Questions and Answers of Taxation Decision Makers

64. Your client, Ted, would like your assistance in selecting one of the following assets to give to his 16-year-old daughter.ASSET FAIR MARKET VALUE ADJUSTED BASIS Cash $13,000 $13,000 Corporate
63. Oscar (age 70) and Maggie (age 60) were married and jointly owned a personal residence valued at $3,800,000 when Oscar died in 2011. Oscar also owned stocks valued at $4,700,000; an art
62. When Godfrey died in 2011, his assets were valued as follows:ASSET DATE OF DEATH VALUATION VALUATION SIX MONTHS LATER Stocks $2,220,000 $2,180,000 Bonds 4,600,000 4,620,000 Home 800,000 780,000
61. Go to the IRS Web site (www.irs.gov) and locate the instructions for Form 709. Can spouses who elect to gift split file a joint gift tax return? Explain how they must file.
60. Go to the IRS Web site (www.irs.gov) and locate the instructions for Form 706-NA for the estate of a nonresident alien.a. What is the definition of a nonresident alien decedent?b. Under what
59. Samantha is a single parent providing the sole support for her six-year-old daughter, Hillary. They live in an area of Oakland where the public school is known to have problems with drugs and
58. Two years ago, Herbert, a widower, made a gift of marketable securities to his 35-year-old daughter, Sabrina, on which he paid a federal gift tax of$3 million. When Herbert died in 2011, his
57. The Lincoln Trust is a simple trust whose only investments are in corporate bonds producing interest income. The trustee is thinking about moving some of the investments into municipal bonds.
56. Jennifer plans to establish a trust in which she will place all her incomeproducing investments. She will be the income beneficiary for the balance of her life, with her son having a remainder
55. Jorge is a resident and citizen of Spain. He invests $500,000 in Miami Beach real estate. When Jorge died in 2011, he owned $1,000,000 in assets in Spain in addition to the Miami Beach real
54. In year 1, Loren and Tim enter into a property settlement agreement under which Tim agrees to pay $600,000 to Loren in return for the release of her marital rights. The payment is to be made in
53. At the time of Frank’s death, he had received $6,000 in credit card bills that had not been paid.
52. Ten years ago, Carolyn created a revocable trust using marketable securities valued at $500,000. The trust department at the local bank is the trustee. Under the terms of the trust, Carolyn
51. When Chet died on March 12, 2011, he owned $900,000 in stock of ABC Corporation and $100,000 in City of Omaha bonds. The ABC Corporation declared a cash dividend on March 1 that was payable to
50. Martha provides the sole support for her son, David, who lives at home while he attends school. Martha gives David a $40,000 automobile for his 18th birthday.
49. Myron’s will specified that his entire $10 million estate was to pass to his girlfriend, leaving nothing to his wife, Ellen. Do you think Myron can prevent his wife from inheriting any of his
48. Why do you think Congress enacted the kiddie tax? Do you think it is achieving its goal? Can you think of a better way to achieve this goal?
47. Mark’s father, Michael, loaned Mark $300,000 interest free for five years to invest in securities that yield a 10 percent annual return. At the end of the five years, Mark sells the securities
46. If Congress does not want the pre-2002 estate tax to be reinstated in 2013, what must it do before then? What do you think Congress will do given that it did not enact the 2010 Tax Relief Act
45. If allowed to take effect in 2013, the Economic Growth and Tax Relief Reconciliation Act of 2001 will repeal the estate tax but retain the gift tax.Why do you think Congress chose to do this? Do
44. Lenny, age 12, has $3,500 interest income from a trust established by his uncle. This is Lenny’s only source of income for the year. Lenny’s parents are in the 35 percent marginal tax
43. Julie had a gross estate of $7 million when she died in 2011. Her funeral expenses were $26,000; her administrative expenses were $30,000; her charitable deduction was $350,000; and her marital
42. Sondra and Jason, a wealthy married couple, won $96 million in a 2011 Powerball drawing. They decided to share some of this new wealth immediately with some of their friends and family. They paid
41. Cherry’s widowed mother, Nancy, had to quit working for health reasons and now her only income is $1,100 per month from Social Security.Cherry recently became partner of a law firm and has
40. Steven had a taxable estate of $8,850,000 when he died in 2011. If he had no prior taxable gifts, what is his net estate tax liability?
39. Benjamin has made no previous taxable gifts. Determine his gift tax if he makes $14,000,000 (after annual exclusions) in taxable gifts in 2011.
38. Carolyn has made no previous taxable gifts. Determine her gift tax (before credits) if she makes $650,000 in taxable gifts in the current year.
37. In June of year 1, Angelina (a calendar-year taxpayer) becomes the beneficiary of a new calendar-year trust. At the same time, Angelina also becomes the beneficiary of an estate that elects a
36. Wayne created a trust six years ago for the benefit of his children. In the current year, when the value of the trust assets is $1,000,000, Wayne transfers additional property valued at $300,000
35. Thomas died on August 15 of the current year. On September 2, his estate received a check for $2,000 from Thomas’s former employer for his final pay period. On September 18, Thomas’s estate
34. Glen transferred corporate stock worth $300,000 with a tax basis of$160,000 to an irrevocable trust. No gift taxes are paid. The terms of the trust require the independent trustee to distribute
33. George transfers investment securities worth $200,000 with a tax basis of$130,000 to a trust, naming himself as trustee. The terms of the trust agreement require the trustee to pay all dividends
32. Jessica owns investment land currently worth $500,000. She paid $80,000 for the land 10 years ago. She expects that the land will probably increase in value to at least $800,000 before she dies.
31. Samson’s gross estate was valued at $1 million when he died. Determine the value of his taxable estate before any credits using the following information:• The executor’s fees were
30. When Ben died, his executor elected the alternate valuation date. What value is included in the gross estate for each of the following properties?a. Marketable securities valued at $80,000 at
29. Laura transferred property valued at $120,000 into an irrevocable trust.Laura is to receive one-half of the income each year for the balance of her life. The other half of the income and the
28. Five years ago, Jason purchased a $400,000 life insurance policy on his life. For each of the following, indicate how much of the $400,000 policy proceeds are included in his gross estate.a. The
27. Which of the following items are included in the decedent’s gross estate?a. A life estate in a trust that pays the decedent $25,000 per year until he diesb. A remainder interest in a trust
26. On January 15 of the current year, Eileen, age 24, receives stock worth$26,000 as a gift from her parents. Her parents jointly purchased the stock six years ago for $12,000. During the year,
25. Determine whether each of the following situations involves the transfer of a present interest or a future interest.a. A trust is established for the donor’s 8-year-old daughter. The trustee
24. During the current year, Cherie gives $30,000 cash to her daughter, Helen, and a remainder interest in investment land to her sister, Silvia. The remainder interest is valued at $40,000. In the
23. In the current year, Marah gives $20,000 cash to Sam, $60,000 of stock to Craig, and $100,000 of bonds to Lynn. In the same year, Marah’s husband, Bryan, gives $120,000 of land to Jerry.a. What
22. Ginny made the following gifts during the current year. Her husband, Ken, made no gifts during the year.• Gift of land valued at $250,000 to her husband• Gift of $20,000 in stock to her
21. John gave $28,000 to each of his 10 grandchildren this year. Lisa, his wife, made no gifts during the year.a. How much are John’s taxable gifts if gift splitting is not elected?b. How much are
20. Edward gave 15,000 shares of ABC stock to Valerie on July 15. On July 15, the highest selling price for the stock was $40 per share, and the lowest selling price was $36 per share. What is the
19. Which of the following are completed gifts, and what is the value of each gift (before any exclusions)?a. In March, Stephanie deposits $30,000 cash into a joint checking account for herself and
18. Determine the taxable gift for each of the following.a. In February, Cynthia transferred $200,000 into a revocable trust. In October, the trustee distributes $18,000 of income to the beneficiary,
17. Which of the following are completed gifts, and what is the value of each gift (before any exclusions)?a. Hughlene sold stock worth $90,000 to her son for $30,000.b. Ken deposits $14,000 into a
16. What purpose is served by the distributable net income of a trust or estate?
15. What distinguishes a simple trust from a complex trust?
14. What are adjusted taxable gifts, and how do they affect the calculation of a decedent’s estate tax?
13. How do the estate income tax rules encourage a quick distribution of estate assets?
12. What is income in respect of a decedent, and how is it taxed?
11. Sidney is a psychiatrist. Four years ago, he purchased the building in which his office is located for $375,000. Sidney transfers ownership of the building to his daughter, Nora, and signs a
10. If the generation-skipping transfer tax did not exist, what type of planning would maximize the preservation of a family’s wealth?
9. What is the lifetime unified credit amount for 2011 and its related exemption equivalent?
7. Five years before his death, Troy purchased a $5 million whole life insurance policy on his life and named his son, Don, the beneficiary. Shortly after purchase, Troy transferred the policy to an
6. Under what circumstances is the face value of life insurance on the decedent’s life included in the decedent’s gross estate?
5. Under what circumstances will a gift made in trust for a minor child qualify for the annual exclusion?
4. What is a present interest and how is it distinguished from a future interest?
3. What is the gift tax annual exclusion and why was it enacted?
2. Sharon transferred property into an irrevocable trust, but she retained the right to change the beneficiaries. What circumstances are required for this transfer to be a completed gift?
1. Discount Auto Company sold an automobile at a $2,000 discount to an unrelated customer. Is this a gift?
5. Lorraine created a trust by transferring $500,000 of stock and bonds into it on January 1, year 1. The trust is to provide her mother with income for her lifetime, with the remainder interest
4. According to the provisions of the decedent’s will, the following disbursements were made by the estate’s executor:1. Payment of the decedent’s funeral expenses 2. Payment of a charitable
3. Which of the following transactions is a taxable gift?a. Mack transfers $5,000 to his favorite political organization.b. Sonia gives $25,000 in stocks to her church.c. Veronica gives $25,000 to
2. Which of the following transfers is considered a taxable gift?a. Alex sold land to an unrelated party for less than its fair market value because he needed cash in a hurry.b. After a friend’s
1. Marta placed $50,000 into a savings account in her name and the name of her son. Later this year, the son withdraws $16,000 from the account.Marta made no other gifts to her son this year. Marta
71. Two years ago, Micro Corporation granted its employee, Alisa, 20,000 incentive stock options with an exercise price of $15 per share. The stock is currently trading at $40 per share, but Alisa
70. Eileen files as head of household and earns a salary of $75,000. She has a 4-year-old dependent daughter for whom she pays $5,000 in annual day care expenses so that she can work. Eileen’s
69. Laura and Bryan’s daughter, Lillian, will start college in a few months.They would like to know what tax issues they should consider when they pay for Lillian’s college tuition and related
68. Sharon has not worked outside the home since her first child was born five years ago. Now that the younger of her two children has reached age three, she thinks they are old enough to go to a day
67. Martin, a single man, contributes a painting to an art museum in the current year. The museum is thrilled to get the painting because it fits perfectly into its Impressionist collection. Martin
66. Which one of the following assets should Manuel contribute to his favorite charity and why?a. Stock acquired five years ago at a cost of $13,000. The current fair market value is $10,000.b. Stock
65. Larry wants to purchase a new car for personal use. He anticipates financing$40,000 of the purchase price. The car dealer is offering a special 3.5 percent interest rate on new cars.
64. Go to the IRS Web site (www.irs.gov) and print Schedule A: Itemized Deductions. Using the following information, complete this form for Simon and Ellen, a married couple filing jointly, who have
63. Go to the IRS Web site (www.irs.gov) and print Form 1040. Using the information in problem 43, complete this form to the extent possible.
62. Go to the IRS Web site (www.irs.gov) and locate Publication 501:Exemptions, Standard Deduction, and Filing Information. What documentation is necessary for a taxpayer with impaired vision to
61. Go to the IRS Web site (www.irs.gov) and locate Publication 502: Medical and Dental Expenses. What expenses qualify for impairment-related work expenses? How do employees deduct these expenses,
60. Sarah pays $300 per month for her five-year-old daughter to attend a private kindergarten from 8:30 A.M. until 2:30 P.M. and after-school care until 5:30 P.M. The price of the kindergarten
59. Howard is a single parent with an 11-year-old dependent son. The son currently attends sixth grade at public school. Howard accepts a temporary foreign assignment from his employer, which is
58. Charlene provides 100 percent of the support for her elderly handicapped mother, Amanda. Amanda insists on living alone in her own apartment even though she has a severe hearing impairment.
57. Don has a very painful terminal disease. He has learned that marijuana may assist in mitigating his pain. Don lives in a state in which it is legal to use the drug if its use is under the
56. Gillian and Paul are married and have a son who is a sophomore at the local university. In the current year, they paid $5,000 for tuition and$3,000 for room and board for their son. Their
55. In March, Helen purchased a new home for $140,000. She paid $28,000 cash down and financed the balance with a mortgage. She also paid$1,800 in closing costs and $1,100 in points to obtain the
54. Barry has a chronic back problem that requires that he receive regular therapy in a swimming pool. He purchased a new home with a larger backyard so that he could install a swimming pool. The
53. Liza pays $5,000 for extensive liposuction surgery. Her medical insurance does not cover this expense.
52. Jessica invites a 16-year-old foreign exchange student to live in her home for the academic school year. Jessica provides all of the student’s support for that period of time. The student is
51. Jose is single and a U.S. citizen living in Texas. Jose provides all of the support for his parents who are citizens and residents of Argentina. Jose’s parents are considering moving to and
50. Carla is single and provides more than 50 percent of the support for her mother who lives in a nursing home. Her mother received $2,000 in interest income from State of Florida bonds, $3,000 in
49. Last year, after a very bad argument, Holly’s husband moved out and has not been seen since. Holly’s eight-year-old daughter lives with her.
48. If a modification to the tax law was proposed to allow taxpayers who do not have dependent children to claim a $500 dependency deduction per pet(up to a maximum of two pets) if the taxpayer
47. Select one of the expenses that is deductible from adjusted gross income.Present an argument about why you think that expense is misclassified and should be classified instead as a deduction for
46. Select one of the expenses that is deductible for adjusted gross income.Present an argument about why you think that expense is misclassified and should be classified instead as a deduction from
45. Prior to 1986, all consumer interest expense was deductible. In 1986, Congress eliminated the deduction for consumer interest expense, including interest paid on car loans and credit card
44. Discuss the factors to consider when evaluating the choice between taking the child and dependent care credit versus participating in an employer-sponsored qualified dependent care assistance
43. Kelly is single; her dependent child, Barbara, lives with her. After her divorce, Kelly was awarded permanent custody of Barbara and has not agreed to waive her right to claim Barbara as a
42. Michelle, a single individual, reports 2011 adjusted gross income of $240,000 and has the following itemized deductions before applicable limitations:Medical expenses $23,000 Home acquisition
41. Diana, a single individual, has regular taxable income of $220,000 and alternative minimum taxable income of $350,000.a. What is Diana’s tentative minimum tax?b. What is Diana’s AMT?
40. Which of the following individuals must file a tax return in 2011?a. Carolyn is single and age 66. She receives $2,000 of interest income,$3,000 of dividend income, and $6,000 in Social Security

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