Reg Flashcards - Chapter 4

Question 1

Simple trust

Answer 1

1. Only make distributions out of current income
2. Required to distribute all of its income currently
3. Cannot take a deduction for charitable contributions
4. Entitled to a $300 exemption

Question 2

Grantor trust

Answer 2

1. Grantor (person who established) retains control
2. Disregarded entity for income tax purposes (reported on grantor tax return)
3. Can be qualified shareholder of S corp
4. Generally not included in taxable estate of grantor upon his death

Question 3

Complex trust

Answer 3

1. May accumulated current income
2. May distribute principal
3. May deduct charitable contributions
4. Permitted an exemption of $100 in arriving at its taxable income

Question 4

Gift tax exclusions

Answer 4

1. Unlimited exclusions (no $14,000 limitation):
   a. Payments made directly to educational institution
   b. Payments made directly to health care provider for medical care
   c. Charitable gifts
   d. Marital deductions

Question 5

Filing deadline for estate tax

Answer 5

9 months after death

Question 6

Alternate valuation date

Answer 6

Earlier of:

1. Date property is distributed to heirs
2. 6 mos after the date of death

Question 7

Generation-skipping transfer tax

Answer 7

Applies when individuals transfer property to a person who is two or more generations younger than the donor or transferor.
Tax rate = highest estate and gift tax rate in effect. Exemption amount is $5,340,000/person

Question 8

Exception to gift tax FMV

Answer 8

If FMV < original cost of gift:
Sell higher than donor basis = use donor basis to determine gain
Sell between donor basis and lower FMV = no gain or loss
Sell lower than lower FMV = use lower FMV at date of gift to determine loss

Question 9

Installment sale tax method

Answer 9

Gross profit earned = Cash collections * gross profit percentage

Question 10

Depreciation conventions for different types of assets

Answer 10

Machinery and Equipment = 1/2 year or mid-quarter

Real Estate = Mid-month

Question 11

Section 1231 assets

Answer 11

Depreciable personal and real property used in a taxpayer’s trade or business and held for over 12 months

Question 12

Section 1245 assets

Answer 12

Personal properties (machinery and equipment) used in trade or business for over 12 months 
Only focus is on gains

Question 13

Section 1245 recapture

Answer 13

Lesser of gain recognized or all accumlated depreciation is recaptured as ordinary income
Any remaining gain is a section 1231 gain

Question 14

Section 1250 assets

Answer 14

Real properties used in a trade or business over 12 months

Only focus is on gains

Question 15

Section 1250 recapture

Answer 15

Recaptures only depreciation taken on real property that is excess of straight line

Question 16

Section 291 depreciation recapture

Answer 16

20% of lesser of the recognized gain or the accumulated depreciation

Question 17

“Hot Assets”

Answer 17

Gain that represents partner’s share of “hot assets” is treated as ordinary income in sale of partnership interest

1. Unrealized (cash basis) receivables
2. Appreciated inventory
3. “Recapture income”

Question 18

Estate taxes

Answer 18

1. Income tax = due annually based on income earned during the year while estate is in existance
2. Estate tax = one-time-only transfer based on the value of the decedent’s estate

Question 19

DNI

Answer 19

Distributable net income for estates

Limitation on the amount the trust or estate can deduct with respect to distributions to beneficiaries

Question 20

Income distribution deduction for estates

Answer 20

Lesser of:

1. Actual distribution to beneficiary
2. DNI (less adjusted tax-exempt interest)

Question 21

Estate income tax exemption

Answer 21

$600

Question 22

Unified Estate and gift deduction

Answer 22

5,340,000/person

Question 23

Estate tax due

Answer 23

40% * (tenative tax base at death - 5,340,000)

Question 24

Gift tax exclusion not applied to

Answer 24

1. Postponment of right to use, possess, or enjoy property

2. Incomplete gifts (conditional or revocable)