative. The C corporation could make an S election effective at the beginning of the current year (the 13th year), operate as an S corporation for the next 20 y
> One way to compare the accumulation of income by alterative business entity forms is to use mathematical models. The following models express the investment after-tax accumulation calculation for a particular entity form: Flow-through entities (S corpora
> Alice, a single taxpayer, will form Morning Corporation in the current year. Alice plans to acquire all of Morning’s common stock for a $100,000 contribution to the corporation. Morning will obtain additional capital by borrowing $75,000 from a local ban
> Joe Stephens formed Sigma Corporation on January 4 of Year 1, and the corporation immediately made an S election effective for that year. In forming the corporation, Joe contributed $50,000 cash in exchange for 100% of Sigma’s stock. Shortly thereafter,
> One of your wealthy clients, Cecile, invests $100,000 for sole ownership of an electing S corporation’s stock. The corporation is in the process of developing a new food product. Cecile anticipates that the new business will need approximately $200,000 i
> Cato Corporation incorporated six years ago in California, with Tim and Elesa, husband and wife, owning all the Cato stock. Immediately thereafter, Cato made an S election effective for that year. Tim and Elesa filed the necessary consents to the electio
> Sigma Corporation, an S corporation with one shareholder, incurred the following items Year 1 and Year 2: At the beginning of Year 1, the corporation had AAA and OAA balances of zero and accumulated E&P of $6,000. At the beginning of Year 1, the sha
> Hal organized Stable Corporation five years ago and has continued to own all its stock. The corporation made an S election one year after its incorporation. At the beginning of the current year, Stable reports the following earnings accumulations: Accum
> Curt incorporates Vogel Corporation on January 15 of the current year. Curt makes a $70,000 capital contribution including land having a $12,000 FMV, and Vogel makes a timely S election for this year. Vogel reports $60,000 of ordinary income, $40,000 of
> What is an electing large partnership? What are the advantages to the partnership of electing to be taxed under the electing large partnership rules?
> George and Martha formed Washington Corporation as an S corporation several years ago. George and Martha each have a 50% interest in the corporation. At the beginning of the current year, their stock bases are $45,000 each. In the current year, the corpo
> Tammy organized Sweets Corporation in January of the current year, and the corporation immediately elected to be an S corporation. Tammy, who contributed $40,000 in cash to start the business, owns 100% of the corporation’s stock. Sweets’ current year re
> For each of the following items, indicate whether the item will increase, decrease, or cause no change in the S corporation’s ordinary income (loss), AAA, and in the shareholder’s stock basis. The corporation was formed four years ago and made its S elec
> Tina, a single taxpayer, owns 100% of Rocket Corporation, an S corporation. She has an $80,000 stock basis for her investment on January 1 of the current year (Year 1). During the first 11 months of Year 1, Rocket reports an ordinary loss of $100,000. Th
> Stein Corporation, an S corporation, has 400 shares of stock outstanding. Chuck and Linda own an equal number of these shares, and both actively participate in Stein’s business. Chuck and Linda each contributed $60,000 when they organized Stein on Septem
> Harry and Rita formed Alpha Corporation as an S corporation, with each shareholder contributing $10,000 in exchange for stock. In addition, Rita loaned the corporation $7,000, and the corporation borrowed another $8,000 from the bank. In the current year
> In the current year, Harold and Faye form Entity Company by each contributing $50,000 to the company in exchange for a 50% ownership interest. In addition, the company borrows $40,000 from First Bank. In the current year, the company incurs a $110,000 lo
> Tom owns 100% of Hammer Corporation, an S corporation. Tom has a $100,000 stock basis on January 1. Tom actively participates in Hammer’s business. Hammer’s operating results were not good in the current year, with the corporation reporting an ordinary l
> Assume the same facts as in Problem C:11-42. Assume further that Raider Corporation reports $75,000 of ordinary income, $20,000 of tax-exempt income, and a $25,000 long-term capital gain in the next year. a. What income and deductions will Monte and All
> Monte and Allie each own 50% of Raider Corporation, an S corporation. Both individuals actively participate in Raider’s business. On January 1, Monte and Allie have adjusted bases for their Raider stock of $80,000 and $90,000, respectively. During the cu
> What are the advantages of a firm being formed as a limited liability company (LLC) instead of as a limited partnership?
> Bright Corporation, an S corporation, has been 100% owned by Betty since its creation 12 years ago. The corporation has been profitable in recent years and, in the current year (assume a non-leap year), reports ordinary income of $240,000 after paying Be
> Redfern Corporation, a calendar year taxpayer, has been an S corporation for several years. Rod and Kurt each own 50% of Redfern’s stock. On July 1 of the current year (assume a non-leap year), Redfern issues additional common stock to Blackfoot Corporat
> Toyland Corporation, an S corporation, uses the calendar year as its tax year. Bob, Alice, and Carter own 60, 30, and 10 shares, respectively, of the Toyland stock. Carter’s basis for his stock is $26,000 on January 1 of the current year (assume a non-le
> Al and Ruth each own one-half the stock of Chemical Corporation, an S corporation. During the current year (assume a non-leap year), Chemical earns $15,000 per month of ordinary income. On April 5, Ruth sells her entire stock interest to Patty. The corpo
> Mike and Nancy are equal shareholders in MN Corporation, an S corporation. The corporation, Mike, and Nancy are calendar year taxpayers. The corporation has been an S corporation during its entire existence and thus has no accumulated E&P. The shareholde
> Theta Corporation formed 15 years ago. In its first year, it elected to use the cash method of accounting and adopted a calendar year as its tax year. It made an S election on August 15 of last year, effective for Theta’s current tax year. At the beginni
