Question1. Why can the unified transfer tax be categorized as an excise tax? In this regard, how does it differ from an income tax?
2. 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 made?
3. 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 present, no one knows where Alex is or even if he is still alive. The IRS has discovered that the gifts were made and is pursuing the donees for the gift tax due.
Comment on the validity of the following defenses posed by the donees.
a. The donor, not the donee, is responsible for the payment of any gift tax due.
b. The assessment of any gift tax is barred by the statute of limitations.
4. 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 consequences. If the procedure is not successful, Kim does not want his wealth to be subject to the Federal estate tax. Are Kim's concerns justified? Explain.
5. Arturo is a citizen and resident of Argentina. Attracted by the low prices due to the housing slump, Arturo buys developed real estate in various locations within the
United States. What are the U.S. transfer tax consequences if Arturo:
a. Makes gifts of the properties to his children during his lifetime?
b. Dies and passes the properties to his children?
6. 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. assets (e.g., foreign stocks and bonds and real estate). Will Gary accomplish his objective? Explain.
7. In what manner does an inheritance tax differ from an estate tax?
8. A new out-of-state client, Robert Ball, has asked you to prepare a Form 709 for a large gift he made in 2012. When you request copies of any prior gift tax returns he may have filed, he responds, "What do gifts in prior years have to do with 2012?" Send a letter to Robert at 4560 Walton Lane, Benton, AR 72015, clarifying this matter.
9. , 4, 5 Regarding the formula for the Federal gift tax (see Figure 27.1), comment on the following observations.
a. All prior gifts must be considered in determining the tax on a current gift.
b. A credit is allowed for the gift taxes actually paid on prior gifts.
c. The annual exclusion is adjusted each year for inflation.
d. The charitable and marital deductions play an important role.
e. Some gratuitous transfers might not be subject to the gift tax.
10. Regarding the formula for the Federal estate tax (see Figure 27.2), comment on the following.
a. The gross estate includes only property interests owned by the decedent at the time of death.
b. The gross estate is not the same as the probate estate.
c. In arriving at the taxable estate, all prior gifts must be added to the gross estate.
d. Taxable estate × Applicable unified transfer tax rate = Estate tax due.
11. 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 sold seven months after the decedent's death.
d. One month after the decedent's death, the executor receives interest income from municipal bonds. The bonds were included in the gross estate.
e. Effect of the election on income tax basis.
12. The main heirs of Audrey's estate are her husband and an animal shelter.
a. In many cases, the § 2032 election would not be worthwhile. Why?
b. Under what circumstances might the § 2032 election have a greater impact?
13. 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 son-in-law) does not inherit the property if he survives her.
b. A married couple buys a home and wants to make sure that whoever survives obtains sole ownership of the property.
c. Grandparents want to ensure that the family vacation home will be available for use by all of their children and grandchildren during their lifetimes.
14.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 contend that a portion of the transfer is a gift.
a. Are Corinne's concerns realistic? Explain.
b. How can Corinne protect herself from this contingency?
15. 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. Gus reassures Belle that she will receive the property when he dies. Because the transfer occurs at death, the estate tax marital deduction will avoid any taxes. Comment on the issues involved and any misconceptions Gus may have.
16. Elijah pays for his widowed mother's heart bypass surgery. He pays the surgical team directly and gives his mother the money for the hospital bill. Comment on Elijah's gift tax consequences.
17. 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 daughter, then redeems the CD when it matures. Discuss the transfer tax consequences if Meredith is:
a. Jack's wife.
b. Jack's ex-wife.
c. Jack's girlfriend.`