Assessment IV.3

Question 1

The credit for prior year alternative minimum tax liability may be carried

1. Forward for a maximum of 5 years.
2. Back to the 3 preceding years or carried forward for a maximum of 5 years.
3. Back to the 3 preceding years.
4. Forward indefinitely.

Answer 1

4.

To allow for timing differences resulting in adjustments to the taxpayer’s minimum tax basis, the alternative minimum tax credit may be claimed to reduce a taxpayer’s regular tax liability to account for the timing differences.

The credit is given only for adjustments resulting from timing differences.

This credit may be carried forward indefinitely.

Question 2

Which of the following transactions is subject to the gift tax before the gift tax annual exclusion is taken into account?

1. Contribution of cash to a candidate for the U.S. Senate
2. Transfer to a trust for the benefit of relatives where the donor determines the amount of distributions to be made
3. Reimbursement to a grandchild for medical school tuition
4. Naming of a new beneficiary on an insured’s life insurance policy

Answer 2

1. Incorrect. Political contributions are not subject to the gift tax.
2. Incorrect. This is not a completed gift since the donor still has control of the distributions.
3. Correct! This payment is subject to the gift tax. If it had been made directly to the medical school, then it would not be subject to the gift tax.
4. Incorrect. Naming of a beneficiary is not subject to the gift tax because the transfer has no value at that time.

Question 3

Which of the following items of property would be included in the gross estate of a decedent who died in 2018?

Clothes and jewelry of the decedent.

Cash of $400,000 given to decedent’s friend in 2016. No gift tax was paid on the transfer.

Land purchased by decedent and held as joint tenants with rights of survivor-ship with decedent’s brother.

1. 1, 2, and 3
2. 1 and 3
3. 1 and 2
4. 2 and 3

Answer 3

B.

All assets owned by the decedent as of the date of death are included in the gross estate. Even though the land was owned jointly, since it is held with a right of survivorship 100% of the value of the land is included in the estate of the first co-owner to die.

The only exception to this rule is if the other co-owner had paid for a percentage of the land when originally purchased. In that case the percentage purchased by this co-owner would be excluded from the gross estate.

The cash is excluded since it was not owned as of the date of death.

Question 4

Which of the following credits may be offset against the gross estate tax to determine the net estate tax of a U.S. citizen?

Unified credit Credit for gift taxes paid on gifts made after 1976

1. Yes Yes
2. No No
3. No Yes
4. Yes No

Answer 4

D.

Certain credits may be offset against the gross estate tax to determine the net estate tax of a U.S. citizen. These credits are the

1. unified credit,
2. foreign death taxes,
3. prior transfers and gift taxes paid on pre-1977 gifts.

This response correctly indicates that the unified credit may be offset against the gross estate tax to determine the net estate tax of a U.S. citizen and that credits for gift taxes paid for gifts after 1976 may not be used as a credit to offset against the gross estate tax in determining the net estate tax. Note that there is a reduction in the estate tax for the gift taxes paid or payable on post-1976 gifts, but this reduction is not designated as a “credit” by the tax law. It is not a credit because the reduction is computed at the current rates (for the year of death) for post-1976 gifts, NOT the actual amount of gift tax paid in the past.