TAX ACCOUNTING _ CHAPTER17

TAX ACCOUNTING _ CHAPTER17 - CHAPTER 27 THE FEDERAL GIFT...

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CHAPTER 27 THE FEDERAL GIFT AND ESTATE TAXES TRUE/FALSE 1. Sometimes also known as transaction taxes, Federal gift and estate taxes are excise taxes. ANS: T REF: p. 27-2 2. A lifetime transfer that is supported by full and adequate consideration is not a gift. ANS: T A gift is a gratuitous transfer. PTS: 1 REF: p. 27-2 | p. 27-10 3. At one point, the tax rates applicable to transfers by gift were lower than those applying to transfers by death. ANS: T The statement describes Congressional attitude prior to the Tax Reform Act of 1976. PTS: 1 REF: p. 27-3 | Tax in the News on p. 27-3 4. The Tax Relief Reconciliation Act of 2001 proposes to phase out the Federal gift tax by 2010. ANS: F Just the estate tax; the gift tax is to be retained. PTS: 1 REF: p. 27-3 5. Some states impose inheritance taxes, but the Federal tax system does not. ANS: T Not all states impose an inheritance tax, but the Federal death tax is an estate tax. PTS: 1 REF: p. 27-3 6. An inheritance tax is a tax on the right of a decedent to pass property at death. ANS: F What is described is an estate tax. An inheritance tax is a tax on the right to receive property upon the death of the owner. PTS: 1 REF: p. 27-3 27-1
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27- 2008 Comprehensive Volume/Test Bank 7. The Federal estate tax is imposed on the estate of a decedent, while the Federal gift tax is imposed on the donor of the gift. ANS: T REF: p. 27-3 8. The Federal estate tax cannot be imposed on a decedent who was neither a citizen nor resident of the U.S. ANS: F It can if the property is located in the U.S. PTS: 1 REF: p. 27-4 9. Kim, a resident and citizen of Korea, dies during an operation at the Mayo Clinic in Rochester (MN). Because Kim died in the U.S., he will be subject to the Federal estate tax. ANS: F The place of death is not the determinant for the application of the Federal estate tax. Unless he has property located in the U.S., Kim (a nonresident alien) is not subject to the Federal estate tax. PTS: 1 REF: p. 27-4 10. In 2006 and in order to avoid U.S. taxes, John a U.S. citizen, moves to Buenos Aires where he becomes a resident of Argentina. Any gifts John makes in 2007 are not subject to the U.S. gift tax. ANS: F What John has done will not avoid U.S. taxation as he is still a U.S. citizen. PTS: 1 REF: p. 27-4 11. Becky made taxable gifts in 1974, 1986, and 2007. In computing the gift tax on the 2007 gift, she must consider all of the prior taxable gifts. ANS: T As the gift tax is imposed on a cumulative basis, all prior taxable gifts must be taken into account. PTS: 1 REF: Example 2 12. Under the Tax Relief Reconciliation Act of 2001, the exclusion amount for Federal estate tax purposes is to remain at $1 million from 2002 onward and not increase. ANS: F
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TAX ACCOUNTING _ CHAPTER17 - CHAPTER 27 THE FEDERAL GIFT...

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