ACCT 5315 – Group Gift Tax Cases – January 30, 2013

Instructions

Prepare answers to all 8 cases using proper citations. Be prepared to discuss your answers and use proper citation.

Case #1

Should Section 2512(b) be viewed as a part of the definition of “gift” or as a measuring rod for transfers otherwise identified as gifts? For example, for several months C negotiated with a parent’s sibling T for the purchase of 100 acres of T’s ranch. T finally sells the property to C for $180,000. If the Commissioner asserts, and it cannot be disproved, that the property was worth $200,000:

a)  Has T made a gift?

b)  Is T’s intent, donative, or otherwise, entirely irrelevant?

c)  How does the test of a gift under the gift tax differ from the Sec. 102 test under the income tax?

Case #2

In the current year, the following events occur. What are the gift tax consequences?

a)  Parent pays 22 year old child’s law school expenses in the amount of $20,000.

b)  Parent gives 19 year old Child $20,000 in cash as agreed, if the child gave up smoking which the child did.

c)  Parent gives 16 year old child a $30,000 automobile so that child can get to and from high school.

Case #3

Parent loans child $1 million, interest free, at a time when the Section 7872(f)(2) applicable federal rate is 10 percent. Parent has the right to call the loan at any time parent wishes and does so at the end of the year. Has the parent made any gift to the child?

Case #4

D creates a trust with income payable for D’s life to either A or B, as D directs, remainder to C or C’s estate. D retains a power to revoke. Assume A, B, and C, are unrelated to D.

a)  Does D make a completed gift at the time of the creation of the trust?

b)  At D’s direction, the first year’s income is paid equally to A and B. Are there any gifts?

c)  In addition, D relinquishes D’s power to revoke at the end of year 1, but not D’s right to direct income payments. Is there any further gift?

d)  In addition to the facts in c above, at the end of year 2, D directs that year’s income to be paid to A and effectively further directs that all remaining income during D’s life to be paid to A or A’s estate. Are there any gifts?

Case #5

Donor creates a trust with income to adult A for A’s life, and a remainder to B or B’s estate. Does donor make a gift of a “present interest” to either A or B if:

a)  Donor retains no powers?

b)  Donor names a third party trustee, and the trustee holds a power to accumulate income?

Case #6

D, a single taxpayer, transferred securities worth $20,000 to an irrevocable trust on August 1 of the current year, the first gift D ever made, providing payment of income to A for four years, and then a distribution of the remainder to A or A’s estate. Assume that at the time of the transfer, A’s income interest was properly valued at $5,000 and the remainder at $15,000.

a)  To what extent, if at all, can D claim an annual exclusion?

b)  What is the “total amount of gifts” made by D in the year?

c)  Might D’s gift tax be less if the income interest given to A was for a longer term of years?

d)  Is your answer to (c), above, acceptable as a policy matter?

e)  If the transfer in a) above, was D’s only transfer for the year, would D be required to file a gift tax return for the year? If so, when would the return be due?

Case #7:

Determine the extent to which the gift tax marital deduction is available in the following transactions:

a)  Donor purchases, for $200,000, a parcel of real property for donor and spouse as joint tenants with right of survivorship.

b)  Donor places $100,000 in trust with income to spouse for life, and a remainder to their children. In addition, Spouse is given a power to appoint the corpus to anyone by will.

c)  Is a gift tax return required to be filed in either a) or b) above?

Case #8

Donor holds two blocks of ATT stock, both worth $100,000. Donor purchased the first block years ago for $10,000 and the second block more recently for $90,000. Donor plans to make an intervivos gift of one block and retain the second until death. Which block of stock should the donor transfer and why?

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