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south western federal taxation

South Western Federal Taxation 2013 Comprehensive Volume 36th Edition William H. Hoffman, David M. Maloney, William A. Raabe, James C. Young - Solutions

3. Create no more than three PowerPoint slides summarizing your state’s definitions of and rules for using the following terms. Hint: Your state might not use these terms at all, or it might use a
2. The trustee of the Thornton Trust was approached by the development director of the Orrfield Symphony Orchestra (OSO) for a gift of $1 million toward the OSO building campaign. The parties agreed
1. For three generations, the Dexter family has sent its children to Private University, preparing them for successful professional careers. The Edna Dexter Trust was established in the 1950s by
31. LO.3 Determine the tax effects of the indicated losses for the Yellow Estate for both tax years. The estate holds a variety of investment assets, which it received from the decedent, Mrs. Yellow.
30. LO.2 Each of the following items was incurred by José, a cash basis, calendar year decedent.Under the terms of the will, Dora took immediate ownership in all of José’s assets, except the
29. LO.2, 3 The trustee of the Pieper Trust can distribute any amount of accounting income and corpus to the trust’s beneficiaries, Lydia and Kent. This year, the trust’s records reflect the
28. LO.3 The Dailey Estate has $100,000 of DNI, composed of $40,000 in dividends,$20,000 in taxable interest, $15,000 in passive activity income, and $25,000 in tax-exempt interest. The entity’s
27. LO.3 The Lane Sisters Trust is required to distribute $60,000 annually equally to its two income beneficiaries, Clare and Renee. If trust income is not sufficient to pay these amounts, the
26. LO.3 Under the terms of the Lagos Trust instrument, the trustee has discretion to distribute or accumulate income on behalf of Willie, Sylvia, and Doris in equal shares. The trustee also can
25. LO.2, 3 Assume the same facts as in Problem 24, except that the trust instrument allocates the capital gain to income.a. How much income is each beneficiary entitled to receive?b. What is the
24. LO.2, 3 The Ricardo Trust is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Lucy and Ethel) are entitled to the trust’s annual accounting
23. LO.2 Sanchez incurred the following items: Business income Tax-exempt interest income Payment to charity from 2012 income, paid March 1, 2013 $80,000 40,000 20,000 Complete the following chart,
22. LO.1, 2, 3 Complete the following chart, indicating the comparative attributes of the typical trust and estate by answering yeso or explaining the differences between the entities where
21. LO.1 The Purple Trust incurred the following items this year.Taxable interest income $75,000 Tax-exempt interest income, not on private activity bonds 60,000 Tax-exempt interest income, on
20. LO.1 Compute the Federal income tax liability for the Valerio Trust. The entity reports the following transactions for the 2012 tax year. The trustee accumulates all accounting income for the
19. LO.1 Complete the following chart, indicating the comparative attributes of the typical simple trust and complex trust by answering yeso or explaining the differences between the entities where
18. LO.4 Comment on the following items relative to tax planning strategies of a fiduciary entity.a. To reduce taxes for a typical family, should income be shifted to a trust or from a trust? Why?b.
17. LO.4 For tax planning purposes, should an estate adopt a calendar or a fiscal tax year?Why?
16. LO.1, 4 The Strauss Trust must file a Form 1041 for the first time, because it has recognized about $18,000 of gross income. Corpus assets are transferred to the trust on August 30. Considering
15. LO.3 The Flan Trust is scheduled to terminate in two years, when Amy Flan reaches age 30. Several years ago, the trust operated a business that generated a sizable NOL carryforward that the trust
14. LO.3 Use the following chart to indicate whether each of the indicated items is included in distributable net income (DNI)Fiduciary Entity Item Included in DNI?Taxable interest income
13. LO.3 One of the key concepts in fiduciary income taxation is that of distributable net income (DNI). List the major functions of DNI on one PowerPoint slide, with no more than five bullets, to
12. LO.2 In 2012, the Helpful Trust agreed to make a $90,000 contribution to Local Soup Kitchen, a charitable organization. Helpful’s board agreed to the gift at a November 2012 meeting, but the
11. LO.2 The Sterling Trust owns a business and generated $100,000 in depreciation deductions for the tax year. Mona is one of the income beneficiaries of the entity. Given the following information,
10. LO.2 In its first tax year, the Vasquez Estate generated $50,000 of taxable interest income and $30,000 of tax-exempt interest income. It paid fiduciary fees of $8,000. The estate is subject to a
9. LO.2 The Liu Trust is short of cash. It is required to distribute $100,000 to Yang every year, and that payment is due in six weeks. In its asset corpus, Liu holds a number of investments that are
8. LO.2 Using Figure 28.2 as a guide, describe the computation of a fiduciary entity’s accounting income, taxable income, and distributable net income.
7. LO.1 Create a fact pattern that illustrates each of the following tax situations. Be specific.a. A simple trust.b. A complex trust with a $300 personal exemption.c. A complex trust with a $100
6. LO.1 Your college’s accounting group has asked you to give a 10-minute speech titled“Trusts, Estates, and the AMT.” The audience will be students who have completed at least one course
5. LO.1 In general terms, describe how the following entities are subject to the Federal income tax. (Answer only for the entity, not for its owners, beneficiaries, etc.)a. C corporations (Subchapter
4. LO.1 Some fiduciary entities are known as simple trusts, while others are complex trusts.How does the tax professional know whether a trust is simple or complex? When is this determination made?
3. LO.1 Define the following terms.a. Income interest.b. Remainder interest.c. Reversionary interest.d. Life tenant.e. Term certain.
2. LO.1 Trusts and estates are known as fiduciary entities, in that a legal structure is formed to accomplish the financial and other goals of one or more individuals. List the parties who must be
1. LO.1 A local bank has asked you to speak at its Building Personal Wealth Conference on the topic of “What Should Your Trust Do for You?” Develop at least four PowerPoint slides, each one
3. The IRS makes available several publications that can prove useful to those involved in the administration of estates. Retrieve and summarize the following documents.a. Publication 559.b.
2. Before her death in 2009, Lucy entered into the following transactions.a. In 2000, Lucy borrowed $600,000 from her brother, Irwin, so that Lucy could start a business. The loan was on open
1. In 2000, June, a 75-year-old widow, creates an irrevocable trust naming her five adult grandchildren as the beneficiaries. The assets transferred in trust consist of marketable securities (worth
58. LO.5, 8 In each of the following independent situations, determine the gift tax that was due and the decedent’s final estate tax liability (net of any unified tax credit). Decedent Joseph
57. LO.9 In 2011, Marsha died, and her after-tax estate of $6 million passed to a trust.Under the terms of the trust, Wilma (Marsha’s daughter) is granted a life estate with the remainder passing
56. LO.9 In 2012, Loretta makes a taxable gift of $2 million to her granddaughter, Bertha.Presuming that Loretta used up both her unified transfer tax credit and her generationskipping transfer tax
55. LO.8 Under Rowena’s will, Mandy (Rowena’s sister) inherits her property. One year later, Mandy dies. Based on the following independent assumptions, what is Mandy’s credit for the tax on
54. LO.7 In 2012, Roy dies and is survived by his wife, Marge. Under Roy’s will, all of his otherwise uncommitted assets pass to Marge. Based on the property interests listed below, determine the
53. LO.7 While vacationing in Florida in November 2012, Sally was seriously injured in an automobile accident (she died several days later). How are the following transactions handled for tax
52. LO.5, 6, 7 In each of the independent situations below, determine the transfer tax (i.e., estate and gift) consequences of what has occurred. (In all cases, assume that Gene and Mary are married
51. LO.4, 6, 7 Assume the same facts as in Problem 50, except that Gordon and Fawn are husband and wife (not brother and sister).a. What are the gift tax consequences in 2002?b. What are the estate
50. LO.4, 6, 7 In 2002, Gordon purchased real estate for $900,000 and listed title to the property as “Gordon and Fawn, joint tenants with right of survivorship.” Gordon predeceases Fawn in 2012
49. LO.6 At the time of his death on July 9, 2012, Aiden was involved in the following real estate.Fair Market Value(on July 9, 2012)Apartment building $2,100,000 Tree farm 1,500,000 Pastureland
48. LO.6, 7 In 2000, Alan purchases a commercial single premium annuity. Under the terms of the policy, Alan is to receive $120,000 annually for life. If Alan predeceases his wife, Katelyn, she is to
47. LO.6 In 2007, Peggy, a widow, places $3 million in trust, life estate to her children, remainder to her grandchildren, but retains the right to revoke the trust. In 2011, when the trust is worth
46. LO.6, 9 At the time of his death, Garth was involved in the following arrangements.• He held a life estate in the Myrtle Trust with the remainder passing to Garth’s adult children. The trust
45. LO.4, 6, 7 In 2005, using $2.5 million in community property, Quinn creates a trust, life estate to his wife, Eve, and remainder to their children. Quinn dies in 2009 when the trust is worth $3.6
44. LO.4, 6 Before her death in early 2012, Katie made the following transfers.• In 2008, purchased stock in Green Corporation for $200,000, listing title as follows:“Katie, payable on proof of
43. LO.6, 7 At the time of Matthew’s death, he was involved in the following transactions.• Matthew was a participant in his employer’s contributory qualified pension plan. The plan balance of
42. LO.6 Assume the same facts as in Problem 41 with the following modifications.• Mitch is killed in a rock slide while mountain climbing in November 2012, and the insurer pays Alicia’s estate
41. LO.6 At the time of her death on September 4, 2012, Alicia held the following assets.Fair Market Value Bonds of Emerald Tool Corporation $ 900,000 Stock in Drab Corporation 1,100,000 Insurance
40. LO.6, 7 At the time of his death on September 2, 2012, Kenneth owned the following assets.Fair Market Value City of Boston bonds $2,500,000 Stock in Brown Corporation 900,000 Promissory note
39. LO.5 Using property she inherited, Myrna makes a gift of $6.2 million to her adult daughter, Doris. The gift takes place in 2012. Neither Myrna nor her husband, Greg, has made any prior taxable
38. LO.4 Jesse dies intestate (i.e., without a will) in May 2011. Jesse’s major asset is a tract of land. Under applicable state law, Jesse’s property will pass to Lorena, who is his only child.
37. LO.4, 7 In May 2011, Dudley and Eva enter into a property settlement preparatory to the dissolution of their marriage. Under the agreement, Dudley is to pay Eva $6 million in satisfaction of her
36. LO.4 Carl made the following transfers during 2012.• Transferred $900,000 in cash and securities to a revocable trust, life estate to himself and remainder interest to his three adult children
35. LO.3 In each of the following independent situations, indicate whether the alternate valuation date can be elected. Explain why or why not. Assume that all deaths occur in 2012. Value of Gross
34. LO.1, 3, 6, 7 Arlene’s estate includes the following assets.Accrued rents on the apartment building are as follows: $70,000 (date of death) and $60,000 (six months later). To pay expenses, the
33. LO.9 In terms of the generation-skipping transfer tax, comment on the following.a. A GSTT termination event and a GSTT distribution event look very similar.b. A direct skip can occur only in gift
32. LO.7, 8 Abby dies in the current year. In determining her Federal estate tax liability, comment on the relevance of each of the following.a. Abby made taxable gifts in 1975 and 2008.b. Abby held
31. LO.4, 6 Using the legend provided, classify each of the following transactions.Legend NT = No transfer tax imposed GT = Subject to the Federal gift tax ET = Subject to the Federal estate taxa.
30. LO.8 Three unmarried and childless sisters live together. All are of advanced age and in poor health, and each owns a significant amount of wealth. Each has a will that passes her property to her
29. LO.7 Bernice dies and, under a will, passes real estate to her surviving husband. The real estate is subject to a mortgage. For estate tax purposes, how will any marital deduction be determined?
28. LO.6, 7 Due to the negligence of the other driver, Adam’s car is completely destroyed, and he is seriously injured. Two days later, Adam dies from injuries suffered in the accident.a. What, if
27. LO.6 With regard to “life insurance,” comment on the following.a. What the term includes (i.e., types of policies).b. The meaning of “incidents of ownership.”c. When a gift occurs upon
26. LO.6 At the time of Emile’s death, he was a joint tenant with Colette in a parcel of real estate. With regard to the inclusion in Emile’s gross estate under § 2040, comment on the following
25. LO.6 Discuss the estate tax treatment of each of the following. In all cases, assume that Mike is the decedent and that he died on July 5, 2012.a. Interest on State of South Dakota bonds paid on
24. LO.3, 6, 7 Distinguish between the following.a. The gross estate and the taxable estate.b. The taxable estate and the tax base.c. The gross estate and the probate estate.
23. LO.4 In each of the following independent situations, indicate whether the transfer is subject to the Federal gift tax.a. Asa contributes to his mayor’s reelection campaign fund. The mayor has
22. LO.5 In connection with the filing of a Federal gift tax return, comment on the following.a. No Federal gift tax is due.b. The gift is between spouses.c. The § 2513 election to split gifts is to
21. LO.5 Regarding the gift-splitting provision of § 2513, comment on the following.a. What it was designed to accomplish.b. The treatment of any taxable gifts previously made by the nonowner
20. LO.4 Qualified tuition programs under § 529 enjoy significant tax advantages. Describe these advantages with regard to the Federal:a. Income tax.b. Gift tax.c. Estate tax.
19. LO.4 The Randalls have a married son and four grandchildren (ages 15, 17, 18, and 19). They establish a trust under which the income is to be paid annually to the grandchildren until the youngest
18. LO.4 Derek dies intestate (i.e., without a will) and is survived by a daughter, Ruth, and a grandson, Ted (Ruth’s son). Derek’s assets include a large portfolio of stocks and bonds and a
17. LO.4, 6 At a local bank, Jack purchases for $100,000 a five-year CD listing title as follows:“Meredith, payable on death to Briana.” Four years later, Meredith dies. Briana, Meredith’s
16. LO.4 Addison provides all of the support of her dependent father, Walter, who lives with her. Because Walter is very proud and wants to appear independent, Addison gives him the money to pay his
15. LO.4 Gus (age 84) and Belle (age 18) are married in early 2012. Late in 2012, Belle confronts Gus about his failure to transfer to her the considerable amount of property he previously promised.
14. LO.4 Corinne wants to sell some valuable real estate to her son on an installment arrangement. Because related parties are involved, she fears that the IRS may question the selling price and
13. LO.3 What type of ownership interest is appropriate in each of the following?a. A father wants to provide for his daughter during her life but wants to ensure that her younger husband (i.e., the
12. LO.3 Hugo dies in 2012, leaving a large estate. Among other provisions in his will are charitable and marital bequests. When Hugo’s executor elects the alternate valuation date, it has the
11. LO.3 As to the alternate valuation date of § 2032, comment on the following.a. The justification for the election.b. The main heir prefers the date of death value.c. An estate asset is
10. LO.3 Regarding the formula for the Federal estate tax (see Figure 27.2 in the text), comment on the following.a. The gross estate may include property interests not owned by the decedent at the
9. LO.2, 4, 5 Regarding the formula for the Federal gift tax (see Figure 27.1), comment on the following observations.a. Only post-1976 taxable gifts must be considered in determining the tax on a
8. LO.2 A new out-of-state client, Robert Ball, has asked you to prepare a Form 709 for a large gift he made in 2011. When you request copies of any prior gift tax returns he may have filed, he
7. LO.1 In what manner does an inheritance tax differ from an estate tax?
6. LO.1 To avoid both state and Federal transfer taxes (i.e., estate, inheritance, and gift), Gary (a U.S. citizen) has moved to Costa Rica. Furthermore, he plans to limit his investments to non-U.S.
5. LO.1 Carlos, a citizen and resident of Chile, would like to buy stock in General Electric and make gifts of the shares to his children. Will the Federal gift tax pose a problem for him? Explain.
4. LO.1 Kim, a wealthy Korean national, is advised by his physicians to have an operation performed at the Mayo Clinic. Kim is hesitant to come to the United States because of the possible tax
3. LO.1 Eight years ago, Alex made gifts of all of his assets to family and friends. Although the transfers would have generated gift taxes, none were paid and no gift tax returns were filed. At
2. LO.1 Over the years, the tax treatment of transfers by gift and by death has not been consistent. In this regard, what were the policy considerations supporting the original rules and the changes
1. LO.1 Why can the unified transfer tax be categorized as an excise tax? In this regard, how does it differ from an income tax?
3. Find an article in which a tax professional describes the confidentiality privilege available under the Code for a CPA tax adviser. Then construct a list of “Confidentiality Dos and Don’ts for
2. In 2008, Gupta sold some shares of Wingo, a private U.S. corporation, for $40 million. On his Form 1040 Schedule D for 2008, Gupta showed the basis of the stock as $11 million, thereby reporting a
1. Your firm is preparing the Form 1040 of Norah McGinty, a resident, like you, of Oklahoma. You have contracted for the last three filing seasons with a firm in India, Tax Express Bangalore, to
47. LO.8 You are the chair of the Ethics Committee of your state’s CPA Licensing Commission.Interpret controlling AICPA authority in addressing the following assertions by your membership.a. When a
46. LO.8 Compute the preparer penalty the IRS could assess on Gerry in each of the following independent cases.a. On March 21, the copy machine was not working, so Gerry gave original returns to her

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