Chapter 17 - Computation and Payment of Federal Estate Tax

Question 1

Tentative tax base

Answer 1

taxable estate
\+
adjusted taxable gifts
(all post-1976 taxable gifts decedent made during lifetime that are not included in the gross estate)
=
tentative tax base

Question 2

Basic Credit Amount

Answer 2

In 2019, an estate tax credit of $4,505,800 is allowed to offset estate taxes on the equivalent of $11.4 million of taxable transfers at death.

Question 3

Filing and Tax Payment Extensions

Answer 3

Filing and Tax Payment Extensions
• 6-month extension
- easily granted
- extension Form 4768 filed on or before 9 months of death
- interest on estate tax due commences to run 9 months after death
• 12-month extension [Sec. 6161(a)]
- granted for “reasonable cause”
º pending estate litigation
• 10-year extension [Sec. 6161(a)(2)]
- difficult to marshal assets
- assets providing future payments
- only higher than normal rate of interest for loan available
• 14-year extension for closely held business or farm interest [Sec. 6166]

Question 4

303 Stock Redemption

Answer 4

Allows the redemption of stock to the amount of:
* Estate admin expenses
* Death taxes
* Funeral costs
Without the redemption being treated as a dividend

Question 5

If a closely held business or farm comprises more than 35 percent of the gross estate or 65 percent of the adjusted gross estate, the executor may elect to pay the tax in installments over not more than 10 years?

Answer 5

False
The law provides that an executor may elect to defer payment of federal estate tax attributable to the inclusion of a closely held business or farm in the decedent’s gross estate for up to 14 years if the business or farm comprises more than 35 percent of the adjusted gross estate.

Question 6

Once the tentative tax is found by applying the tax rate schedule to the tentative tax base, any gift tax payable (in excess of the basic credit amount) on post-1976 gifts is subtracted before application of credits?

Answer 6

True

Question 7

A separate basic credit amount is available against both lifetime and testamentary transfers so that a decedent’s property valued at twice the basic credit amount will avoid transfer tax?

Answer 7

False

The basic credit amount is applicable to lifetime and/or testamentary transfers and only one such credit is available.

Question 8

If it is impossible or impractical to complete a federal estate tax return within the 9 months following the decedent’s death, a mandatory 6-month extension to file must be granted by the IRS unless the personal representative is abroad?

Answer 8

False
An executor must file a Form 4768 for a 6-month extension of time to file the federal estate tax return. It is not necessarily a mandatory extension.

Question 9

The personal representative is responsible for filing a federal estate tax return in all cases no later than 9 months after the date of the decedent’s death for all U.S. citizens and residents?

Answer 9

False
A federal estate tax return need not be filed for gross estates plus adjusted taxable gifts valued at less than an amount equal to the basic exclusion amount in the year the decedent died. If the gross estate plus adjusted taxable gifts exceed the basic exclusion amount that would be exempt because of the basic credit amount available in the year of death, the personal representative must file a federal estate tax return no later than 9 months after the date of the decedent’s death.

Question 10

The executor who elects installment payment of taxes may be relieved from personal liability by electing a special lien procedure and filing an agreement signed by all parties having any interest in the business?

Answer 10

True

Question 11

The estate tax payable in installments, for which the 2 percent interest rate is available, is in addition to the basic exclusion amount?

Answer 11

True

Question 12

A one-year extension of time to pay federal estate tax is available to executors who prove there has been reasonable cause for the extension?

Answer 12

True

Question 13

“In order to qualify for capital gains treatment under a Sec. 303 redemption, a decedent’s stock must represent more than 35 percent of his or her adjusted gross estate?

Answer 13

True

Question 14

There is a special 2 percent interest rate for installment payments of estate tax attributable to the inclusion of the basic amount of $1 million (indexed annually for inflation) of closely held business or farm property in the decedent’s gross estate?

Answer 14

True

Question 15

Adjusted taxable gifts include only the value of taxable gifts made after 1976 that is not includible in the decedent’s gross estate?

Answer 15

True

Question 16

The election to qualify the estate for deferred payments of tax attributable to a closely held business must be made by the decedent in his or her will?

Answer 16

False

The election must be made with the estate tax return by the decedent’s executor.

Question 17

There is no definition of reasonable cause in the Code and Regulations for extension of time for payment of federal estate taxes?

Answer 17

True

Question 18

Withdrawal of 50 percent or more of the assets from a closely held business will trigger acceleration of all unpaid federal estate tax installments?

Answer 18

True

Question 19

A Sec. 303 redemption for a decedent’s closely held stock refers to redemption at ordinary income tax rates of the decedent’s closely held stock when it comprises a large part of his or her estate?

Answer 19

False
Redemption of stock that was includible in the decedent’s estate for the purpose of paying death taxes will be treated as a sale or exchange and taxed as a capital gain if the stock represents more than 35 percent of the decedent’s adjusted gross estate.

Question 20

A credit against the estate tax payable reduces the taxable estate before the tax rates are applied?

Answer 20

False
Credits reduce the federal estate tax on a dollar-for-dollar basis after the tax rates have been applied to the sum of the taxable estate plus adjusted taxable post-1976 gifts.

Question 21

Gift taxes actually paid within 3 years of death are includible in the gross estate?

Answer 21

True

Question 22

Acceleration of federal estate tax installment payments will not occur if each subsequent transferee (of the business) is a family member of the transferor?

Answer 22

True

Question 23

A deduction for the full amount of state death taxes paid by a decedent’s estate may be taken from a decedent’s adjusted gross estate?

Answer 23

True

Question 24

A gift not subject to gift tax as a result of the annual exclusion is not part of adjusted taxable gifts?

Answer 24

True