Taxation principles Chapter 27

Seminar: Taxation Current Issues

Chapter 27

Answer to Question No 1:

Excise tax shall be levied on products manufactured for sale in the country. In the other hand, a single transfer tax is levied on the transfer of property by will or gift or inheritance. Finally, the tax that is levied on the individual's income is known as income tax. It is evident from these definitions that a single transfer tax is known as an excise tax and not a tax on income from the viewpoint that the transfer is equivalent to sales and that the transferor has not earned any monetary benefits.

Answer to Question No 2:

Since Kim is not a citizen of the USA, his concern about his wealth being under federal estate taxes is not justifiable. Therefore, despite having the unfortunate event, he has one less concern to be worried about.

Answer to question number 5:

True; this is due to the cumulative nature of the gift tax.

True. The annual exclusion is adjusted for inflation each year.

True. They both are important as they both are required in determining federal estate tax.

False. All gratuitous transfers are subject to federal tax.

Answer to question number 6:





Answer to question number 7:





Answer to question number 8:

It is obvious from the laws of the federal gift and estate tax that federal tax is not levied upon properties that are received from the death of family member. However, such property transfer may be considered to be a gift and falls under the unified transfer tax. Therefore, Belle will not be able to avoid all taxes on properties he receives.

Answer to question number 10:

In order to save transfer taxes to be imposed on Ted, Ruth needs to provide timely disclaimer about the inheritance that the property will directly pass to Ted. The disclaimer will announce that if Ruth receives the property, her ultimate goal would be to pass it to Ted.

In case Ruth only takes the beach house, she still can provide disclaimer and thereby save Ted from transfer taxes.

Answer to question number 16:

Life insurance includes a wide range of policies that includes life policies, group policies, term policies, travel and accident policies, death benefits policies and the endowment policies.

The term incidents of ownership mean ownership of the policies in technical legal sense as well as the right of the person who has been insured and his estate to the benefits of the policy.

Upon the maturity of the policy, the insured receives his money or return in the form of a gift.

No tax consequences will occur.

Answer to question number 18:

For estate tax purpose, marital deduction may be the primary deduction for married descendants. The property, which passes to the surviving spouse is eligible for marital deduction. The condition required is that the property must pass outright. In some other cases, certain life estates also qualify for the marital deduction.

Yes, Bernice’s estate can deduct the mortgage under section 2053 sub section c limits the deduction of unpaid mortgage when it is based on promise or agreement.

Answer to question number 19:

When first sister dies, and passes her property to two of living sisters, the living sisters must pay the unified transfer tax because they have inherited the property as a gift. Similar thing will happen in case when the second sister dies and passes her property to the third and the last living sister. However, when the church receives the property, it will not incur any taxes to the church for it being a public service organization.

Answer to question number 20:

Gift tax

Fair market value of gift $4,000,000

less Annual Exclusion available for each donee ($14,000)

= Taxable gifts for current year $3,986,000

+ Taxable gifts from previous year $3,000,000

Total gift value $6,986,000

Answer to question number 21:

Answer to question number 22:

In case of alternate valuation date, all estate assets are valued on the six-month later date after the death. Obviously, in case of Mary, gross estate will be $9000000.

In case of assets passed through to the beneficiary, all assets are evaluated on the date of the death despite alternate valuation date. Obviously, in case of Mary’s husband, gross estate will be $ 9100000.

Answer to question number 25:

Including four adult married children, four spouses and eight minor grandchildren, Christian can give ($14,000 × 16) = $224,000 because each individual can accept $14,000 without paying any unified transfer tax for gift.

In case Mia joins, the amount reaches to ($14,000 × 17) = $238,000

Answer to question number 27:

Only employer’s contribution will enter into Andrews gross estate because the other two contributions are highly likely to be taxed at their earning sources already.

Only income earned, i.e. $50,000 will be considered to be marital deduction for Andrew.

Only the income earned by the fund will be subjected to federal income tax.

Answer to question number 28:

According to the law, full value of property owned by the descendant as a joint tenant with a right of survivorship is included in descendant’s gross estate. The full amount can be reduced by an amount paid by the survivor tenant to acquire the asset. But this is different when property is held by descendent and his spouse. In this case, half of the value of jointly owned asset will be included in gross estate of first spouse to die. Therefore,

Brother and sister case: gross estate include $1.5 million in Mason’s.

Husband and wife case: Mason’s gross estate will include: ½ × 1.5 million = 0.75 million.

Answer to question number 30:

If a QTIP election is attended, following amount will be deducted from the gross estate:

Marital deduction = $6,000,000, Charitable deduction = $3,000,000

In case QTIP election is not attended, Marital deduction will not be available for reduction because of terminal intrest limitaiton, which passes property to the wife and children; upon their acceptance of the property, it will be treated as non-qualified for termnable interest property.

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