Corp. Sol., 2008 Chap.12

Corp. Sol., 2008 Chap.12 - Chapter C:12 The Gift Tax...

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Chapter C:12 The Gift Tax Discussion Questions C:12-1 The same tax rates apply for both gift and estate tax purposes. Taxable gifts made subsequent to 1976 affect the estate tax base and, consequently, the rates at which the estate is taxed. Until 2004, the same unified credit applied for both gift and estate tax purposes. In 2004, however, the maximum credit for estate tax purposes began exceeding the credit for gift tax purposes. pp. C:12-3 and C:12-4. C:12-2 Congress enacted gift splitting to allow for equitable treatment of donors living in common law states in comparison with donors living in community property states. pp. C:12-4 through C:12-6. C:12-3 The statement is false. Due to the unified credit, relatively large taxable gifts can be made before a gift tax liability is triggered. p. C:12-6. C:12-4 The unified credit is reduced by 20% of the amount of the specific exemption (now repealed) claimed with respect to gifts made between September 9, 1976 and December 31, 1976. The maximum specific exemption that could have been claimed is $30,000, so the maximum credit reduction is $6,000. p. C:12-6. C:12-5 Yes. Under Sec. 2503(e), the direct payment of tuition expenses is exempt from gift treatment regardless of for whom paid. p. C:12-8. C:12-6 Transactions a and e constitute gifts. The IRC exempts transaction d from classification as a gift. No gift arises in transaction c because each joint tenant contributes equally to the purchase price. For transaction b, a gift will arise when the other party spends or withdraws funds. pp. C:12-7, C:12-8, C:12-13 through C:12-15, C:12-28, and C:12-29. C:12-7 a. Dick's gift to his distant cousin Earl is the present value of an eight-year income interest, a term certain interest. From Table B of the actuarial tables of Reg. Sec. 20.7520-1(a) (2) contained in Appendix H, the factor for an eight-year income interest at a 7% interest rate is 0.417991 (1.0 - 0.582009, the factor for the remainder interest). The amount of the gift is $167,196 (0.417991 x $400,000). The actual yield of 9% is not relevant to the calculations. b. Yes. The tables used for valuing the gift contain a variety of earnings rates. The assumed rate of 7% was applicable for our calculation. Thus, if Dick transfers an income interest in property earning a 9% rate, the tables we used have "undervalued" the wealth that Dick has shifted. This transaction would be a favorable, legal transaction for Dick to pursue. pp. C:12-11 through C:12-13. C:12-8 To make a gift of a life insurance policy, Antonio must irrevocably transfer all incidents of ownership in the policy to another party. pp. C:12-14 and C:12-15. C:12-1
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C:12-9 A potential donor who wants to freeze a property's value but who lacks sufficient liquid assets to pay the gift tax might be interested in making a net gift (a transfer in which the donee agrees to pay the gift tax as a condition of receiving the gift). The donor of a net gift must recognize a gain if the gift tax the donee pays (which is treated as debt relief) exceeds the
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Corp. Sol., 2008 Chap.12 - Chapter C:12 The Gift Tax...

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