Federal Gifts and Estate Taxes - Exam Questions and Solutions | ACC 334.00, Exams of Business Taxation and Tax Management

Download Federal Gifts and Estate Taxes - Exam Questions and Solutions | ACC 334.00 and more Exams Business Taxation and Tax Management in PDF only on Docsity! The Federal Gift and Estate Taxes 17-1 Caroline Craig Acc 334 CHAPTER 17 THE FEDERAL GIFT AND ESTATE TAXES EXAMINATION QUESTIONS 1. What is the name given to a tax levied on the right to receive property from a decedent at death? a. Inheritance Tax. b. Succession Tax. c. Estate Tax. d. Gift Tax. e. None of the above. 2. David and Elaine are husband and wife and live in Montana. In 1988, they purchased a commercial annuity for $400,000 using community funds. Under the terms of the contract, $3,250 a month is payable to them for David's life. If David predeceases Elaine, $1,900 a month is payable to Elaine. David dies in 2008 when the replacement value of Elaine's annuity is $250,000. As to the annuity, David's estate includes: a. $125,000. b. $150,000. c. $200,000. d. $250,000. e. None of the above. 3. At the time of her death, Christy owned stock as follows. Date of Death Value Six Value Months Later Stock in Tundra Corporation $350,000 $280,000 Stock in Oasis Corporation 250,000 160,000 The executor sells the Tundra Corporation stock seven months after Christy’s death for $250,000. The executor sells the Oasis stock four months after Christy's death for $150,000. If the alternate valuation date is properly elected, the value of Christy's estate as to these stocks is: a. $600,000. b. $530,000. c. $440,000. d. $430,000. e. None of the above. 17-2 2009 Corporation Edition 4. Gene made taxable gifts of cash equal to $450,000 in 1975, $300,000 in 1978, and $150,000 early in 1998. Gene dies late in 2008 leaving a taxable estate of $500,000. In applying the unified tax rate schedules (for estate tax purposes), the executor must first determine the tax on: a. $500,000. b. $800,000. c. $950,000. d. $1,400,000. e. None of the above. 5. Pursuant to Grant’s will, Marta (Grant’s sister) inherits property. Five years later Marta dies. Federal estate tax attributable to the inclusion of the property in Grant's gross estate was $90,000. The estate tax attributable to the inclusion of the property in Marta 's gross estate is $60,000. Marta 's credit for tax on prior transfers is: a. $36,000. b. $54,000. c. $60,000. d. $90,000. e. None of the above. 6. Malcolm and Mercedes are husband and wife and have always lived in Maryland, not a community property state. In 1980, using joint funds, they purchased an insurance policy (maturity value of $400,000) on Mercedes’s life. Their son, James, was designated as the beneficiary. In 2008, and at a time when the policy has a replacement cost of $50,000, Mercedes dies. As to the $400,000 insurance proceeds paid to James, a. $200,000 is included in Mercedes’s gross estate, and Malcolm makes a gift of $200,000. b. $400,000 is included in Mercedes’s gross estate. c. Malcolm makes a gift of $400,000. d. $50,000 is included in Mercedes’s gross estate. e. None of the above 7. Pursuant to Zebulon’s will, Karmen (Zebulon’s sister) inherits property. Four years later Karmen dies. Federal estate tax attributable to the inclusion of the property in Zebulon 's gross estate was $70,000. The estate tax attributable to the inclusion of the property in Karmen's gross estate is $90,000. Karmen's credit for tax on prior transfers is: a. $90,000. b. $72,000. c. $70,000. d. $56,000. e. None of the above. The Federal Gift and Estate Taxes 17-5 SOLUTIONS TO EXAMINATION QUESTIONS 1. a An inheritance tax is a tax imposed on the right to receive property from a decedent at death. An estate tax is imposed on the decedent’s entire estate for the right to pass property at death. p. 17-4 2. a $125,000 (50% X $250,000) since Elaine furnished one-half of the cost. Examples 40 and 41 3. d The date of death value of the Tundra and Oasis stock is $600,000 ($350,000 + $250,000). The election of the alternate valuation date provides an estate valuation of the stock of $430,000 ($280,000 + $150,000). The Tundra Corporation stock is valued at $280,000, its value on the alternate valuation date, since it is still held by Christy’s estate. As to the Oasis stock, the value on its date of disposition controls because that date occurred prior to the six months’ alternate valuation date. p. 17-7 and Examples 5 and 6 4. c Start with the taxable estate of $500,000 and add all post-1976 taxable gifts. Figure 17-2 5. a The starting point for calculating the credit is to determine the lesser of the amount of the Federal estate tax attributable to the transferred property in the transferor’s estate ($90,000) or the amount of the Federal estate tax attributable to the transferred property in the decedent’s estate ($60,000). Adjustment must be made to the credit for the time elapsed between the deaths of the parties. The adjustment factor for the death of the transferor occurring five years preceding the decedent’s death is 60%. 60% X $60,000 = $36,000. pp. 17-35, 17-36, and Examples 69 and 70 6. a Since the policy is jointly owned, only one-half of the proceeds is included in Mercedes’s estate. Malcolm is treated as making a gift of the remaining half of the proceeds. Examples 59 and 60 7. d The starting point for calculating the credit is to determine the lesser of the amount of the Federal estate tax attributable to the transferred property in the transferor’s estate ($70,000) or the amount of the Federal estate tax attributable to the transferred property in the decedent’s estate ($90,000). Adjustment must be made to the credit for the time elapsed between the deaths of the parties. The adjustment factor for the death of the transferor occurring four years preceding the decedent’s death is 80%. 80% X $70,000 = $56,000. pp. 17-35, 17-36, and Examples 69 and 70 8. c $400,000 + $300,000 + $150,000 + $400,000 = $1,250,000. All of the joint tenancy is included in the gross estate as Wilmer contributed all of the purchase price. A tenancy by the entirety is a joint tenancy between husband and wife. Under a special rule, each spouse is deemed to be an equal contributor to the cost of the property. Under § 2033, Wilmer’s share of the tenancy is included in his 17-6 2009 Corporation Edition gross estate. Municipal bonds (including accrued interest) are included in the gross estate. pp. 17-19, 17-20, 17-24 to 17-26 9. a Elizabeth must pay income tax on $800,000 [$500,000 (employer’s contributions) + $300,000 (plan earnings)]. Cole’s contributions ($300,000) and the insurance proceeds ($50,000) are not subject to income tax. Cole’s gross estate includes $1,150,000 ($500,000 + $300,000 +$300,000 + $50,000). Example 33 10. c $500,000/$600,000 = 5/6 X $1,500,000 = $1,250,000. The $100,000 Lakendra received as a gift from Vinny cannot be counted as a contribution by her to the original cost of the property. Example 44