Mod 39 Taxation Of Estates And Trusts Flashcards
Transfer tax is also known as…
Gift tax
Final estate tax return is due…
9 months after death of decedent
Future payments out of a trust are…2
1 Taxable
2 $14,000 exclusion does not apply
What form is filed for estate tax?
Form 706
Neumonic for items deducted from estate tax 7
F A D D Medical Casualty Charitable
Estate tax neumonic, what does FADD stand for?
Funeral
Administrative
Debts of
Decedent
When are medical expenses deductible from estate tax?
Final medical expenses are deducted
For estate tax purposes, if you want final medical expenses deducted on Form 706 (instead of itemized deductions on schedule A) if…
Medical expenses are paid in final year of decedent
Concurrently held property
Property held with other people
Under tax law, under tenancy in common and joint tenancy if a tenant dies, and they own 30% of $1 million property…
$300,000 goes to their estate
If estate is the beneficiary, life insurance proceeds are…
Gross asset of your estate
Gift taxes paid within 3 years of death go…
Into decedent’s estate
Unlimited exclusion for gifts given for tuition or medical must be made…
Directly to the provider
What is another name for applicable credit?
Transfer tax credit
When property of a decedent is held in joint tenancy with another, what amount goes in the estate?
% decedent paid X FMV
Foreign death taxes is…
A credit
Unpaid, is…2
1 Debt of decedent
2 valid deduction from decedent’s gross estate
Alternative valuation date can be elected only if it’s use decreases both…2
1 value of gross estate and
2 estate tax liability
A life insurance policy payable to the estate’s executor as the estate’s representative are…
Always includible in decedent’s gross estate
Generation skipping transfer is imposed in…
Addition to gift tax
Generation skipping transfer tax is imposed at the…
Highest tax rate under the transfer tax rate schedule
Form 1041 is the…
U.S. Fiduciary Return
Tax years of trusts and estates?
1 trust must adopt calendar year
2 estate may adopt fiscal year or calendar year
3 situations when a trust must file a return
1 gross income of $600 or more
2 any taxable income
3 nonresident alien is beneficiary
AMT applies to…
Trusts
Estates and trusts must make estimated payments like…
Individuals
When do estates not need to make estimated payments?
Within 2 years of decedent’s death
Simple trust 3 characteristics
1 trustee distributes app income to beneficiary each year
2 can’t make charitable contributions
3 makes no distribution of trust principal
Trust corpus
Trust principal
Complex trust, define
Examples
Any trust other than simple trust
Ex. Trust can make charitable contributions and distribute corpus
On Form 706, administrative and funeral expenses can be…
Deducted from estate if reasonable
Charitable contributions of a trust can only be deducted if…
They come out of income of trust or estate
Any unused capital loss carryover…
Can’t be deducted on final 1040
DNI
Distributable net income
Distributable net income, define
Whatever is taxed to beneficiary of trust
Decedent income is reported on…
Both fiduciary income tax return and estate tax return
Ordinary and necessary administration expenses paid by the fiduciary of an estate are deductible on the fiduciary income tax return only if…
Estate tax deduction is waived for these expenses
Form 1023 (tax exempt organizations) must be filed…
15 months after end of month organization is formed
Tax exempt organizations that don’t need to file
Organizations other than a foundation, with gross receipts of less
than $5,000
What is the filing date for most tax exempt organizations?
May 15th (15th day of 5th month)
Related income of tax exempt organizations 4
1 activities performed by volunteers
2 income from investments if it is not debt financed
3 rental income
4 sale of merchandise received as gifts
What does UBI stand for?
Unrelated business income
What amount of unrelated business income goes untaxed?
First $1,000
Exempt organizations can incorporate and…
Issue capital stock
To qualify as an exempt organization other than a church or an employee’s qualified pension or profit sharing trust an applicant must…
File a written application with the IRS
A tax exempt religious organization cannot conduct retreats for business organizations because it’s…
Not a religious business activity
Organization will lose exempt tax status after…
3 years of producing unrelated services
Nexus
Nonresident required to pay tax where they do not have a presence
U.S. Corporations are not taxed on money earned by a foreign subsidiary until…
Transferred to parent in form of dividends
Foreign credit can be deducted as…
Credit or deduction on the tax return
Foreign credit carry back and carry forward.
carryback = 1 year
Carry forward = 10 years
Maximum foreign credit calculation for current year
Max foreign credit =
(Foreign taxable income/worldwide income) X US taxes paid
What does UDITPA stand for?
Uniform Division of Income for Tax Purposes Act
Uniform Division of Income for Tax Purposes Act (UDITPA) provides rules for…
Allocating income among states and foreign countries
Under UDITPA, Nonbusiness income is allocated as follows:
Interest and dividends are allocated to…
State of taxpayer’s commercial domicile
Under UDITPA, Nonbusiness income is allocated as follows:
Net rents and royalties from real property are allocated to…
State where property is located
Under UDITPA, Nonbusiness income is allocated as follows:
Capital gains and losses from sales of real property are allocated to…
State where property is located
Under UDITPA, Nonbusiness income is allocated as follows:
Capital gains and losses from the sale of intangible personal property are allocated to…
State of taxpayer’s commercial domicile
Under UDITPA, Nonbusiness income is allocated as follows:
Net rents and royalties from tangible property are allocated to…
State to extent that property is used in that state
Under UDITPA, Nonbusiness income is allocated as follows:
Alternatively, all rents and royalties from tangible personal property will be allocated to the state of the taxpayer’s commercial domicile if the taxpayer is…2
1 not organized in or
2 taxable in state which property is utilized
Under UDITPA, Nonbusiness income is allocated as follows:
Capital gains and losses from sales of tangible personal property are allocated to…
State property was situated during time of sale
Under UDITPA, Nonbusiness income is allocated as follows:
Alternatively, gains and losses will be allocated to state of taxpayer’s commercial domicile if the taxpayer is…
Not taxable in state in which property was situated
Under UDITPA, Nonbusiness income is allocated as follows:
Patent and copyright royalties are allocated to state to extent that patent and copyright is…
Utilized by payer in that state
Under UDITPA, Nonbusiness income is allocated as follows:
Alternatively, Royalties will be allocated to state of taxpayer’s commercial domicile if taxpayer is…
Not taxable in state in which patent or copyright was utilized
U.S. Taxation of foreign persons
Nonresident foreign persons are subject to 2 categories of income
1 income connected with US trade or business
2 passive, fixed annual income
A nonresident alien who performs personal services within the U.S. is considered to be…
Engaged in U.S. trade or business
Performance of personal services will not constitute US trade or business income if nonresident alien is…3
1 present less than 90 days during year
2 less than $3,000 received as compensation
3 works in foreign office of U.S. person
Federal tax legislation process 5
1 House of Representatives 2 senate finance committee 3 must be passed on floor of house and senate 4 uniform bill goes to president 5 tax legislation amends IRC
