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federal taxation

Questions and Answers of Federal Taxation

Name some of the IRS administrative pronouncements.
Carlos died six years before his wife Maria died. His will called for the creation of a trust to be funded with $1 million of property. The bank trustee was required to distribute all the trust
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
Making the Election. Voyles Corporation, a calendar year taxpayer formed five years ago, desires to make an S election beginning in 2017. Sue and Andrea each own one-half of the Voyles stock.a. How
Which of the following classifications make a shareholder ineligible to own stock in an S corporation?a. U.S. citizenb. Domestic corporationc. Partnership where all the partners are U.S. citizensd.
List five advantages and five disadvantages of making an S election. Briefly explain each item.
Jennifer and Paul, who file a joint return, have taxable income of $94,625 and the following tax liability:$18,650 × 10% =
Jennifer and Paul, who file a joint return, have taxable income of $94,625and the following tax liability:$18,650 × 10% =
Jake earned $15,000 and paid $1,500 of income tax; Jill earned $40,000 and paid $3,500 of income tax.The tax rate structure they are subject to
For tax year 2015 what proportion of individual income tax returns was filed on a Form 1040EZ, Form 1040A and Form 1040? What proportion was electronically filed?
A tax rate that decreases as the tax base increases is an example of what kind of tax rate structure?a. Progressive.b. Proportional.c. Regressive.d. Recessive.
Maria, a calendar year taxpayer, files her Year 1 individual return on March 12 of Year 2 and pays the amount of tax due. She later discovers that she overlooked some deductions that she should have
Refer to Part c of the previous problem. Assume that Carmen discloses her position, which is not frivolous. How would your original answer change assuming the item does not involve a tax shelter?
The IRS audits Pearl’s current year individual return and determines that, among other errors, she negligently failed to report dividend income of $8,000. The deficiency relating to the dividends
Refer to the preceding problem.Data from preceding problemCarl’s tax liability for last year was $19,000, and his AGI did not exceed $150,000. Carl requests an automatic extension for filing his
Bob, a calendar year taxpayer, files his current year individual return on July 17 of the following year without having requested an extension. His return indicates an amount due of $5,100. Bob pays
Ted’s current year return reported a tax liability of $1,800. Ted’s wage withholding for the current year was $2,200. Because of his poor memory, Ted did not file his current year return until
Distinguish between the burdens of proof the government must meet to prove civil and criminal fraud.
The IRS audited Tony’s return, and Tony agreed to pay additional taxes plus the negligence penalty. Is this penalty necessarily imposed on the total additional taxes that Tony owes? Explain.
In April of the current year, Stan does not have sufficient assets to pay his tax liability for the previous year. However, he expects to pay the tax by August of the current year. He wonders if he
Refer to Problem C:14-45. Explain how your answers would change for each independent situation indicated below:a. At the end of the trust term, the property passes instead to Holly’s nephew
Your manager advises you that Sam Skinner, a long-time client, died on February 13 of the current year, survived by his wife Sue Skinner and several adult children. The Skinners are residents of a
Ernest Jacobson created an irrevocable trust in February of last year and designated his friend Eileen Frazier as trustee. Eileen is empowered, for life, to distribute such income as she deems
You are in the process of doing income tax projections for the Estate of Esther Simmons, who died January 3, 2017. The Estate has paid appraisal fees for having her real estate holdings appraised for
Cate Cole died in 2015, and her will left her entire estate in equal shares to her two adult children, Calvin and Corrine. Both children anticipate being in the top income tax bracket for at least
Carla plans to create a trust and transfer to it oil and gas properties producing royalty income. She will transfer no other properties. The sole income beneficiary of the trust will be Carla’s
Glorietta Trust is an irrevocable discretionary trust funded by Grant Glorietta. The discretionary income beneficiary for life is Grant’s son, Gordon Glorietta (single). Gordon is a partner in a
Dana Dodson died October 31, 2016, with a gross estate of $6.7 million, debts of $200,000, and a taxable estate of $6.5 million. Dana made no taxable gifts. All of her property passed under her will
Joan died April 17, 2016. Joan’s executor chose March 31 as the tax year end for the estate. The estate’s only beneficiary, Kathy, reports on a calendar year. The executor of Joan’s estate
A simple trust has the following receipts and expenditures for 2017. The trust instrument is silent with respect to capital gains, and state law concerning trust accounting income follows the Uniform
A client inquires about the significance of distribute-able net income (DNI). Explain.
Gaylord Gunnison (GG) died January 13, 2017, and his gross estate consisted of three properties—cash, land, and stock in a public company. The amount of cash on the date of his death was $2.9
Joy died on November 5, 2017. Soon after Joy€™s death, the executor discovered the following insurance policies on Joy€™s life.Joy transferred ownership of policies 757 and 848 to
Ten years ago, Art purchased land for $60,000 and immediately titled it in the names of Art and Bart, joint tenants with right of survivor-ship. Bart paid no consideration. In 2017, Art died and was
Sue died on May 3, 2017. On October 1, 2015, Sue gave her son Tom land valued at $7,014,000. Sue applied a unified credit of $2,117,800 against the gift tax due on this transfer. On Sue’s date of
Beth died on May 3, 2017. Her executor elected date-of-death valuation. Beth’s gross estate included, among other properties, the items listed below. What is the estate tax value of each
In December 2015, Jody transferred stock having an $8,114,000 FMV to her daughter Joan. Jody paid $1,068,000 ($3,185,800 - $2,117,800) of gift taxes on this transfer. When Jody died in January 2017,
The following items are relevant for the first income tax return for the Ken Kimble Estate. Mr. Kimble, a cash method of accounting taxpayer, died on July 1, 2017.Dividends
Holly funded the Holly Marx Trust in January 2017. The entire trust income is payable to her adult son, Jack for 20 years. At the end of the twentieth year, the trust assets are to pass to Holly’s
Refer to Problem C:14-42. How would your answer change if instead the trust were a complex trust that makes no distributions in 2016 and 2017? Assume the trust earns $8,000 of corporate bond interest
A simple trust had a long-term capital loss of $10,000 for 2016 and a long-term capital gain of $15,000 for 2017. Its net accounting income and DNI are equal. Explain the tax treatment for the 2016
Suellen Symmes died on January 15, 2017. Her estate elected a November 30 year end. The executor projects that the estate will receive interest income of $50,000 by November 30, 2017, and will have
A complex trust has taxable income of $29,900 in 2017. The $29,900 includes $5,000 of rental income and $25,000 of taxable interest income, reduced by the $100 personal exemption. The trust makes no
For the first five months of its existence (August through December 2017), the Estate of Amy Ennis had gross income (net of expenses) of $7,000 per month. For January through July 2018, the executor
Art Rutter sold an apartment building in May 2017 for a small amount of cash and a note payable with payments beginning in 2018. Principal and interest payments are due annually on the note in April
When does the NOL of a trust or estate produce tax deductions for the beneficiaries?
Your firm has prepared the estate tax return (Form 706) for the Estate of Belinda Baker, a widow who died January 13, 2017. Besides substantial amounts of cash, mostly in certificates of deposit, she
George Tanner died October 2, 2016, survived by his son Thomas and his daughter Gigi Tanner Stewart and her children, Sam and Cindy. George was the sole stockholder of Tanner, Inc., a C corporation.
Sam and Taylor, residents of New Jersey, entered into a domestic partnership in New Jersey in October 2004. However, they never obtained a marriage license. Sam died in March 2017, survived by
In May 2008, Jasper Mason died, survived by his spouse Amber Mason and four adult children. His gross estate was valued at $3 million, and he had Sec. 2053 deductions of $120,000. His will left the
Arthur Zolnick died at age 84 on June 7, 2016. In March 2008, he transferred $4 million of stock to a charitable remainder annuity trust (CRAT) from which he named himself to receive $200,000 per
Matt Patterson died in early 2017 with a $4.5 million gross estate and no deductions other than a potential marital deduction. He bequeathed all his property to his spouse, Nancy, with the provision
Steve Silver, a new client, owns stock in HyTeche, Inc., which recently had an initial pub lic offering. In early 2017, his stock is valued at $8 million. His only other asset is $9 million of cash.
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 survivor-ship. Also assume that Bonnie provided
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
Giovanni died in 2017 with a gross estate of $6.9 million and debts of $30,000. He made post-1976 taxable gifts of $100,000, valued at $80,000 when Giovanni died. His estate paid state death taxes of
Elaine died on May 1, 2017. Her gross estate consisted of the following items:Elaine€™s Sec. 2053 deductions totaled $200,000. She had no other deductions.a. What percentage of
Joseph Jernigan died in 2017 with a taxable estate of $4.1 million. He was survived by his spouse Josephine and several children. He made taxable gifts of $100,000 in 1974 and $650,000 in 2000. The
Maria Martinez died in 2017, survived by her spouse, Sergio, and two adult children. Her gross estate, all of which passed under her will, was valued at $7.2 million. She had Sec. 2053 deductions of
Bess, a widow, died in October 2017. Her gross estate, which totaled $7 million, included a $100,000 life insurance policy on her life that she gave away in 2015. The taxable gift that arose from
Will, a bachelor, died in 2017. At that time, his sole asset was cash of $6 million. Assume no debts or funeral and administration expenses and no charitable bequests. His gift history was as
Sam Snider died February 14, 2016, survived by his spouse Janet and several children. Sam had not made any taxable gifts. Sam’s gross estate was $7 million. In each of the following independent
Assume the same facts as in Problem C:13-48 and that before Yuji’s death in 2017 his wife already owned property valued at $300,000. Assume that each asset owned by each spouse increased 8% in
Assume the same facts as in Problem C:13-47 except that Yuji’s will also provided for setting up a trust to be funded with $400,000 of property with a bank named as trustee. His wife is to receive
When Yuji died in March 2017, his gross estate was valued at $8 million. He owed debts totaling $300,000. Funeral and administration expenses were $12,000 and $120,000, respectively. The marginal
Five years ago, Andy and Sandy, siblings, pooled their resources and purchased a warehouse. Andy provided $50,000 of consideration, and Sandy furnished $100,000. Andy died and was survived by Sandy.
Twelve years ago, Latoya transferred property to an irrevocable trust with a bank trustee. Latoya named Al to receive the trust income annually for life and Pat or Pat’s estate to receive the
John died in 2017. What amount, if any, was included in his gross estate in each of the following situations:a. In 1997, John created a revocable trust, funded it with $400,000 of assets, and
In December 2015, Curt and Kate elected gift splitting to report $16,228,000 of gifts of stocks Curt made to Curt, Jr. Each paid gift taxes of $1,068,000 by spending his or her own funds. Kate died
Val died on May 13, 2017. On July 3, 2015, she gave a $400,000 life insurance policy on her own life to son Ray. Because the value of the policy was relatively low, the transfer did not cause any
Mary died on April 3, 2017. As of this date, Mary’s gross estate was valued at $6.5 million. On October 3, Mary’s gross estate was valued at $5.8 million. The estate neither distributed nor sold
Jeung Hong, a widower, died in March 2017. His gross estate was $6.5 million and, at the time of his death, he owed debts of $60,000. His will made a bequest of $200,000 to his undergraduate alma
Annie James died early in 2017. All her property passed subject to her will, which provides that her surviving husband, Dave James, is to receive all the property outright. Her will further states
Refer to Problem C:13-24. Explain the negative tax considerations (if any) with respect to Bala’s making gifts of the assets that you recommended.In problem C: 13-24Bala desires to freeze the value
Determine the accuracy of the following statement: The gross estate includes a general power of appointment possessed by the decedent only if the decedent exercised the power.
Explain to an executor an advantage and a disadvantage of electing the alternate valuation date.
What was the Sec. 7520 rate for May, June, and July 2016?
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
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
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
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
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
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
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
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
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
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
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
Bonnie, a widow, irrevocably transfers $1 million of property to a trust and names a bank as trustee. For as long as Bonnie’s daughter Carol is alive, Carol is to receive all the trust income
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
On September 1 of the current year, Mario irrevocably transfers a $100,000 whole life insurance policy on his life to Mario, Jr. as owner. On September 1, the policy’s interpolated terminal reserve
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
Refer to the facts of Problem C:12-36 and assume the current year is 2017. Emily’s prior gifts are as follows:Year ___________Amount of Taxable Gifts 1974 ......................... $ 500,000 1998
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
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
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
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
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.In
Antonio would like to make a gift of a life insurance policy on his life. Explain to him what action he must take to make a completed gift.

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