Gift Tax Flashcards
Which of the following entities are required to file Form 709, United States Gift Tax Return?
A. An individual, an estate or trust, and a corporation.
B. An individual.
C. An estate or trust.
D. A corporation.
An individual.
Answer (B) is correct.
The only entity required to file Form 709 is an individual taxpayer.
In March of the current year, H transferred $200,000 to Daughter and $200,000 to Son. In July of the same year, H’s wife transferred $5,000 to Son. No other gifts were made. H and his wife elected to split the gifts on their gift tax returns. What is the amount of current-year taxable gifts made by H and H’s wife?
H
H’s Wife
A. $187,500 $187,500 B. $172,500 $172,500 C. $345,000 $0 D. $340,741 $4,259
$172,500 $172,500 Answer (B) is correct. Section 2513 allows a gift to be treated as made one-half by the donor and one-half by the donor’s spouse. Because H and his wife elect to split their gifts, they can each take advantage of the $15,000 annual exclusion per donee. Donee Amount Exclusion Taxable Son $205,000 $30,000 $175,000 Daughter 200,000 30,000 170,000 Total taxable gifts $345,000 Because the spouses elected to split their gifts, each spouse is treated as having made one-half of each gift. Thus, H and his wife are each treated as having made $172,500 ($345,000 ÷ 2) of taxable gifts in the current year.
A taxpayer elected to treat transfers (on behalf of a child) made by the taxpayer during tax year 2019 to a qualified state tuition program (QTP), as made ratably over 5 years. The total contribution to this plan during 2019 is $95,000. No other transfers are made during tax year 2019. What amount will be treated as a taxable gift in tax year 2019? A. $15,000 B. $20,000 C. $95,000 D. $4,000
$20,000
Answer (B) is correct.
A taxpayer may elect to treat up to $75,000 of a contribution to a qualified tuition program as if made ratably over a 5-year period. By making the election, the contribution will be excluded each year under the $15,000 annual limit. Any contribution in excess of the $75,000 limit is reported for the year of contribution (as opposed to being apportioned over the 5 years). The taxpayer’s contribution exceeded the $75,000 limit by $20,000 ($95,000 – $75,000).
Alberta, who had not given taxable gifts in any prior year, gave her five children the following gifts in 2019:
A car to Richard worth $19,000
$17,000 cash to Elizabeth
$15,500 in stock to John
$14,500 in stock to Jane
$10,000 cash to Robert
From the information above, determine the amount, if any, of taxable gifts given by Alberta.
A. $6,500
B. $61,000
C. $76,000
D. $0
$6,500
Answer (A) is correct.
Instructions for Form 709 state, “The first $15,000 of gifts of present interests to each donee during the calendar year is subtracted from total gifts in figuring the amount of taxable gifts.” Therefore, the total amount of taxable gifts is $6,500 [($19,000 car to Richard – $15,000 annual exclusion) + ($17,000 cash to Elizabeth – $15,000 annual exclusion) + ($15,500 stock to John – $15,000 annual exclusion)].
Jack, a single individual, made the following gifts in 2019:
Payment directly to sister’s qualifying college for tuition
$20,000
Payment directly to sister’s qualifying college for room and board
25,000
Cash to nephew
10,000
Cash to brother
30,000
What is the gross amount of gifts that Jack must include on his 2019 Form 709, United States Gift Tax Return?
A. $85,000
B. $40,000
C. $65,000
D. $55,000
$55,000
Answer (D) is correct.
Section 6019 provides that a gift tax return must be filed for almost all taxable gifts. Specifically excluded from the requirement for filing are transfers that qualify for and do not exceed the $15,000 annual exclusion of Sec. 2503(b). The payment to Jack’s sister’s college for tuition is not included (this is not considered a “gift”). The amount given for room and board is included, however. The cash payment made to the nephew is excluded due to the $15,000 annual exclusion. The total amount included is $55,000 ($25,000 room and board + $30,000 cash to brother).
Which of the following statements regarding gift splitting by married couples is true?
A. If only one spouse has made gifts during the year and the spouse consents to split the gift, the other spouse is always required to file a gift tax return.
B. A consent to split gifts may be made on an amended gift tax return after the due date of the original return.
C. If both spouses consent to split a gift of a future interest, both spouses must file gift tax returns only if the value of the gift is greater than $30,000.
D. If the spouses are divorced during the year, they still may split a gift made before the divorce as long as neither marries anyone else during that year.
If the spouses are divorced during the year, they still may split a gift made before the divorce as long as neither marries anyone else during that year.
Answer (D) is correct.
Gift splitting allows spouses to treat each gift as made one-half by each. This allows each spouse to exclude the first $15,000 of each gift of a present interest to a third person in a calendar year, for a total exclusion of $30,000 per donee. Gift splitting is not available to a couple if they legally divorce after the gift and one of the spouses remarries before the end of the calendar year.
During the year, Rebecca made the following potentially taxable gifts:
$1,000 to the Democratic Party
$5,000 to a local university for her nephew’s tuition
$9,000 to a local university for her nephew’s room and board
$20,000 to a local hospital for her sister’s surgery
Sold land with a fair market value of $18,000 to her brother for $100
What is the total of Rebecca’s taxable gifts for the year?
A. $26,900
B. $38,000
C. $3,900
D. $2,900
$2,900
Answer (D) is correct.
An individual may exclude up to $15,000 of otherwise taxable gifts to an individual in a year. The gift to the Democratic Party, the tuition paid to the university, and the payment to the hospital are all exempt transfers from gift tax (they are not “gifts”). It is important to note that these amounts are excludable because they were paid directly to the institutions, not simply to the individuals as reimbursement. The nephew’s room and board payment is a taxable gift, but falls under the $15,000 exclusion. Additionally, the sale of the land to her brother produces a $17,900 gift ($18,000 FMV – $100 payment). However, a $15,000 exclusion is permitted here as well. Therefore, the taxable gifts for the year are $2,900.
In the current year, Blum, who is single, gave an outright gift of $50,000 to a friend, Gould, who needed the money to pay medical expenses. In filing the current-year gift tax return, Blum was entitled to a maximum exclusion of A. $14,000 B. $50,000 C. $0 D. $15,000
$15,000
Answer (D) is correct.
The first $15,000 of gifts of present interest to each donee is excluded [Sec. 2503(b)]. Additionally, an unlimited exclusion is available for amounts paid on behalf of the donee for medical care [Sec. 2503(e)]. However, the transfer for medical care must be made directly to the person who provides it (not the donee). Therefore, this exclusion is not available for Blum. Blum’s maximum exclusion is the $15,000 per donee per year.
During the current year, Mr. Jones made gifts to his son of the following items:
A minivan with an adjusted basis of $15,000 and fair market value of $17,000.
Bonds with an adjusted basis of $7,000 and fair market value of $19,000.
Antique furniture with an adjusted basis of $15,000 and a fair market value of $38,000.
An interest-free $10,000 loan on January 1 to buy a boat for his personal pleasure. His son repaid the loan in full on December 31. The applicable federal interest rate was 10%.
Mr. and Mrs. Jones elect gift splitting. What is the total amount of their taxable gifts to their son in the current year?
A. $74,000
B. $44,000
C. $37,000
D. $7,000
$44,000
Answer (B) is correct.
Gift splitting allows spouses to treat each gift as made one-half by each spouse. This allows each spouse to exclude the first $15,000 of each gift of a present interest to a third person in a calendar year, for a total exclusion of $30,000 per donee. Thus, Mr. and Mrs. Jones may exclude $30,000 of the total gifts made to their son in the current year.
The amount of a gift made in property is the fair market value of the property on the date of the gift. The taxable gifts made to the son total $74,000 in the current year ($17,000 minivan + $19,000 bonds + $38,000 furniture). Applying the available exclusion to these gifts reduces the taxable gifts to $44,000. The interest-free loan does not qualify as a gift. Section 7872(c)(2) creates an exception for loans between individuals when the amount of the loan does not exceed $10,000. Accordingly, the imputed interest on the $10,000 interest-free loan does not result in a gift.
Which of the following statements regarding gift splitting is true?
A. The couple must be married at all times during the year.
B. The couple must have been married at the time the gift was given, and neither spouse may remarry during the year.
C. The couple must have been married at the time the gift was given, but either or both spouses may be remarried during the year.
D. The couple need not be married at the time of the gift, but must be married by the end of the year.
The couple must have been married at the time the gift was given, and neither spouse may remarry during the year.
Answer (B) is correct.
Publication 950 states, “If you or your spouse make a gift to a third party, the gift can be considered as made one-half by you and one-half by your spouse.” Furthermore, Instructions for Form 709 state that if a taxpayer is divorced or widowed after the gift, neither spouse may remarry during the rest of the calendar year to qualify for gift splitting.
During 2019, Dave gave his daughter Joan the following items: stock with a fair market value of $42,000 and an adjusted basis of $45,000, a boat with a fair market value of $5,000 and an adjusted basis of $3,000, and a print with a fair market value of $12,000 and an adjusted basis of $5,000. What is the gross amount of gifts includible in Dave’s gift tax return for 2019? A. $50,000 B. $53,000 C. $62,000 D. $59,000
$59,000
Answer (D) is correct.
The amount of a gift made in property is the fair market value of the property at the date of the gift (Reg. 25.2512-1). The fair market value is that which would occur in an arm’s-length transaction between a willing buyer and a willing seller in the normal market. Therefore, Dave must include $59,000 of gifts on his 2019 tax return ($42,000 + $5,000 + $12,000).
John, who is not married, made the following transfers during 2019:
$10,000 to his son Bradley
$16,000 to his daughter Alexandria
$7,000 political contribution
$5,000 charitable contribution
Car to his son Bradley ($22,000 basis; $16,000 FMV)
Autographed baseball to his grandson Tommy ($75 basis; $500 FMV)
What is the gross amount of gifts that John will report on his 2019 Form 709 (before deductions)?
A. $37,000
B. $54,000
C. $54,500
D. $47,000
$47,000
Answer (D) is correct.
Because John is required to file a gift tax return, all includible gifts must be reported on the gift tax return at their fair market value. Instructions for Form 709 state that three kinds of gifts are not subject to the gift tax (they are not considered “gifts”), which include transfers to political organizations and payments that qualify for the educational and medical exclusions. They should not be listed on Schedule A of Form 709. Charitable contributions should be reported, although they are deductible. In addition, if the total of all gifts to an individual who is not the taxpayer’s spouse is less than $15,000, any gifts made to that donee do not need to be reported on Form 709. The total amount of gifts to Bradley ($10,000 to Bradley + $16,000 car FMV) exceeds $15,000, so both must be included in gross amount of gifts. Therefore, the gross amount of gifts reported on John’s Form 709 is $47,000 ($10,000 to Bradley + $16,000 car FMV + $5,000 charitable contribution + $16,000 to daughter).
A taxpayer made the following transactions during the year:
Loaned son $9,000 with no interest for purchase of a boat
Gave neighbor $2,000 for lawn beautification
Paid $17,000 to hospital for father’s medical expenses
Made a charitable donation of a $20,000 piano
Contributed $50,000 to daughter’s QTP (elected maximum prorating)
What is the taxpayer’s taxable gift for the year?
A. $0
B. $44,000
C. $98,000
D. $39,000
$0
Answer (A) is correct.
The taxable portion of a gift is the FMV on the date of the gift, reduced by exclusions, and then reduced further by deductions. Gift loans are excluded if the aggregate outstanding principal is not more than $10,000. The first $15,000 of gifts to each donee is excluded; therefore, the $2,000 gift to the neighbor is excluded. Also excluded from taxable gifts are amounts paid on behalf of another individual for medical care. Deductions include the FMV of property donated to a qualified charitable organization in excess of the annual exclusion. A taxpayer may elect to treat up to $75,000 of a contribution to a QTP as if made ratably over a 5-year period.
Jim has elected to treat transfers (on behalf of his son) made by him during tax year 2019 to a qualified state tuition program as made ratably over 5 years. His total contribution to this plan during 2019 is $75,000. He makes no other transfers during tax year 2019. What amount will be treated as a taxable gift in tax year 2019? A. $0 B. $50,000 C. $15,000 D. $75,000
$0
Answer (A) is correct.
QTP contributions may be treated as made ratably over a 5-year period. Because the apportioned amount ($75,000 ÷ 5 years = $15,000) is not more than the annual exclusion and no other taxable gifts were made, Jim is not required to file a gift tax return for the year.
For calendar year 2019, if a gift tax return is required to be filed and the donor is not deceased, what is the due date of the return excluding extensions?
A. No earlier than January 1, 2020, and no later than April 15, 2020.
B. Within 75 days of making the gift.
C. Within 180 days of making the gift.
D. On or before December 31, 2019.
No earlier than January 1, 2020, and no later than April 15, 2020.
Answer (A) is correct.
Form 709 must generally be filed for the year 2019 after January 1, but not later than April 15, 2020.
During the current year, Mr. C, a U.S. citizen, made the following gifts:
$18,000 cash to his son; $50,000 to his wife, also a U.S. citizen
Equipment to his brother (fair market value $15,000, adjusted basis $10,000)
$100,000 in cash to City W for construction of a new city park
Without considering gift splitting, what is the total of Mr. C’s exclusions and deductions for his current-year gift tax return?
A. $165,000
B. $183,000
C. $180,000
D. $175,000
$180,000
Answer (C) is correct.
The first $15,000 of a gift of a present interest in property made to any person during the calendar year may be excluded [Sec. 2503(b)]. This provision allows Mr. C a total of $60,000 in exclusions ($15,000 × 4 gifts). In addition, Sec. 2522(a)(1) provides that a gift to a city may be deducted as a charitable gift. The gift to the spouse of the taxpayer is eligible for a marital deduction under Sec. 2523. Both of these deductions are available for the balance of the gifts not excluded (Sec. 2524). The total of C’s deductions and exclusions is, therefore, $180,000 ($60,000 in exclusions + $85,000 deduction for the gift to the city + $35,000 marital deduction for the gift to his wife).
John made the following transfers during tax year 2019:
To his neighbor in the amount of $19,000
To his nephew in the amount of $16,000
To his uncle in the amount of $17,000
All of the transfers are gifts that qualify for the annual exclusion. John files one Form 709 for tax year end December 31, 2019. What is the total annual exclusion amount for gifts listed on John’s 2019 Form 709 filing?
A. $14,000
B. $45,000
C. $52,000
D. $15,000
$45,000
Answer (B) is correct.
Section 2503(b) authorizes a $15,000 exclusion from gross income for income tax purposes and is available to an unlimited number of donees.
Which of the following statements is true in respect to determining the amount of net gift tax?
A. The applicable credit amount claimed may not exceed the tax for the calendar year.
B. The applicable credit amount may be used to reduce up to $4,505,800 of gift tax liability per year.
C. The annual exclusion is limited to a total of $15,000 per year per donor.
D. There is a one-time marital deduction of $600,000.
The applicable credit amount claimed may not exceed the tax for the calendar year.
Answer (A) is correct.
The applicable credit amount available to offset tax due on the current year’s gifts is equal to the statutory credit for the current year reduced by the sum of the amounts allowable as a credit to the individual for all preceding calendar years [Sec. 2505(a)]. The credit may not exceed the tax for the calendar year. For 2019, the statutory credit is $4,505,800.
For transfers by gift during the current year, one must file a gift tax return for which of the following?
A. A transfer of $22,000 to a son for which one’s spouse has agreed to gift splitting.
B. A transfer of a present interest in property that is not more than the annual exclusion.
C. A transfer to one’s spouse that qualified for the unlimited marital deduction.
D. A qualified transfer for educational or medical expenses.
A transfer of $22,000 to a son for which one’s spouse has agreed to gift splitting.
Answer (A) is correct.
Section 6019 provides that a gift tax return must be filed for almost all taxable gifts. Specifically excluded from the requirement for filing are transfers that qualify for and do not exceed the $15,000 annual exclusion of Sec. 2503(b) or the Sec. 2503(e) exclusion for educational or medical expenses (the educational and medical expenses are excluded as “gifts”). Additionally, transfers to a spouse that qualify for the unlimited marital deduction do not require the filing of a gift tax return. However, a gift tax return must be filed for a transfer that exceeds the annual exclusion even if no tax will be paid because the donor’s spouse agrees to gift splitting.
During 2019, Barbara gave her daughter the following gifts:
Fair Market
Value
Basis
Cash
$10,000
$10,000
100 shares of ABC Corp.
25,000
5,000
Vacant land
50,000
60,000
What is the gross amount of gifts given by Barbara in 2019?
A. None of the answers are correct.
B. $75,000
C. $85,000
D. $95,000
$85,000
Answer (C) is correct.
The amount of a gift made in property is the fair market value of the property at the date of the gift (Reg. 25.2512-1). The fair market value is that which would occur in an arm’s-length transaction between a willing buyer and a willing seller in the normal market. Therefore, Barbara must include the sum of the FMVs of all gifts ($85,000) on her 2019 tax return ($10,000 cash + $25,000 stock + $50,000 land).
During the calendar year, Mary gave several gifts to relatives. Which of the following gifts must be reported in an annual gift tax return?
$25,000 to her mother to help pay for medical expenses
A $20,000 federal tax-exempt municipal bond to her sister
100 shares of stock to her daughter (Mary’s basis in the stock was $10,000 and the fair market value at the date of gift was $20,000)
$20,000 to a qualified university for her son’s dormitory fees
A. 2 and 4.
B. 2, 3, and 4.
C. 3 only.
D. 1, 2, 3, and 4.
1, 2, 3, and 4.
Answer (D) is correct.
All gifts must be included on the gift tax return. Because the payment was not made directly to the medical institution, it is a gift to her mother. The federal tax-exempt bond may be exempt for income tax, but not gift tax purposes. The stock is also subject to the gift tax. Finally, because the expenses for Mary’s son were for dormitory fees and not tuition, they must be included in the gift return as well.
Mary Smith made only the following transfers of interest in personal property during the tax year:
$40,000 cash to the Democratic Party, a political organization [as defined in Sec. 527(e)(1)]
$25,000 cash to Good Care Health, Inc., for medical care [as defined in Sec. 213(d)] of her ailing resident father
100 shares of common stock of ABC, Inc., with a basis to Mary of $5,000 and a fair market value (FMV) of $10,000 to Save the Walnut Foundation, a Sec. 501(c)(3) organization
What is the total amount of gifts that must be reported on Mary’s gift tax return?
A. Mary does not need to file Form 709 for the tax year.
B. $10,000
C. $70,000
D. $75,000
Mary does not need to file Form 709 for the tax year.
Answer (A) is correct.
“Taxable gifts” means the total amount of gifts made during the calendar year reduced by the charitable and marital deductions [Sec. 2503(a)]. Three types of transfers are not subject to the gift tax: (1) transfers to political organizations, (2) payments that qualify for the educational exclusion, and (3) payments that qualify for the medical exclusion. These transfers are not “gifts” and are not listed on a gift tax return. If the only gifts made during the year are deductible as gifts to charities, a gift tax return is not required as long as the entire interest in the property was transferred. Thus, Mary is not required to file a tax return because the first two items are not considered gifts, and a gift tax return is not required for the third item.
Listed below are gifts Jan made during the current year. Gift to a charitable organization $25,000 Gift to her daughter 22,000 Contributions to a political organization 25,000 Gift to friend 10,000 What is the amount of taxable gifts on Form 709 for the year? A. $7,000 B. $32,000 C. $5,000 D. $22,000
$7,000
Answer (A) is correct.
“Taxable gifts” means the total amount of gifts made during the calendar year reduced by the charitable and marital deductions [Sec. 2503(a)]. The first $15,000 of gifts of present interests made to each donee during the year is excluded [Sec. 2503(b)]. Transfers to political organizations are not gifts [Sec. 2501(a)(5)]. All of Jan’s transfers qualify for exclusion from gift taxation, except for $7,000 ($22,000 gift to daughter – $15,000 exclusion).
Which of the following represents taxable gifts?
Transfer of wealth to a dependent family member that represents support
Payment of a son’s tuition directly to the law school
Payment of $16,000 of medical bills directly to the hospital for a friend
A. Only I is a taxable gift.
B. Only II is a taxable gift.
C. None of the choices is a taxable gift.
D. Both II and III are taxable gifts.
None of the choices is a taxable gift.
Answer (C) is correct.
Section 2503(e), which defines taxable gifts, specifically excludes bona fide transfers made on behalf of any individual as tuition to an educational organization or as payment to someone who provides medical care for such individual. Accordingly, neither payment of a son’s tuition for law school (II) nor payment of $16,000 of medical bills for a friend (III) is a taxable gift. Item I is not a taxable gift because transfers that represent support are not considered gifts at all.
During the calendar year, John made the following payments:
$16,000 to a qualified political party
$20,000 to a local hospital for his mother’s recent operation
$25,000 to the state university for his nephew’s tuition expense
$16,000 to his favorite qualified charity
What is the gross amount that John must report on his gift tax return (Form 709)?
A. $16,000
B. John does not have to file a gift tax return for the calendar year.
C. $77,000
D. $61,000
John does not have to file a gift tax return for the calendar year.
Answer (B) is correct.
Not all transfers of money are subject to gift tax. Included in those excluded transfers are those to political organizations [defined in Sec. 527(e)(1)], amounts paid for qualified education expenses, and amounts paid for providing medical care. Additionally, the $16,000 transfer to the charity qualifies for exclusion when no other items are taxable.
Lanny won $10 million at a casino in 2017 and invested in mutual funds. When he married Judy in 2018, they signed prenuptial agreements. Then, in 2019, Lanny decided to give away some of his money. He made the following gifts:
$100,000 cash to Judy
$50,000 to each of his three adult children
$50,000 to the Republican Party
What are the total taxable gifts that Lanny made in 2019? (Assume no gift splitting was elected.)
A. $200,000
B. $150,000
C. $300,000
D. $105,000
$105,000
Answer (D) is correct.
The total of the taxable gifts is the total gift amount of $250,000 minus exclusions for each gift and the marital deduction. The $50,000 transfer to the Republican Party is not subject to gift tax, and it is not included in the total taxable gifts.
Exclusions
Taxable
Total Gifts and Deductions Gifts Judy $100,000 $(100,000) $ 0 Child 1 50,000 (15,000) 35,000 Child 2 50,000 (15,000) 35,000 Child 3 50,000 (15,000) 35,000 Total $250,000 $(145,000) $105,000
Valerie and Dino, who were married in 2012, made a gift to their son Michael on January 2, 2019. In July 2019, Valerie and Dino were legally divorced. Valerie married Scott on December 20, 2019. Which answer below best describes this situation?
A. The gift splitting benefits are not available to Valerie and Dino because Valerie remarried in 2019.
B. The gift splitting benefits are not available to Valerie and Dino because they were divorced in 2019.
C. The gift splitting benefits are available to Valerie and Dino if Valerie consents.
D. The gift splitting benefits are available to Valerie and Dino because they were married at the time the gift was made.
The gift splitting benefits are not available to Valerie and Dino because Valerie remarried in 2019.
Answer (A) is correct.
Gift splitting allows spouses to treat each gift as made one-half by each. This allows each spouse to exclude the first $15,000 of each gift of a present interest to a third person in a calendar year, for a total exclusion of $30,000 per donee. Gift splitting is not available to a couple if they legally divorce after the gift and one of the spouses remarries before the end of the calendar year.
