Problem 1: Calculation of Gift Tax. In 2010, Sondra makes taxable gifts aggregating $300,000. Her only other taxable gifts amount to $200,000, all of which she made in 1997.
a) What is Sondra's 2010 gift tax liability?
b) What is her 2010 gift tax liability under the assumption that she made the $200,000 of taxable gifts in 1974 instead of 1997?
Problem 2) Validation. Mary died on April, 3, 2009. As of this date, Mary's gross estate was valued at $4.5 million. On October 3, Mary's gross estate was valued at $3.8 million. The estate neither distributed nor sold any assets before October 3, 2009. Mary's estate had no deductions or adjusted taxable gifts. What was Mary's lowest possible estate tax liability?
Problem 3) Determination of Taxable Income. A simple trust has the following receipts and expenditures for the current year. The long-term capital gain and trustee's fees are part of principal.
Dividends $20,000
Long-term capital gain 15,000
Trustee's fees 1,500
Distribution of beneficiary 20,000
a) What is the trust's taxable income under the formula approach?
b) What is the trust's taxable income under the short-cut approach?
Formula: For individuals, miscellaneous itemized deductions are deductible only to the extent the aggregate amount of such deductions exceeds 2% of the taxpayer's AGI. Estates and trusts do not literally have AGI, but Sec. 67(e) provides that a hypothetical AGI amount for an estate or trust is determined in the same fashion as for an individual except that (1) expenses paid or incurred in connection with the administration of the estate or trust that would not have been incurred if the property were not held in such trust or estate, (2) the personal exemption, and (3) the distribution deduction are treated as deductible for hypothetical AGI.