Law question data bank

2343. Question MC #1
Which, if any, of the following statements reflects the correct tax valuation rules?

a. The geographical location of the property is relevant.
b. The value of a note receivable is its face amount.
c. Sentimental value should be considered.
d. Values listed in the classified section of the newspaper are not representative.
e. None of the above.

2344. Question MC #2
At the time of her death in 2011, Corinne owned stock in Gray Corporation. The stock is traded on a local exchange with the most recent selling prices as follows.

	Per Share Price
Four trading days prior to Corinne’s death	$100
Six trading days after Corinne’s death	120

Presuming no alternate valuation date election, Corinne’s gross estate should include a per share value of:

a. $120.
b. $112.
c. $110.
d. $108.
e. None of the above.

2345. Question MC #3
Which, if any, of the following factors should reduce the value of a note receivable included in the gross estate of the holder?

a. The interest rate provided for is 9%.
b. The note is not supported by collateral.
c. The note is payable on demand.
d. The note is forgiven by the decedent’s will.
e. None of the above.

2346. Question MC #4
Which of the following independent statements correctly reflects the valuation rules applicable to estate and gift taxes?

a. In valuing an annuity issued by Prudential Insurance Company, use the tables issued by the IRS.
b. In valuing an unmatured life insurance policy on which no further premiums need be paid, use the policy’s interpolated terminal reserve amount.
c. In valuing a note receivable, the issuer’s bankruptcy should be taken into account.
d. In valuing a used car, use the trade-in value offered by a dealership as a down payment on a new model.
e. None of the above statements is correct.

2347. Question MC #5
Which, if any, are characteristics of the valuation tables issued by the IRS?

a. The IRS must issue new updated tables once a year.
b. To determine the factor for a remainder interest, subtract the life estate factor provided in the table from one.
c. The same table that provides the factor for a life estate can be used to determine the value of an income interest for a term certain.
d. To use the tables, the Federal interest rate for the year of the transfer must be known.
e. None of the above.

2348. Question MC #6
Which statement is correct concerning the rules governing the application of § 2032A (“special use” valuation)?

a. The qualifying property subject to the election must include only real property.
b. The qualifying heir of the property need not be a family member of the decedent.
c. The election is available to the qualifying heir even if the decedent merely held the farm as an investment.
d. In the event of recapture, the additional estate taxes are imposed on the qualifyng heir.
e. No correct answer is given above.

2349. Question MC #7
Which, if any, of the following statements correctly reflects the operational rules under § 2032A (“special use” valuation)?

a. The § 2032A election is available for gift tax situations.
b. The § 2032A election permits the valuation of qualifying property at its “most suitable” use value.
c. In meeting the 50% test and 25% test, the qualifying property is considered at its “best” use value.
d. If § 2032A is elected, only a sale of the qualifying property within the next 10 years will cause recapture.
e. None of the above.

2350. Question MC #8
In 2011, Donna’s father dies and leaves her the family farm. The farm has a current use value of $4,000,000 and a best use value of $4,500,000. If the § 2032A election is made, the farm should be included in the father’s gross estate at a value of:

a. $1,000,000.
b. $2,980,000 ($4,000,000 – $1,020,000).
c. $3,480,000 ($4,500,000 – $1,020,000).
d. $4,000,000.
e. None of the above.

2351. Question MC #9
Which, if any, of the items listed below are valid factors utilized in valuing the stock in a closely held corporation?

a. The company’s dividend-paying capacity.
b. The nature of the business.
c. The history of the company since its inception.
d. The book value of the stock.
e. All of the above.

2352. Question MC #10
At the time of his death, Harvey was a shareholder in Grebe Corporation. In valuing the Grebe stock included in Harvey’s gross estate, the IRS contends that the corporation possessed considerable goodwill. In disputing this contention, which of the following point(s) is/are relevant?

a. To provide financing, Grebe has been obtaining its working capital from the shareholders at a below market rate of interest.
b. The rate of return used by the IRS for the type of business involved is too high.
c. Average net profit figures do not include large losses from unrelated investments.
d. Harvey was not an employee of Grebe but was merely a passive investor.
e. None of the above.

2353. Question MC #11
At the time of Rick’s death, he owned 70% of the stock in Robin Corporation, a closely held family business. Over the past five years, Robin has averaged annual profits of $400,000 in an industry where the usual rate of return is 9%. If the book value of the corporation’s assets is $1,000,000 and goodwill exists, what might be a realistic value of the stock in Rick’s gross estate?

a. $2,550,000.
b. $1,785,000.
c. $1,550,000.
d. $310,000.
e. None of the above.

2354. Question MC #12
With respect to a stock interest in a closely held corporation, which, if any, of the following factors work to increase the gross estate value of the interest?

a. The stock is not marketable.
b. A majority interest is involved.
c. The profits of the business are less than the industry average.
d. The blockage rule applies.
e. None of the above.

2355. Question MC #13
Which, if any, of the following statements properly characterize features involving buy-sell agreements?

a. If properly structured, the agreements can control valuation for estate tax purposes.
b. If a stock redemption is proposed, utilize a cross-purchase type.
c. Agreements cannot be used to control disposition of partnership interests.
d. Arrangements work best when the interest to be transferred involves publicly traded securities.
e. None of the above.

2356. Question MC #14
In a typical “estate freeze” involving stock:

a. The owner makes a gift of both common and preferred stock.
b. The preferred stock is subject to the gift tax but not to the estate tax.
c. The common stock is subject to the gift tax but not to the estate tax.
d. The common stock is subject to both the gift tax and the estate tax.
e. None of the above.

2357. Question MC #15
Dustin owns all of the stock of Gold Corporation which includes both common and preferred shares. The preferred stock is noncumulative, has no redemption date, and possesses no liquidation preference. In 1995, Dustin makes a gift to his adult children of all of the common stock. He dies in 2011 still owning the preferred stock. The value of the Gold stock on the relevant dates is:

	1995	2011
Preferred	$ 400,000	$ 500,000
Common	3,000,000	5,000,000

One of the tax consequences of this estate freeze is:

a. Dustin’s gross estate includes $0 as to the stock.
b. Dustin’s gross estate includes $5,000,000 as to the stock.
c. Dustin made a gift of $400,000 in 1995.
d. Dustin made a gift of $3,400,000 in 1995.
e. None of the above is correct.

2358. Question MC #16
In a typical estate freeze involving family limited partnerships established by parents for their children:

a. By gift, the parents transfer interests as general partners, retaining the limited partnership interests.
b. By gift, the parents transfer limited partnership interests, retaining the general partner interests.
c. The interests transferred to the children involve the control of the business.
d. As to the interests passing to the children, large discounts are claimed due to the blockage factor.
e. None of the above.

2359. Question MC #17
To prove successful in freezing the value of an interest in a family limited partnership (FLP), which, if any, of the following techniques is desirable?

a. The FLP should be created just prior to death to avoid the appearance of being tax motivated.
b. The FLP should be largely funded with personal assets (e.g., personal residence).
c. When valuing the FLP interest, apply a large discount, to provide a safety zone for later bargaining with the IRS.
d. Appraisals of the assets transferred to the FLP should be avoided, as they tend to limit the size of any discount claimed.
e. None of the above.

2360. Question MC #18
In 2011, Valerie made a gift of stock (basis of $113,000; fair market value of $413,000) to her grandson, Ryan. As a result of the transfer, Valerie paid a gift tax of $20,000. Ryan’s income tax basis in the stock is:

a. $118,000 for gain or loss.
b. $128,000 for gain and $113,000 for loss.
c. $128,000 for gain or loss.
d. $133,000 for gain or loss.
e. None of the above.

2361. Question MC #19
In 2011, Pam makes a gift of land (basis of $313,000; fair market value of $913,000) to her granddaughter, Tracy. As a result of the transfer, Pam paid a gift tax of $45,000. Tracy’s income tax basis in the land is:

a. $358,000.
b. $343,000.
c. $328,000.
d. $313,000.
e. None of the above.

2362. Question MC #20
In 2011, Arlene makes a gift of stock (basis of $813,000; fair market value of $413,000) to her mother, Elizabeth. As a result of the transfer, Arlene paid a gift tax of $60,000. Elizabeth’s income tax basis in the stock is:

a. $413,000 basis for gain and loss.
b. $443,000 basis for gain and loss.
c. $813,000 basis for gain and $413,000 basis for loss.
d. $843,000 basis for gain and loss.
e. None of the above.

2363. Question MC #21
In 1989, Tony, a resident of New York, purchases realty for $500,000 listing title as “Tony and Ben, joint tenants with right of survivorship.” In 2011, Tony predeceases Ben when the realty is worth $2,000,000. Ben’s income tax basis in the property is:

a. $0.
b. $250,000.
c. $1,000,000.
d. $1,250,000.
e. $2,250,000.

2364. Question MC #22
In 1990, Jude, a resident of New York, purchases realty for $500,000 listing title as “Jude and Tony, joint tenants with right of survivorship.” In 2011, Tony predeceases Jude when the realty is worth $2,000,000. Tony’s income tax basis in the property is:

a. $0.
b. $250,000.
c. $1,000,000.
d. $1,250,000.
e. $2,250,000.

2365. Question MC #23
Sam and Lucinda are husband and wife and have always lived in a community property state. At the time of Lucinda’s prior death, part of their community property includes:

	Adjusted	Fair Market
	Basis	Value
Stock in Green Corporation	$2,000,000	$1,000,000
Apartment building	3,000,000	6,000,000

Under Lucinda’s will, all of her property passes to Sam. After Lucinda’s death, Sam’s income tax basis in this property is:

a. $3,500,000.
b. $4,000,000.
c. $5,000,000.
d. $7,000,000.
e. $8,000,000.

2366. Question MC #24
The election of § 2032 (alternate valuation date) for estate tax purposes:

a. Reduces the overall basis of all assets included in the decedent’s estate.
b. Has no effect on the overall basis of the assets belonging to the surviving spouse’s share of the community property.
c. Means that no assets will end up having a higher income tax basis than their date of death value.
d. Has no effect on income tax basis if the heirs chooses not to make the election.
e. None of the above.

2367. Question MC #25
In January 2011, Clint makes a gift of his beach house (basis of $113,000; fair market value of $413,000) to his aunt. As a result of the transfer, Clint pays a gift tax of $20,000. The aunt dies in December 2011, when the property is worth $420,000. Under the terms of the aunt’s will, the property passes to Clint. Clint’s income tax basis in the beach house is:

a. $118,000.
b. $128,000.
c. $133,000.
d. $420,000.
e. None of the above.

2368. Question MC #26
In April 2011, Tim makes a gift of real estate (basis of $900,000; fair market value of $800,000) to his aunt. After the gift, the aunt makes $50,000 worth of capital improvements to the property. The aunt dies in March 2012, when the property is worth $840,000. Under the aunt’s will, the realty passes to Tim. Tim’s income tax basis in the property is:

a. $840,000.
b. $890,000.
c. $900,000.
d. $950,000.
e. None of the above.

2369. Question MC #27
In June 2010, Debra makes a gift of securities (basis of $613,000; fair market value of $913,000) to her uncle, upon which a gift tax of $60,000 is paid. The uncle dies in July 2011, when the securities are worth $950,000. Under the terms of the uncle’s will, the securities return to Debra. Debra’s income tax basis in the securities is:

a. $970,000.
b. $950,000.
c. $633,000.
d. $613,000.
e. None of the above.

2370. Question MC #28
Paul dies and leaves his traditional IRA to Evelyn. Which statement is correct?

a. Because of the step-up in basis received at death, the IRA causes no income tax consequences to Evelyn.
b. The IRA is not included in Paul’s gross estate.
c. If Evelyn is Paul’s surviving spouse, she can roll over the IRA into her own IRA without causing any adverse tax consequences.
d. If Evelyn is Paul’s daughter, she can defer any distributions from the IRA until she reaches age 70 1/2 without causing any adverse tax consequences.
e. None of the above.

2371. Question MC #29
Becky inherited property from her mother seven years ago. The property was listed on her mother’s estate tax return (Form 706) as having a value of $300,000. Becky is going to sell the property for $800,000, but she believes her real income tax basis is much more than $300,000. Which of the following factors, if any, helps Becky in challenging this basis?

a. She should file an amended Form 706 showing a higher value.
b. She is not certain what the exact value of the property was seven years ago.
c. She was the executor of her mother’s estate.
d. The value listed on Form 706 was not the result of a negotiated compromise between the IRS and the estate.
e. None of the above.

2372. Question MC #30
In making gifts of property to family members, which of the following generates income tax consequences to the donor?

a. Transferring U.S. savings bonds.
b. Transferring an installment note receivable.
c. Making a contribution to a § 529 plan on behalf of the donee.
d. Transferring real estate which has a potential for depreciation recapture.
e. Choices a. and b. but not c. and d.

2373. Question MC #31
In 2009, Sophia sold real estate (adjusted basis of $500,000) for $1,500,000. Under the terms of the sale, she received two notes of $750,000 each, with 9% interest provided. One note is due in 2010 and the other in 2011. She did not elect out of the installment method of recognizing gain. In 2010 and before the first note matures, Sophia gives both notes to her adult children. At this time, the notes are worth a total of $1,400,000. Disregarding the interest element, a tax result of these transactions is:

a. A gift to the children of $1,500,000.
b. Sophia recognizes no gain.
c. Sophia recognizes a gain of $900,000.
d. Sophia recognizes a gain of $1,000,000.
e. None of the above.

2374. Question MC #32
Curt owns the following assets which he gives to his daughter Carla in 2009 (no gift tax results).

		Fair Market
	Basis	Value
Land	$200,000	$400,000
Securities	800,000	600,000

Both items have been held by Curt as an investment for more than one year. If Carla immediately sells these assets for $1 million ($400,000 + $600,000), she recognizes:

a. No gain or loss.
b. A $200,000 LTCG and no loss.
c. A $200,000 STCG and $200,000 STCL.
d. A $200,000 STCG and no loss.
e. A $200,000 LTCG and $200,000 LTCL.

2375. Question MC #33
Which of the following procedures carried out will reduce both Mary’s future gross estate and her probate estate?

a. Mary issues a timely disclaimer as to real estate that is willed to her by her grandfather.
b. Mary creates a revocable trust naming her children as the beneficiaries.
c. One year before her death, Mary gives an insurance policy on her life to her son, the designated beneficiary.
d. Mary purchases real estate as joint tenants with her sister. Mary predeceases her sister.
e. None of the above.

2376. Question MC #34
Which, if any, of the following procedures reduces 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. Using her funds, Ned’s wife purchased real estate listing herself and Ned as “tenants by the entirety with right of survivorship.”
d. Five years ago, Ned made a gift of an insurance policy on his life to his daughter (the designated beneficiary).
e. None of the above.

2377. Question MC #35
In 1990, Gloria purchased as an investment unimproved land for $50,000. In 2011, she sells the land, now worth $200,000, to her church for $50,000. As a result of this transaction, Gloria reports:

a. No gain and no charitable deduction.
b. No gain and a charitable deduction of $50,000.
c. No gain and a charitable deduction of $150,000.
d. A $150,000 capital gain and a charitable deduction of $200,000.
e. A $37,500 capital gain and a charitable deduction of $150,000.

2378. Question MC #36
Eric, age 80, has accumulated about $6 million in net assets. Among his assets are the following marketable securities held as investments.

	Basis	FMV
Cardinal Corporation stock	$200,000	$250,000
Crane Corporation stock	300,000	250,000
Hawk Corporation stock	50,000	250,000

Eric would like to donate (either by lifetime or testamentary transfer) $250,000 in value to his church. In addition, to consummate a land deal, he needs $250,000 in cash. Looking solely to tax: considerations and using only the assets described above, Eric’s best choice is to:

a. Donate by gift to the church the Crane stock and sell the Hawk stock now.
b. Donate by death to the church the Hawk stock and sell the Cardinal stock now.
c. Donate by gift to the church the Hawk stock and sell the Crane stock now.
d. Donate by gift to the church the Cardinal stock and sell the Hawk stock now.
e. None of the above is an attractive technique.

2379. Question MC #37
Lisa has been widowed three times. Her first husband died in 2009 leaving an unused exclusion amount of $3.5 million. The second husband died in early 2011 leaving the entire $5 million exclusion amount unused. Lisa’s third husband died in late 2012 with an unused exclusion amount of $4 million. Lisa’s DSUEA is:

a. $3.5 million.
b. $4 million.
c. $5 million.
d. $9 million.
e. $12.5 million.

2380. Question MC #38
After a prolonged illness, Claire has been diagnosed as having a terminal illness. Which of the following procedures best improves her Federal gift and estate tax situation?

a. She makes gifts to family members to help her estate qualify under § 6166 (extension of estate tax payments relative to an interest in a closely held business).
b. She issues large notes made payable to loved ones to increase her future § 2053 deductions for claims against the estate.
c. She makes gifts of her life insurance.
d. She makes enough taxable gifts to keep from losing any of her $5 million gift tax exemption equivalent.
e. None of the above.

2381. Question MC #39
Which, if any, of the following items characterizes § 6166 (i.e., extension of estate tax payments relative to an interest in a closely held business)?

a. No estate tax due need be paid for the first 5 years.
b. No interest needs to be paid for the first 5 years.
c. In satisfying the more-than-35% test for qualification, all interests in closely held businesses can be aggregated.
d. The 2% rate of interest applies to the total amount of estate tax value.
e. None of the above.

2382. Question MC #40
For purposes of § 6166 (i.e., extension of estate tax payments relative to an interest in a closely held business), an interest in a closely held business does not include:

a. A sole proprietorship.
b. A 16% interest in a partnership that has 36 partners.
c. A 22% interest in a partnership that has 50 partners.
d. A 10% interest in a partnership that has 48 partners.
e. All of the above.