TAX Accounting _ chapter 19

# TAX Accounting _ chapter 19 - Scott makes a gift of stock...

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Scott makes a gift of stock in Cormorant Corporation, which is not closely held but is traded in an over-the-counter market. The transactions involving this stock that occurred closest to the date of gift took place six trading days before (mean selling price of \$60) and seven days after (mean selling price of \$50). Determine the fair market value of the Cormorant stock on the date of the gift. (7x60) +(6 x 50)/13 days=55.38. The average is weighted inversely so switch the days for each amount. At the time of her death, Lila owns 50% of the stock in Kingfisher Corporation, with the balance of the stock held by family members. Kingfisher Corporation’s total profits for the past five years are \$3,000,000, and the book value of its stock is \$2,000,000. If 8% is an appropriate rate of return and goodwill exists, what is a possible value for the stock to be included in Lila’s gross estate? Average profit (\$3,000,000 ÷ 5 years) \$ 600,000 8% (rate of return) x \$2,000,000 (book value) (160,000) Excess earnings over 8% \$ 440,000 Goodwill (5 x \$440,000) \$2,200,000 Add book value 2,000,000 Value of stock \$4,200,000 Lila’s interest x 50% Value of stock in gross estate \$2,100,000 Jen inherits her father’s farm, and the executor of the estate properly makes a § 2032A election. Six years later, Jen sells the farm. It is determined that the election, which allowed \$600,000 in value to be excluded, saved \$120,000 in estate taxes. What are Jen’s tax options? Tax consequences? Jen must pay an additional \$120,000 in estate taxes. At her option, she may add \$600,000 to her income tax basis in the farm. To do this, she must pay back interest on the estate tax

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TAX Accounting _ chapter 19 - Scott makes a gift of stock...

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