Estate Trust Taxation

Question 1

CPA - Reg

How is Gift taxation different from Estate taxation?

Answer 1

Property transferred while taxpayer is living

Question 2

CPA - Reg

What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?

Answer 2

$14,000 per year per spouse to each individual

In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits

Question 3

CPA - Reg

If a Gift is an annuity, what value is used for the Gift?

Answer 3

If the Gift is an annuity, use Present Value to determine the gross Gift

Question 4

CPA - Reg

What is the basic Gift tax calculation?

Answer 4

Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- Total # of donees x $14,000 exclusion
= Taxable Gift

Question 5

CPA - Reg

How is a Gift taxed if a recipient gains a future ownership in the Gifted property?

Answer 5

Recipient must gain ownership and all rights to property to get the annual exclusion. If recipient merely gains a future ownership, then the present value of the Gift is 100% taxable to donor and cannot exclude from Gift tax calc

Question 6

CPA - Reg

What are the deductions for Gift tax, besides the annual exclusion?

Answer 6

Tuition and medical expenses paid directly to the provider organization (note: NOT books or dorm fees)

Political contributions

Charitable Gifts

Unlimited Gifts to spouse

Question 7

CPA - Reg

What is the basis of Gifted property for the recipient?

Answer 7

If a loss on sale, basis is FMV on the date of the Gift

If a gain on sale, basis is same as donor’s basis

No G/L if donor basis is less than sales price, and sales price is less than FMV @ Gift date

Question 8

CPA - Reg

How/when are Gift tax returns filed?

Answer 8

Calendar-year basis only

Due April 15

Question 9

CPA - Reg

What are the basic characteristics of complex Trust?

Answer 9

Income distributions are optional
Accumulation of income ok
Charitable contributions ok
Contributions using tax-exempt income are not deductible
Allowed personal exemption of $100

Key Point: Distribution of Trust corpus (principal) ok

Question 10

CPA - Reg

What are the basic characteristics of a Simple Trust?

Answer 10

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of Trust corpus DISALLOWED

Allowed personal exemption of $300

Question 11

CPA - Reg

How are Net Operating Losses handled in a Trust?

Answer 11

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 12

CPA - Reg

How are expenses and fees related to tax-exempt income handled in a Trust?

Answer 12

Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust

Question 13

CPA - Reg

When is property transferred in an Estate?

Answer 13

After the death of the donor

Question 14

CPA - Reg

What amount of a decedent’s Estate is exempt from Estate Tax?

Answer 14

The First $5,250,000 is exempt with a 40% tax on amount above that

Question 15

CPA - Reg

How are a decedent’s medical expenses handled with respect to an Estate?

Answer 15

Medical expenses paid after death, but incurred within 1 year of death go on decedents personal tax return

Question 16

CPA - Reg

How is an Estate’s NOL handled?

Answer 16

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 17

CPA - Reg

What does a gross Estate consist of?

Answer 17

Cash and Property FMV at death, or alternate valuation.

Question 18

CPA - Reg

What is joint tenancy with respect to an Estate? How is it calculated?

Answer 18

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in Estate

Question 19

CPA - Reg

What is tenancy by entirety?

Answer 19

1/2 of marital assets go to deceased spouses Estate

Question 20

CPA - Reg

What is tenancy in common in an Estate?

Answer 20

A, B, and C own property

If A dies, FMV of As share goes to heirs

Question 21

CPA - Reg

How is Estate tax handled with respect to a beneficiary?

Answer 21

Property received through inheritance not income to recipient

Property value is FMV at date of death or 6 months later

If property is sold prior to 6 month date and the alternative date is used, FMV at date of sale is used to value property

Basis in property automatically assumes LT holding period

Question 22

CPA - Reg

What is distributable net income (DNI)?

Answer 22

DNI = Taxable Income Expenses (from income production)

Trust beneficiaries only pay tax if earnings are distributed

Estate beneficiaries pay tax on DNI, regardless if distributed

Question 23

CPA - Reg

When must a tax exempt organization file a 990-T for Unrelated Business Income?

Answer 23

If a tax exempt organization has more than $1,000 of UBI, it must file a Form 990-T

Question 24

CPA - Reg

What are the requirements for a 501(c)3 organization?

Answer 24

Organized and Operated exclusively for exempt purposes

No earnings can benefit an individual or private shareholder

Cant attempt to influence legislation as a major part of its activities

Cant campaign politically