Estate Trust Taxation

Question 2

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

Answer 2

$17,000 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

How is gift taxation different from estate taxation?

Answer 3

Property transferred while taxpayer is living

Question 4

What is the basic gift tax calculation?

Answer 4

Gross Gifts

• 1/2 of Gifts (treated as given by spouse)
• Total # of donees x $17,000 exclusion

= Taxable gift

Question 5

If a gift is an annuity; what value is used for the gift?

Answer 5

If the gift is an annuity; use Present Value to determine the gross gift

Question 6

How is a gift taxed if a recipient gains a future ownership in the gifted property?

Answer 6

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 7

What are the deductions for gift tax; besides the annual exclusion?

Answer 7

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 8

What is the basis of gifted property for the recipient?

Answer 8

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 9

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

How/when are gift tax returns filed?

Answer 10

Calendar-year basis only

Due April 15

Question 11

What are the basic characteristics of a Simple trust?

Answer 11

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of trust corpus DISALLOWED

Allowed personal exemption of $300

Question 12

How are Net Operating Losses handled in a trust?

Answer 12

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 13

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

Answer 13

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

Question 14

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

Answer 14

The First $5,120,000 is exempt with a 35% tax on amount above that

Question 15

When is property transferred in an estate?

Answer 15

After the death of the donor

Question 16

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

Answer 16

Medical expenses paid after death; but incurred within 1 year of death go on decedent’s personal tax return

Question 17

How is an estate’s NOL handled?

Answer 17

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

Question 18

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

Note: With joint tenancy, each person interest in the property is based on the original consideration paid %. To calculate A’s share that goes to A’s estate after they died, you would multiply the FMV of the property at date of death by A’s original consideration paid %

Question 19

What does a gross estate consist of?

Answer 19

Cash and Property FMV at death; or alternate valuation.

Question 20

What is tenancy in common in an estate?

Answer 20

A; B; and C own property

If A dies; FMV of A’s share goes to heirs (or A’s estate)

Note: With tenancy in common, each person has an EQUAL interest in the property. To calculate A’s share that goes to A’s estate after they died, you would multiply the FMV of the property at date of death by A’s interest (if A, B and C owned property, A’s interest would be 1/3rd ~ same would be for B and C)

Question 21

What is tenancy in common in an estate?

Answer 21

A; B; and C own property

If A dies; FMV of A’s share goes to heirs (or A’s estate)

Note: With tenancy in common, each person has an EQUAL interest in the property. To calculate A’s share that goes to A’s estate after they died, you would multiply the FMV of the property at date of death by A’s interest (if A, B and C owned property, A’s interest would be 1/3rd ~ same would be for B and C)

Question 22

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

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

Answer 23

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

Question 24

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

Can’t attempt to influence legislation as a major part of its activities

Can’t campaign politically

Question 25

What organizations are exempt from filing a form 990?

Answer 25

The following organizations DO NOT have to file a Form 990:

1. Churches
2. Federal agencies
3. Organizations whose gross receipts are less than $50K
4. Private foundations - instead they file a Form 990 PF

Question 26

How do you calculate the Overall Limitation for Foreign Tax Credit?

Answer 26

Overall limitation for foreign tax credit =

(Foreign taxable income / Worldwide taxable income) x U.S. Income tax

Note: If a problem say’s “tentative U.S income tax” it is the same as U.S. Income tax

So, foreign income taxes paid are available as a credit for the year to the extent of the formula above

Question 27

How is estate tax handled with respect to a beneficiary?

Answer 27

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 28

How can foreign taxes paid use on a U.S return?

Answer 28

If there are any foreign taxes paid by a business, the tax payer can take either a deduction for foreign income taxes paid or a Credit

Question 29

How far can an unused foreign tax credit be carried?

Answer 29

Unused foreign tax credits can be carried back 1 year and forward 10 years and used to the extent that the taxpayer is BELOW the limitation in those years