INDIVIDUAL - SPECIALIZED RETURNS

Question 1

Who is initially responsible to pay the gift tax on the transfer of property during the life of the donor. (A gift)

Answer 1

The donor (ie. the giver of the gift)

The recipient may be asked to pay the gift tax if it’s not paid by the donor.

Question 2

What is the maximum gift size that is excluded from the Gift Tax.

Answer 2

$15,000

Question 3

What are 4 examples of tax-free gifts?

Answer 3

1. Tuition or medical expenses paid directly to a medical or educational institution for anyone.
2. Gifts subject to the “Unlimited” Marital Deduction
3. Gifts to a Political Organizations
4. Gifts to Charities

Question 4

What form is used by a donor to file a gift?

Answer 4

Form 709

Question 5

For 2019, the applicalble credit for taxable gifts is $4,505,800, exempting $11.4 million (applicable exclusion) from gift tax. True or False?

Answer 5

True

Note: For 2020, the applicalble credit for taxable gifts is $4,577,800, exempting $11.58 million from gift tax.

Question 6

A gift tax return, Form 709 MUST be filed for any reportable gift over $15,000, even if no tax is due. True or False?

Answer 6

True.

Question 7

Do you need to file Form 709 for gifts toward Medical Exemptions, Education Exemptions, or Political Contributions?

Answer 7

No.

A taxpayer is not required to file a Form 709 gift tax return to report these transfers.

Question 8

What are 2 exceptions to the Marital Deduction?

Answer 8

1. Some specific types of property transfers to spouses.

2. 2019 transfers to non-US Citizen Spouses over $155,000 ($175,000 for 2020) are taxable.

Question 9

Charitable contributions to qualified charities do not need to be reported by the TP for the following deductible gifts to charities, if he doesn’t have other reportable gifts.

Answer 9

1. The taxpayer’s entire interest in property, if no other interest has been transferred for less than adequate consideration or for other than a charitable use.
2. A Qualified Conservation Contribution (perpetual restriction on the use of real property)

NOTE: If a TP is required to file a return to report noncharitable gifts & made gifts to charities, the TP then MUST include all charitable gifts on Form 709. They can then claim a deduction for charitable gifts on the return.

Question 10

What is a Gift of Future Interest?

Answer 10

It is a gift that is limited so that its use, possession, or enjoyment will begin at some point in the future.

Question 11

Is a Gift of Future Interest reportable as taxable?

Answer 11

Yes it is taxable and must be reported on Form 709.

NOTE:
In regards to a QTP (Qualified Tuition Program) like a 529, a special rule allows donors to FRONT-LOAD a QTP with 5-years worth of the annual exclusion for a total of $75K in2019, $150K for married couples gift splitting in 2019. This amount is excluded from gift tax if the donor elects to account for the gift RATABLY over a 5-year period.

Question 12

What is an exception to the Gift Of Future Interest rule?

Answer 12

A contribution to a Qualified Tuition Program (QTP), such as a 529 Plan, can be treated as a completed gift of a present interest to the designated Beneficiary.

A special rule allows a donor to frontload a QTP with 5-years worth of the annual exclusion for a total of $75,000 in 2019. And $150,000 for a Married couple.

This amount is excluded from gift tax if the donor elects to account for the gift ratably over a 5-year period.

Question 13

What is an Inter Vivos Direct Skip?

Answer 13

An Inter Vivos Direct Skip is a transfer of property during the donor’s lifetime that is subject to the gift tax and made to a “skip person.”

A “Skip person” is someone 2 or more generations below the donor or if the recipient is NOT related to the giver, they are 37.5 years younger than the giver.

Question 14

A taxpayer must report on Form 709 the GST tax imposed on Inter Vivos Direct Skips. True or False?

Answer 14

True

Question 15

What is GST Tax?

Answer 15

Generation Skipping Transfer Tax

Question 16

What is a Skip Person?

Answer 16

A Skip Person is someone two or more generations below the donor or if the recipient is not related to the giver, they are 37 1/2 years younger than the giver.

Like the Gift Tax, each individual taxpayer has a lifetime GST exemption to exclude a certain amount of assets from the tax.

For 2019 the effective GST exemption is $11.4 million ($11.58 million in 2020) on lifetime transfers and distributions (directly or in a trust) to a skip person.

Question 17

When is a Form 709 due?

Answer 17

A Form 709 is generally due the year following a taxable gift, at the same time as the Federal Income Tax Return.

Extensions for a Fed Income Tax Return are extended to the Form 709.

Question 18

What is the top rate on taxable gifts for 2019?

Answer 18

40%

Question 19

If a taxpayer is required to file a gift tax return to report other reportable gifts, s/he MUST include all charitable gifts on return and can claim a deduction for the charitable gifts. True or False?

Answer 19

True.

Note: A taxpayer does NOT have to file a gift tax return to report deductible gifts made to charities IF s/he does not have other reportable gifts.

Question 20

What are 4 scenarios that require a Form 709 be filed?

Answer 20

1. Gifts to a person (other than a spouse) which are more than the annual exclusion for the year.
2. The taxpayer and spouse are splitting a gift. Both must fill out the Form 709.
3. The taxpayer makes the gift to someone (other than a spouse) of a future interest. That is, a gift that the recipient cannot actually possess, enjoy, or receive income from until some time in the future.
4. The taxpayer gave his spouse an interest in property that some future event will end.

Question 21

When must a Decedent file a tax return?

Answer 21

A Decedent must file if they met the filing requirement at the time of death.

If they die during the filing season (Jan 1 - Apr 15), they must file by Apr 15th.

Question 22

If the widower remarries in the year of her husbands death, how does that affect the decedent’s filing status?

Answer 22

The decedent must file separately MFS.

Question 23

If a decedent is married at the time of death, the decedent and surviving spouse are considered married for the whole year for filing status purposes. True or False?

Answer 23

True, unless:

the surviving spouse marries before the end of the year. If so, they must file apart from the decedent and the decedent must file MFS.

Question 24

When does the taxable period end for a decedent?

Answer 24

On the date of their death.

Question 25

What is IRD?

Answer 25

Income In Respect Of A Decedent.

This represents all the income the decedent would have received had death not occurred, that was not properly includible on the final return. The IRD is taxable to the estate or to the recipient.

Question 26

How does the Method Of Accounting affect the Final Return?

Answer 26

If Cash Method, the final return includes items actually or constructively received before death.

Regarding Dividends: If the individual died between the time the corporation declared the dividend and the time it arrived in the mail, the decedent did NOT constructively receive it before death. Do NOT include the dividend on the final return.

If Accrual Method, only the income items accrued before death are included in the final return. That is income when earned, not when received.

Question 27

Certain types of property, such as capital assets, receive a step-up in basis when included in the decedent’s estate and transferred to a beneficiary due to death. True or False?

Answer 27

True.

Note: Other assets such as Traditional IRAs, are transferred in-kind to the beneficiary and do NOT receive a basis adjustment.

Question 28

Who must pay the IRD, Income In Respect Of A Decedent?

Answer 28

1. The decedent’s estate
2. The beneficiary, if the right to income is passed directly to the beneficiary.
3. Any person to whom the estate properly distributes the right to receive it.

Question 29

How does the “character” of the IRD change compared to what is was if the decedent were alive?

Answer 29

It does NOT change.

For example, if the income would have been Cap Gain to the decedent, it will be Cap Gain to the taxpayer.

Question 30

Medical expenses paid BEFORE death by the decedent are deductible on a tax return if deductions are itemized. True or False?

Answer 30

True.

This includes Medical Expenses for the decedent’s spouse and dependents.

Question 31

Medical Expenses that were NOT paid before death of the decedent are liabilities of the estate and appear on the federal estate tax return (Form 706). True or False?

Answer 31

True.

Note: If the Med Expenses are paid within a year of the decedent’s death, the executor may elect to treat all or part of the expenses as paid by the decedent at the time the decedent incurred them.

And these expenses, paid within a year of the death, may be claimed as an itemized deduction (in part or in whole) on the decedent’s income tax return, rather than on the federal estate tax return (Form 706)

Question 32

A decedent’s “net operating loss” from a prior year and capital losses (including carryovers) can only be deducted on the decedents final income tax return. True or Fasle?

Answer 32

True.

Note: An unused net operating loss or capital loss is not deductible on the estate’s income tax return.

Question 33

The individual filing a decedent’s tax return may claim any tax credits that applied to the decedent before death, on the decedent’s final income tax return. True or False?

Answer 33

True.

Note: Certain credits, like the EIC or the Child Tax Credit, still apply even though the return covers a period of fewer than 12 months.

Question 34

What are the 2x criteria to qualify for Terrorist or Military Action Related Forgiveness.

Answer 34

1. The decedent is a member of the US Armed Forces at Death.

2. The decedent died from injury incurred while a member of the US Armed Forces in a terrorist or military action.

Question 35

How is the Terrorist Or Military Action Related Forgiveness applied?

Answer 35

It applies to:

1. The tax year death occurred, and
2. Any earlier tax year in the period beginning with the year before the year in which the wounds or injury occurred.

Example: Army private John Kane died in 2019 of wounds incurred in a terrorist attack in 2018. His income tax liability is forgiven for all tax years from 2017 to 2019.

Question 36

Who must sign a Final Return?

Answer 36

1. The court appointed rep, if one has been assigned.
2. The surviving spouse.

If no court appointed rep is assigned, the surviving spouse signs and writes in the signature area, “Filing as surviving spouse.”

TIP: Write the word “DECEASED,” the decedent’s name, and the date of death across the top of the tax return.

Question 37

What is The Applicable Credit?

Answer 37

The Applicable Credit is a lifetime tax credit that can be applied to offset both gift and estate taxes.

Up to Amounts: $11,400,000 exclusion and a $4,505,800 credit.

Question 38

Any of the Applicable Credit that is not used on gifts, is then applicable toward the estate. True or False?

Answer 38

True.

Note: Any taxable gift/ or estate amount in excess of the lifetime credit amount, is taxed at a 40% rate.

Question 39

Estate defined:

Answer 39

An estate is a legal entity that comes into existence upon the death of an individual.

The estate replaces the person who died (the deceased) as the owner of the title of the property that the deceased owned at the time of death.

The estate not only assumes ownership of the assets, but also assumes responsibility for the debts of the deceased.

Question 40

Dying With A Will - Ramifications:

Answer 40

If the deceased died with a valid will, the provisions of the will control the distribution of assets.

Dying with a will in place is called dying “testate” and the maker of the will is the testator.

Question 41

Dying Without A Will - Ramifications:

Answer 41

If an individual dies without a valid will, he or she is said to have died “intestate.”

In this case the State in which they died will determine the distribution of the assets.

Question 42

What determines “Legal Capacity” to make a will?

Answer 42

1. Of Legal Age

2. Be of Sound Mind at the time the will is made.

Question 43

How is a Will “Properly Executed?”

Answer 43

1. Signed by the Testator
2. Signed in the presence of two witnesses.
3. And signed by the two witnesses in the presence of each other.

Question 44

What is a Legacy in a Will?

Answer 44

Within a will, a Legacy is a gift of personal property.

A General Legacy is the gift of money.
A Specific Legacy is the gift of a particular piece of property.

Question 45

What is a Devise in a Will?

Answer 45

A Devise is a gift of Real Property. It can be either a General Devise (non-specific land) or Specific Devise (a specific piece of property).

Question 46

What is a Residuary Estate?

Answer 46

The residuary estate is what is left after all gifts (legacies and devises) have been given.

If the Will does not state how this remaining amount should be given and to whom, it will be distributed based on Intestate rules of distribution. That is, by State Law.

Question 47

How does the State tend to distribute an estate when it is intestate (without a Will)?

Answer 47

50% to Surviving Spouse (generally)

The remaining is split between Descendants, Ascendants, and finally Collaterals (brothers and sisters)

Question 48

Per Capita Distribution

Answer 48

Under Per Capita Distribution, the heirs to the estate each share an EQUAL portion, regardless of each heir’s relationship to the deceased.

Example: The deceased had three children, and each child had two children (six grandchildren total). The second child, however, is already deceased. Under per capita, there are 8 surviving members eligible to receive the inheritance, so each child or grandchild will receive 1/8 of the estate.

Question 49

Per Per Stirpes Distribution

Answer 49

Under Per Stirpes Distribution, each successive generation will take the share which their predeceased generation would have been entitled to.

Example: If a child has predeceased (dies before) the parent, the children of the predeceased child (the grandchildren) will stand in the place of the deceased child. Continuing the same family as the previous example, under per stirpes each child would receive 1/3 of the estate. The children of the predeceased second child will share that 1/3, giving each of those grandchildren 1/6 of the estate.

Question 50

Administration Responsibilities of the Estate:

Answer 50

1. Collecting all of the assets of the deceased
2. Paying the liabilities and claims against the estate
3. Distributing the remaining assets according to either the will or state law

Question 51

Where is the Administration of an Estate completed?

Answer 51

In the Probate Courts

Question 52

Who carries out the administration of the Estate?

Answer 52

The Executor or a Court Appointed Administrator.

Question 53

A named Executor is required to carry out the Administration of a Will. True or False?

Answer 53

False?

Though an executor may be appointed in a will, that named person is not obligated to serve as the executor.

If there is no executor named in the will or the named executor does not accept the role, then the courts will appoint an administrator.

Question 54

What are the Executor’s

(5) duties?

Answer 54

1. Act in GOOD FAITH on behalf of the estate, and
2. Act in ACCORDANCE WITH THE TERMS of the will.
3. To USE REASONABLE CARE and diligence to promptly collect and preserve the assets of the estate
4. To REFRAINS FROM COMINGLING the assets of the estate with personal assets
5. To REPRESENT the estate in lawsuits brought against the estate

Question 55

What are the (3) Powers of the Executor?

Answer 55

1. To enter into contracts on behalf of the estate (with court approval)
2. To engage attorneys, accountants, appraisers, or other specialists as needed
3. To sell assets to pay the debts of the estate (generally the executor must sell personal property first, and realty last, unless otherwise stipulated in the will)

Question 56

What are the first 3 steps of the Administration of Estate?

Answer 56

1. Collect and preserve the assets of the estate and file a list of all assets with the court.
2. Publish a notice of the administration of the estate that sets the deadline by which any claims against the estate need to be presented and filed. If a creditor fails to file a claim within the appropriate time, it will not be able to collect on the debt.
3. Pay debts according to their statutory priority.

Question 57

What is Abatement?

Answer 57

If an estate is not large enough to pay its debts, they need to be paid proportionately. This is abatement.

Question 58

What are the final 3 steps of the Administration of Estate?

Answer 58

1. Distribution of remaining money in accordance with the will or state law.
2. File a final accounting (this is essentially a report and tracking of all of the assets) with the court regarding the fulfillment of the executor’s duties.
3. Release of the executor and the estate is closed.

Question 59

What is Ademption?

Answer 59

When a specific bequest is impossible to fulfill, it is called ademption. In this case, the gift is neither given nor replaced.

Question 60

What is The Estate Tax?

Answer 60

The estate tax is a transfer tax that is assessed on the value of property that is transferred at death. It is not an income tax.

Question 61

When is The Estate Tax Return due?

Answer 61

If no extensions are claimed, the Federal Estate Tax Return is due to be filed 9 months after the death of the individual.

Question 62

When is Estate Tax required?

Answer 62

1. If the value of the estate is more than the Applicable Credit for the year of death less the amount of the Applicable Credit used during the deceased’s lifetime.
2. The executor wants to make an election to permit the decedent’s surviving spouse to use the decedent’s unused Applicable Credit amount, regardless of the overall size of the decedent’s gross estate.

Question 63

How is “Valuing The Estate” determined?

Answer 63

The property in an estate should normally be valued at its fair value on the date of death.

An alternate Valuation is possible 6 months after the date of death if it will cause the following two things:

1. It decreases the value of the gross estate, and
2. it decreases the estate tax liability.

Question 64

How to Calculate the Estate Tax? The easy way…

Answer 64

If your Gross Estate is less than $11,400,000 you can stop.

Question 65

What is the Gross Estate?

Answer 65

The gross estate includes ½ of the value of community property held with the deceased’s spouse and ½ of property held jointly with the spouse, no matter which spouse actually spent the money to acquire the property.

Question 66

Nondiscretionary Deductions for an Estate:

Answer 66

1. Ordinary expenses can be taken as a deduction either on the estate tax return, or on the fiduciary tax return (the income tax return of the estate).
2. Funeral expenses, administrative expenses, and state inheritance and estate taxes can all be included as ordinary taxes.

Question 67

Discretionary Deductions for an Estate:

Answer 67

1. Funeral expenses paid out of the estate
2. Debts owed at the time of death
3. Administrative expenses such as court costs, executor fees, and professional fees
4. The marital deduction
5. The charitable deduction
6. The state death tax deduction
7. Losses incurred during the settlement of estates arising from fires, storms, shipwrecks, or other casualties, or from theft

Question 68

Unlimited Spousal Deduction:

Answer 68

1. The decedent must be married and survived by their spouse.
2. The spouse must be a U.S. citizen.
3. The property must be included in the decedent’s gross estate and pass to the surviving spouse.
4. The spouse’s interest in the property must not be a terminable interest.

Question 69

What is the amount that is taxable for transfers to non US Citizen spouses?

Answer 69

Any transfer to a non US Citizen spouse over $155,000 in 2019 is taxable.

Question 70

Qualified Domestic Trust

Answer 70

Required for non US Citizens to qualify for an Unlimited Spousal Deduction.

Question 71

TP’s have to file a Gift Tax Return to report gifts to political organizations, or gifts made by paying someone’s tuition or medical expenses directly? True or False?

Answer 71

False.

Question 72

The FINAL Return

Answer 72

The Final Return is due at the same time the decedent’s return would have been due had death not occurred.

Question 73

The Final Return: Medical Expense Deductions Not Paid Before Death

Answer 73

Med expenses not paid before death are liabilities of the estate and appear on Form 706.

The executor may elect to treat all or part of the expenses as paid by the decedent’s income tax return as an itemized deduction, rather than on the federal estate tax return (Form 706)

Question 74

The Final Return - Net Operating Loss

Answer 74

A decedent’s Net Operation Loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent’s Final Tax Return.

An unused net operating loss or capital loss in NOT deductible on the Estate’s Income Tax Return.

Question 75

The Final Return - Credits

Answer 75

Any tax credits that applied to the decedent before death may be claimed on the decedent’s Final Return.

Certain credits like EIC or the CTC still apply even though the return covers a period of fewer than 12 months.

Question 76

Terrorist or Military Action Related Forgiveness - What years does it apply to?

Answer 76

In general, forgiveness applies to:

1. The tax year death occurred, and
2. Any earlier tax year in the period beginning with the year before the year in which the wounds or injury occurred.

Question 77

Who signs the Decedent’s Final Return?

Answer 77

1. If there is a court appointed rep, then that rep signs the return. If it’s a joint return, the Rep and the surviving spouse both sign the return. And the spouse writes “Filing as Surviving Spouse” in the signature area.
2. If there is no spouse or court appointed rep, then the person in charge of the decedent’s property must file and sign as the “personal rep.”

A surviving spouse filing MFJ may submit a claim for refund by filing a return.

TIP:
Write the word DECEASED, the decedent’s name, and the DOD across the top of the Tax Return.

Question 78

To whom are Estate and Gift taxes applicable?

Answer 78

Estate and Gift Taxes are applicable only if someone gives large gifts or if they die with a large estate.

Question 79

Can you use some of the Applicable Credit to offset taxes on taxable gifts given?

Answer 79

YES.

NOTE: any amount of the Applicable Credit that is not used for gifts during the TP’s lifetime, can be used on the estate.

Any taxable amount in excess of the credit is taxed at a rate of 40%. Anything OVER the $11,400,000.

Question 80

What is the Deceased Spousal Unused Exclusion?

Answer 80

When the executor wants to make an election to permit the decedent’s surviving spouse to use the decedent’s unused Applicable Credit amount, regardless of the overall size of the decedent’s gross estate.

Question 81

How to Calculate the Estate Tax if the estate is more than $11,400,000?

Answer 81

Gross Estate
- Nondiscretionary Deductions
= Adjusted Gross Estate.

Adjusted Gross Estate
- Discretionary Deductions
= Taxable Estate.

Taxable Estate
\+ Adjusted Taxable Gifts 
- Tentative Tax Base
x Uniform Tax Rates
= Tentative Estate Tax.

Tentative Estate Tax
- Gift Taxes Paid on gifts Made After 1976
= Gross Estate Tax.

Gross Estate Tax
- Unified Credits and Other Credits
= Estate Tax Due.

Question 82

A decedent’s final return may claim any tax credits that applied to the decedent before death.

True or False?

Answer 82

True.

EXPLANATION
The individual filing a decedent’s tax return may claim any tax credits that applied to the decedent before death on the decedent’s final income tax return. Certain credits, like the EIC or the child tax credit, still apply even though the return covers a period of fewer than 12 months.

Question 83

How long must a person required to file an FBAR maintain specified records of foreign accounts for inspection?

Answer 83

5 years from April 15th of the year following the calendar year reported.

Question 84

What tax rate applies to most types of U.S. source income received by a nonresident alien?

Answer 84

30%

Question 85

The alternate valuation date (if assets not sold) is 6 months from the date of death.

True or False?

Answer 85

True

Question 86

Who must file an FBAR?

Answer 86

A United States person, including a citizen, resident, corporation, partnership, limited liability company, trust and estate, must file an FBAR to report:

1. a financial interest in or signature or other authority over at least one financial account located outside the United States if
2. the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

Question 87

Who must file a 1040NR?

Answer 87

Only nonresidents file a 1040NR return.

NOTE:
A nonresident alien who is married to a U.S. citizen or resident at the end of the year can choose tax treatment as a U.S. resident. A lawful permanent resident (immigrant) of the United States, at any time during the current year, who took no steps to be treated as a resident of a foreign country under an income tax treaty is not treated as a nonresident for tax purposes.

Question 88

Who must file FBAR Form 114?

Answer 88

EXPLANATION
A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. FBAR Form 114 must be filed with the Financial Crimes Enforcement Network to report a financial interest or signature authority over a foreign financial account.

Financial Interest – A United States person has a financial interest in a foreign financial account for which:

the United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another person; or
the owner of record or holder of legal title is one of the following:
An agent, nominee, attorney, or a person acting in some other capacity on behalf of the United States person with respect to the account;
A corporation in which the United States person owns directly or indirectly: (i) more than 50 percent of the total value of shares of stock or (ii) more than 50 percent of the voting power of all shares of stock;
A partnership in which the United States person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits (e.g., distributive share of partnership income taking into account any special allocation agreement) or (ii) an interest in more than 50 percent of the partnership capital;
A trust of which the United States person: (i) is the trust grantor and (ii) has an ownership interest in the trust for United States federal tax purposes. See 26 U.S.C. sections 671-679 to determine if a grantor has an ownership interest in a trust;
A trust in which the United States person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year; or
Any other entity in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.
Signature Authority – Signature authority is the authority of an individual (alone or in conjunction with another individual) to control the disposition of assets held in a foreign financial account by direct communication (whether in writing or otherwise) to the bank or other financial institution that maintains the financial account. Certain exceptions apply.