Corporate Tax Exam

TXX 5762

Test Three

Please read the following carefully. For each question on the exam, unless the question expressly provides to the contrary, you should assume that:

1. all events occurred in “the current taxable year;” and

2. all persons are United States citizens;

For each exam question, choose the letter that best answers the question or best completes the sentence.

1. Assume for 2014 that Don made one transfer involving his granddaughter as follows: Don opened a joint checking account with his granddaughter, with right of survivorship, for her college expenses. Don made an initial deposit of $100,000. During 2014, granddaughter wrote checks on the account to the school for tuition of $15,000 and living expenses of $20,000. What is the amount of the taxable gift for federal gift tax purposes?

a. 0.

b. $6,000.

c. $21,000.

d. $35,000.

2. Oliver gave his wife $5,250,000 worth of publicly traded stock in August 2014, outright. Oliver's basis in the stock was $50,000. What is the amount of the taxable gift for federal gift tax purposes? (Oliver made no other gifts to anyone in 2014).

a. 0.

b. $87,000.

c. $100,000.

d. $5,087,000.

3. For 2015, what is the amount of the maximum gift tax annual exclusion per donor from the value of a gift of a future interest made to any one donee?

a. 0.

b. $14,000.

c. $28,000.

d. $5,430,000.

Facts for Questions 4 and 5. Mr. Grey died on January 1, 2015. Mr. Grey made no gifts during his life. Under his will, Mr. Grey devised all of his probate assets to his wife. Mr. Grey owned the following assets, probate and nonprobate, at the date of his death:

Asset 1. Home in Mr. Grey's and Mrs. Grey's (his surviving spouse) names as tenants by the entireties that was purchased in 2006. The home was had a fair market value of $2,000,000 both at the date of Mr. Grey's death and six months after the Mr. Grey's death.

Asset 2. Publicly traded stocks and bonds solely in Mr. Grey’s name that had a fair market value of $3,000,000 on the date of Mr. Grey’s death and a fair market value of $2,000,000 six months after Mr. Grey's death.

Asset 3. Undeveloped real estate in Mr. Grey's name and the name of his daughter, Sue Smith, jointly with right of survivorship that Mr. Grey purchased in 2006 for $100,000. The property had a fair market value of $2,500,000 at the date of Mr. Grey’s death and a fair market value of $1,000,000 six months after the date of Mr. Grey's death.

Asset 4. A condominium in the decedent's name alone purchased in 2002 and used as a vacation home that had a fair market value of $500,000 on the date of Mr. Grey’s death. The condominium was sold by the personal representative of the decedent's estate for $250,000 four months after Mr. Grey’s death.

Question 4. Based on the facts for questions 4 and 5, which of the following options are available to Mr. Grey’s estate for valuation of the assets includible in the gross estate?

a. The estate may use date of death values or it may elect alternate valuation.

b. The estate must use date of death values.

c. The estate must elect alternate valuation.

d. Valuation is not required as no Federal Estate Tax Return is required to be filed.

Facts for Questions 4 and 5. Mr. Grey died on January 1, 2015. Mr. Grey made no gifts during his life. Under his will, Mr. Grey devised all of his probate assets to his wife. Mr. Grey owned the following assets, probate and nonprobate, at the date of his death:

Asset 1. Home in Mr. Grey's and Mrs. Grey's (his surviving spouse) names as tenants by the entireties that was purchased in 2006. The home was had a fair market value of $2,000,000 both at the date of Mr. Grey's death and six months after the Mr. Grey's death.

Asset 2. Publicly traded stocks and bonds solely in , Mr. Grey’s name that had a fair market value of $3,000,000 on the date of Mr. Grey’s death and a fair market value of $2,000,000 six months after Mr. Grey's death.

Asset 3. Undeveloped real estate in Mr. Grey's name and the name of his daughter, Sue Smith, jointly with right of survivorship that Mr. Grey purchased in 2006 for $100,000. The property had a fair market value of $2,500,000 at the date of Mr. Grey’s death and a fair market value of $1,000,000 six months after the date of Mr. Grey's death.

Asset 4. A condominium in the decedent's name alone purchased in 2002 and used as a vacation home that had a fair market value of $500,000 on the date of Mr. Grey’s death. The condominium was sold by the personal representative of the decedent's estate for $250,000 four months after Mr. Grey’s death.

Question 5. Based upon the facts presented in the fact pattern for questions 4 and 5, what is the amount of Mr. Grey’s gross estate for federal estate tax purposes?

a. 0.

b. $2,500,000.

c. $3,500,000.

d. $4,250,000.

e. $7,000,000.

6. Louise, who died in January 2014, was survived by her husband, Larry. Louise’s gross estate was equal to $6,000,000 on the date of death. When Louise died, Louise and Larry owned an undeveloped parcel of real estate in Ocala. The fair market value of the land on the date of Louise's death was $750,000. Larry provided all of the consideration for the purchase of the land, paying $200,000 for it in 2010. Alternate valuation is not available to Louise’s estate as all assets owned by Louise will pass, either under Louise’s last will and testament or by operation of law, to Larry and hence, no estate tax will be due because of the marital deduction. What is the amount, if any, includible in Louise's gross estate for federal estate tax purposes with respect to the land?

a. 0.

b. $200,000.

c. $375,000.

d. $750,000.

7. What is Larry’s total basis the undeveloped parcel of real estate after Louise’s death?

a. $200,000.

b. $375,000.

c. $475,000.

d. $750,000.

8. Under Carl's will, Carl created a testamentary trust to be funded with $700,000 worth of assets. All of the income of the trust is payable to Carl’s child, Jane, for her life, and thereafter, the remaining assets of the trust will pass to The Public Charity. Jane is serving as the trustee. In addition, the trustee has the discretion to distribute all or such portion of the principal as the trustee shall determine for Jane’s heath, support, and maintenance. Jane’s father, Carl, died during the current taxable year with a gross estate of $5,350,000. Carl’s spouse died in 1985 and no estate tax return was due at her death. Which of the following statements is accurate with respect to the federal estate tax?

a The estate tax charitable deduction is available to Carl’s estate for the assets passing to The Public Charity.

b. Jane powers with respect to the assets of the trust constitute a general power of appointment.

c. Carl’s estate is not required to file Form 706, the Federal Estate and Generation-Skipping Tax Return.

d. When Jane dies, her right to trust income for life will not cause inclusion of the assets in her gross estate.

9. At the time of his death, Nick owned the following property:

Land held by Nick and his sister Ellen, as joint tenants with right of survivorship. The fair market value of the land on the date of Nick’s death was $600,000, and the land was purchased by Nick for himself and his sister 20 years before his death for $150,000.

Land held by Nick and Amy as tenants by the entirety. The fair market value of the land on the date of Nick’s death was $800,000, and the land was purchased by Amy for Nick and Amy five years before Nick’s death for $450,000.

A one-half undivided interest in land held with Nick’s brother, Lance as tenant in common. The fair market value of the land on the date of Nick’s death was $400,000, and the records demonstrate that the land was purchased by Lance for Nick and Lance four years before Nick’s death for $300,000.

City of Dayton bonds worth $500,000 purchased by Nick five years before his death, and titled in Nick’s sole name.

What amount is includible in Nick’s gross estate assuming alternate valuation is not available to Nick’s estate?

a. $800,000.

b. $1,100,000.

c. $1,200,000.

d. $1,700,000.

10. If an election is available and is made to use alternate valuation for federal estate tax purposes, then if property X is sold within six months after the decedent’s death, property X is valued for federal estate tax purposes as of which date?

a. The date of the decedent’s death.

b. The date that is six months after the decedent’s of death.

c. The date of sale of the property.

d. The date the property is distributed to the beneficiaries.

11. Leslie died on October 31, 2014. Prior to 2013, Leslie had never made any gifts, but in 2013 (but not in 2014) she made some lifetime transfers. Specifically, on January 10, 2013, Leslie gave her vacation beach house to her five children outright, as tenants in common. The fair market value of the vacation beach house on the date of the transfer was $50,000. The fair market value of the vacation beach house at the date of Leslie's death was $100,000. When Leslie died on October 31, 2014, she owned a vacant lot jointly with her sister, Melissa, as joint tenants with right of survivorship. Leslie and her sister each contributed $10,000 toward the $20,000 purchase price. The basis of the property did not change subsequent to the purchase, and at Leslie's death, the fair market value of the property was $60,000. There is $90,000 of life insurance on the life of Leslie, and her estate is named as the beneficiary. (Assume all assets have the same value on the alternate valuation date as on the date of death). What is the amount of Leslie’s gross estate for federal estate tax purposes?

a. $120,000.

b. $170,000.

c. $220,000.

d. $250,000.

12. Which statement is correct with respect to Section 1014 of the Internal Revenue Code?

a. Section 1014 requires adjustment, after the death of the decedent, to the basis of most items included in a decedent’s gross estate.

b. Section 1014 permits the exclusion from a decedent’s gross estate of real property located in a foreign country.

c. Section 1014 provides mortgage foreclosure relief for real property comprising part of a decedent’s gross estate.

d. Section 1014 was repealed effective January 1, 2015.

13. Which statement is correct regarding the maximum federal estate tax charitable deduction?

a. The maximum federal estate tax charitable deduction is 50% of the adjusted gross estate.

b. The maximum federal estate tax charitable deduction is 100% of the fair market value of gross estate property contributed to charity.

c. The maximum federal estate tax charitable deduction is 35% of the adjusted gross estate.

d. The maximum federal estate tax charitable deduction is limited to the cash plus fair market value of securities included in the gross estate and contributed to charity.

14. Which statement is correct with respect to the annual gift tax exclusion of a donor with respect to the donor?

a. The 2013 annual gift tax exclusion was $14,000 per donor.

b. The 2014 annual gift tax exclusion was $14,000 per donor.

c. The 2013 and 2014 annual gift tax exclusions were one-half of the fair market value of the gift.

d. The 2015 annual gift tax exclusion is $14,000 per donee.

15. The decedent died on March 12, 2014. The longest first income tax year the decedent’s executor can choose for the estate will end on

a. December 31, 2014.

b. January 31, 2015.

c. February 28, 2015.

d. March 31, 2015.

16. The trustee of a testamentary trust had distributable net income of $30,000 on December 31, 2013, the last day of the trust’s income tax year. On March 3, 2014 the trustee made a distribution of all distributable net income on hand as of December 31, 2013 to the trust beneficiaries . The trustee

a. may elect to have the distribution treated as though made on December 31,2013.

b. cannot elect to have the distribution treated as though made on December 31,2013.

c. is limited to the lesser of distributable net income or trust accounting income to be deemed as distributed on December 31, 2013.

d. cannot elect to have the distribution treated as though made on the prior December 31 for the first income tax year of the trust.

17. The federal gift tax return (Form 709) is generally due

a. on the same day as the individual income tax return for a calendar year taxpayer.

b. on October 15 of the year after the year the gift is made.

c. nine months after the date of death.

d. none of the above.

18 $1,500,000 will pass outright from Grandfather to Grandfather’s grandson, Paul, by virtue of being named as the beneficiary of a bank account in Grandfather's name. Grandfather’s son, John, who is Paul’s father is deceased, having died a week before grandfather. What will this event be?

a. a taxable termination.

b. a taxable distribution.

c. a direct skip.

d. none of the above.

19. Which of the following transactions does not constitute a completed gift for federal gift tax purposes?

a. An outright gift of $100,000 to a United States citizen spouse.

b. A gratuitous transfer of $1,000,000 to an irrevocable trust, with a life estate to the grantor's sister, and the remainder to a grandchild.

c. A year-end bonus of $15,000 to the vice-president of finance from the majority shareholder.

d. All are gifts.

20. What are the gift tax consequences if donor transfers $2 million to donor’s former spouse as a property settlement pursuant to a written divorce agreement?

a. There is no marital deduction available if the donee/former spouse is not a U.S. citizen.

b. The transfer is not considered a gift for federal gift tax purposes.

c. There is a gift, and the marital deduction is available in this case regardless of the citizenship of the donee/former spouse.

d. None of the above is correct.

21. Which of the following statements is accurate?

a. Any taxable gift made by decedent within three years prior to death is includible in the decedent’s gross estate.

b. The alternate valuation date for gift tax purposes is six months after the date of the transfer.

c. There is an estate tax credit available to the donee/decedent’s estate for gift taxes paid by a donor where the donee dies within two years after the date of the gift.

d. There is no gift tax credit available to the donor for gifts received by the donor from the donee within the prior two years.

22. Jack died on July 2, 2011. At his death he had a brokerage account with $2,000,000 worth of stock of a publicly traded company that had purchased his company from him some years ago. The purchase price of his company was $1,000,000. None of the publicly traded stock has been sold since Jack’s death. The brokerage account is a transfer on death account and Jack’s daughter, Jill, is the beneficiary. The balance of Jack’s assets of $5,000,000 pass outright to Jack’s wife, Hillie, under Jack’s will, and Jack had not previously used any portion of his applicable exclusion amount. What is Jill’s basis in the stock publicly traded stock?

a. $1,000,000.

b. $2,000,000.

c. $5,000,000.

d. We do not have sufficient information to make that determination.

23. Which of the following items is not includible in the gross estate of John, the decedent?

a. Gift tax paid on a gift made by John two years before his death.

b. The proceeds of life insurance on John's life where all incidents of ownership were transferred to an irrevocable trust 18 months prior to his death.

c. The present value of a joint and survivorship annuity purchased by John's wife, Frieda.

d. Property subject to John's testamentary general power of appointment.

24. The following statements about Qualified Terminable Interest Property (QTIP) trusts are true, except:

a. A QTIP trust may not be implemented prior to the grantor s death.

b. Only the grantor s spouse may be the income beneficiary, but may refuse to accept the bequest and elect against the will.

c. The QTIP trust is a simple trust and anyone, including a charity, may be the remainderperson.

d. If a trust otherwise qualifies, QTIP treatment may be elected for an undivided portion of the trust, such as 78 percent.

25. Which of the following statements is or are false?

I. Louise, who died in 2012, was survived by her husband, Luis. Louise and Luis husband owned their home as tenants in common. The fair market value of the home on the date of Louise's death was $750,000. Louise provided all of the consideration for the purchase. The entire value of the property (on the date of Louise's death, or the alternate valuation date, whichever is applicable) is includible in Louise's gross estate for federal estate tax purposes.

II. Two brothers, Jeff and David, purchased a vacation home in 1982, as joint tenants with right of survivorship. Jeff contributed $40,000 toward the purchase price and David contributed $60,000. They have records of their contributions. In 2012, when the property was worth $200,000, Jeff died. With respect to the vacation home, $100,000 is includible in Jeff's gross estate for federal estate tax purposes.

III. By the terms of his will, John left his entire estate in trust. The terms of the trust provided that all trust income was to be paid to his wife (who survived him) for her life in at least annual installments. The terms of the trust also gave the trustee discretionary authority to distribute trust principal to his disabled daughter (who survived him) for her support. The trust meets the requirements of a qualified terminable interest property trust (QTIP Trust).

a. I only is false.

b. II only is false.

c. III only is false.

d. I and II are false.

e. I, II, and III are false.

26. Which of the following statements is or are true?

I. John and Mary owned a home as tenants by the entirety. The home was purchased in 1995 for $100,000. John contributed $70,000 toward the purchase price and Mary contributed $30,000. When John died in 2012, the home was worth $300,000. $210,000 will be included in John's gross estate for federal estate tax purposes as the value of his interest in the home.

II. Mark transferred the title to his home to his son, Richard, on January 10, 2008, but Mark retained a life estate in the home. Mark released (that is, relinquished) his life estate in favor of his son, Richard, on July 4, 2009. Mark also established a new residence before he died. Mark died on May 3, 2012. The value of the home as of the date of Mark's death (or the alternate valuation date, if applicable) is not includible in Mark's gross estate for federal estate tax purposes.

a. I only is true.

b. II only is true.

c. Both I and II are true.

d. Neither I nor II is true.

Facts for Questions 27 and 28. Lisa set up a revocable trust on June 20, 20012 to which she transferred all of her assets which were then worth $1,000,000.

Question 27. Lisa died on June 21, 2015. At the date of her death in 2015, the trust assets were worth $1,500,000. The value of the assets of the trust are includible in her gross estate for Federal estate tax purposes.

a. true.

b. false.

c. we do not have sufficient information to answer this question.

d. only if Lisa’s executor so elects.

Question 28. A completed gift was made in 2012 upon the transfer of the $1,000,000 of assets to the trust.

a. true.

b. false.

c. we do not have sufficient information to answer this question.

d. only if Lisa’s executor so elects.

29. Which of the following statements is or are true?

I. If an asset is not subject to probate, then the only time it can be subject to federal estate tax if the property was jointly owned by the decedent with another with right of survivorship or owned by the decedent as tenants by the entirety with his or her spouse.

II. Bob buys a whole life policy on his life with a face value of $100,000. He makes a gift of the policy to his son, Larry, on January 20, 2013, when the policy cash surrender value is $10,000. Larry becomes the policy owner and names himself the beneficiary. Bob retains no incidents of ownership. Bob dies on October 2, 2015. Life insurance proceeds are collected by Larry. The life insurance proceeds will be excluded from Bob's federal gross estate.

III. Mitchell left his entire estate in trust for his son, Monroe. Monroe is to receive all trust income for life. Mitchell also gave Monroe the right to appoint, by the terms of Monroe's will, all trust assets remaining in trust at Monroe's death, to anyone Monroe wishes except to Monroe, Monroe's estate, Monroe's creditors, or the creditors of Monroe's estate. When Monroe dies, trust assets will not be included in his gross estate for federal estate tax purposes.

a. I only is true.

b. II only is true.

c. Both I and II are true.

d. III only is true.

e. All are true.

30. Which, if any, of the following actions reduce both Ned’s gross estate and probate estate?

a.	Ned purchased a CD listing title as “Ned, payable on proof of death to Eileen.” Eileen is Ned’s niece.
b.	Four years ago, Ned named his wife as the designated beneficiary of his IRA. (Previously, Ned’s estate was the designated beneficiary.)
c.	Five years ago, Ned made a gift of an insurance policy on his life to his daughter (the designated beneficiary).
d.	None of the above
	.

31. Bob died on January 30, 2015. His probate estate and his subchapter J estate include:

a. $1,200 salary due him from his employment.

b. $100,000 life insurance policy payable to his widow.

c. $75,000 IRA naming his widow as beneficiary.

d. $10,000 in joint checking account with a surviving child.

32. Which of the following statements is incorrect?

a. The taxation of trusts and estates is governed by Subchapter J of the Internal Revenue Code.

b. Form 1041 illustrates the semi-conduit theory of income taxation since all taxable income received by a trust or estate is taxed to the beneficiaries.

c. The income tax rates applied to trusts and estates are highly compressed compared to income tax rates for individuals.

d. When Shirley died, her estate included 200 shares of Stock in Corporation. On the date of her death the highest price the Stock traded for was $80 and the lowest price was $72. The estate tax date of death value for the Stock in Corporation is $15,200.

33. Which of the following statements is correct?

a. Estates unlike trusts, are not required to pay estimated income taxes.

b. Estates are not required to pay estimated income taxes on capital gain income.

c. Estates are not required to pay estimated income taxes in their first two years.

d. Estates are not required to pay estimated income taxes in their first two years if all income during the year consists of capital gain income and tax-exempt income.