Chapter C12
The Gift Tax
Discussion Questions
C12-1 The same tax rates apply for both gift and estate tax purposes. Taxable gifts made
subsequent to 1976 affect the estate tax base and, consequently, the rates at which the estate is taxed.
The same unified credit is used for both gift and estate tax purposes. pp. C12-3 and C12-4.
C12-2 Gift-splitting was enacted to allow for equitable treatment of donors living in common law
states in comparison with donors living in community property states. pp. C12-4 and C12-5.
C12-3 The statement is false. Due to the unified credit and the annual exclusion, relatively large
taxable gifts can be made before a gift tax liability is triggered. pp. C12-4 through C12-6.
C12-4 The unified credit is reduced by 20% of the amount of the specific exemption (now repealed)
claimed with respect to gifts made between September 9, 1976 and December 31, 1976. The
maximum specific exemption that could have been claimed is $30,000, so the maximum credit
reduction is $6,000. p. C12-6.
C12-5 Under Sec. 2503(e), the direct payment of tuition--regardless of for whom paid--is not treated
as a gift; the same is true for the direct payment of another person's medical expenses. pp. C12-7 and
C12-8.
C12-6 Transactions a, c, and e constitute gifts. The Code exempts transaction d from classification
as a gift. For transaction b a gift will arise when the other party spends or withdraws funds. pp.
C12-7, C12-8, C12-13, C12-14, C12-27 and C12-28.
C12-7 a.
Dick's gift to his distant cousin Earl is the present value of a 13-year income interest,
a term certain interest. Using Table B of the actuarial tables of Reg. Sec. 20.7520-1(a)(2) contained
in Appendix H, the factor for a 13-year income interest at a 10% interest rate is 0.710336 (1.0 0.289664 the factor for the remainder interest). The amount of the gift is $284,134 (0.710336 x
$400,000). The actual yield of 7% is not relevant to the calculations.
b.
The tables used for valuing the gift contain a variety of earnings rates. We assumed a
rate of 10% was applicable when making our calculation. Thus, if Dick transfers property earning at
a 7% rate, the tables we used have "overvalued" the wealth that Dick has shifted. It would be
preferable if Dick transferred assets with an earnings rate of above 10% so that the table rate would
be below the actual earnings rate and "undervalue" the gift. pp. C12-12 through C12-14.
C12-8 In order to make a gift of a life insurance policy Antonio must irrevocably transfer all
incidents of ownership of the policy to another party. p. C12-14.
C12-1
C12-9 A potential donor who wants to freeze a property's value but who lacks liquid assets might be
interested in making a net gift (a transfer in which the donee agrees to pay the gift tax as a condition
of receiving the gift). The donor of a net gift must recognize a gain if the gift tax paid by the donee
exceeds the adjusted basis of the property transferred. p. C12-15.
C12-10 The annual exclusion was enacted for administrative simplicity to keep "routine" gifts (e.g.,
birthday, wedding, Christmas gifts) from needing to be reported for gift tax purposes. pp. C12-16
through C12-18.
C12-11 The client is not correct. Gifts of future interests are not eligible for the annual exclusion.
Gifts of present interests are eligible for the exclusion. In addition, only the first $10,000 of gifts to a
donee each year are eligible for the exclusion. Transfers to 2503(c) trusts and Crummey trusts are
eligible for the exclusion. pp. C12-16 through C12-18.
C12-12 Both trusts are eligible for the annual exclusion. Section 2503(c) trusts can be created only
for the benefit of minors and, in general, must terminate when the beneficiary reaches age 21.
Crummey trusts can be created for beneficiaries of any age, and the donor has complete flexibility in
specifying the termination date of the trust. Both trusts are discretionary trusts. A beneficiary of a
Crummey trust has the power to demand each year that the trustee distribute the lesser of (1) an
amount specified by the donor or (2) the amount transferred to the trust that year. pp. C12-16
through C12-18.
C12-13 A parent would likely prefer to use a Crummey trust because the grantor has the freedom to
choose the termination date. A Section 2503(c) trust must generally end when the beneficiary attains
age 21. pp. C12-16 through C12-18.
C12-14 The requirements for a qualified terminable interest transfer are that the donee spouse be
entitled to receive all the income for life and that the income be paid out at least annually. In
addition, nobody can have a power to appoint any part of the property to anybody other than the
donee-spouse unless such power is not exercisable while the donee-spouse is alive. Finally, the
donor must elect to claim a marital deduction. p. C12-19.
C12-15 Some donors find a QTIP arrangement especially attractive because it enables them to
receive a marital deduction (which results in their transfer being nontaxable) and also permits them
to control who will receive the property upon the donee spouse's death. p. C12-19.
C12-16 The client is misinformed. You should advise the client that a donor can incur a gift tax
liability as a result of making a gift to a U.S. charitable organization because some gifts to charitable
organizations do not qualify for a charitable contribution deduction. In the case of split interest
transfers of remainder interests, for example, the remainder interest must be in a charitable remainder
annuity trust or unitrust, a pooled income fund, a personal residence, or a farm or ranch in order for
the charitable interest to be deductible. pp. C12-20 through C12-22.
C12-2
C12-17 The advantages of using gift splitting include: (1) doubling the amount eligible for the
annual exclusion, (2) allowing each spouse to make use of the unified credit, and, (3) reducing the
amount taxed to each taxpayer, thereby potentially lowering the marginal tax rate at which the
transfers are taxed. pp. C12-22 and C12-23.
C12-18 Their gift tax liabilities will not necessarily be identical. Their marginal tax rates may differ
and their unused unified credit amount may differ because their taxable gifts made in previous
periods will not necessarily be the same. pp. C12-23 through C12-25.
C12-19 The rate schedule for the current period is used to determine the tax on taxable gifts of
previous periods. The rate increase described in the problem will not cause an additional gift tax
liability to be incurred in the current period. p. C12-25.
C12-20 By making an inter vivos transfer of the apartment building, the transfer tax value of the
building would be frozen at $2,400,000. On the other hand, the donee's basis would be the donor's
lower tax basis; consequently, the donee would likely have to report a large gain upon disposition.
The apartment is producing a net loss, and it is not a good strategy to shift losses to persons in lower
tax brackets. Also, the daughter might have trouble deducting the loss because of the passive activity
loss limitation. Making a gift of the stock would also freeze its value for transfer tax purposes at
$2,400,000. The donee would not receive a step-up in basis, but this fact is not as much of a
drawback as for the apartment building because the stock's adjusted basis and FMV are closer
together and unlike for the building, cost recovery deductions are not available on the stock. The
dividend income would be shifted to a taxpayer in a lower tax bracket. However, with her increased
income from such a large stock investment, the daughter would probably be placed in the highest
income tax bracket. Even so, it probably would be preferable to gift the stock instead of the
apartments. pp. C12-25 through C12-27.
C12-21 Marcy should give Phil approximately $615,000 of assets. She would not make a taxable
gift because of the annual exclusion and marital deduction. If Phil wills his assets to someone other
than Marcy, he will have taken full advantage of his unified credit, the majority of which otherwise
would have been wasted. Thus, $615,000 of property will have been shifted off the transfer tax rolls.
In addition, the basis of the assets will be stepped-up to their value as of Phil's date of death,
assuming he does not will them back to Marcy. pp. C12-26 and C12-27.
C12-22 a.
Marcy's taxable gift is zero because of her $10,000 exclusion and $605,000 marital
deduction. Phil's taxable estate is $625,000 ($615,000 from Marcy + $10,000 of his own property),
but because of the unified credit his estate tax liability is zero.
b.
She should give him the stock. If he does not will the gifted property to her, the
property's basis will be stepped-up to its date of death value. Because of the larger appreciation
inherent in the stock (compared with the land), more appreciation can be removed from the income
tax rolls by letting the stock pass through Phil's estate to the children. pp. C12-26 and C12-27.
C12-3
C12-23 A lifetime gift of property "freezes" the property's value for transfer tax purposes because
the amount subject to taxation is the property's value on the date of the gift. If the property had been
retained and transferred at death, the date of death value (or alternate valuation date value) would
have been the amount subject to taxation. Inter vivos transfers keep post-gift appreciation from
being subject to transfer taxes. pp. C12-29 and C12-30.
C12-24 Five advantages of disposing of property by gift include:
1.
Donors can take advantage of the annual exclusion, for which there is no counterpart
under the estate tax system.
2.
Post-gift appreciation is not subject to transfer taxes.
3.
The size of the gross estate is reduced by any gift taxes paid.
4.
Income can be shifted to a taxpayer in a lower tax bracket but, with the current
compressed income tax rate schedules, it is less likely that the donee will be in a
substantially lower tax bracket.
5.
State transfer taxes can be lower because very few states levy gift taxes, but all states
impose a form of death tax.
Two disadvantages of making gifts include:
1.
There is a sacrifice of the step-up in basis that would apply if the transfer took place
at death, but this drawback has declined with the reduction in the tax rate on capital
assets held longer than 18 months.
2.
If the gift is large enough to trigger the payment of any gift tax, the gift tax owed is,
in a sense, a prepayment of the estate tax. The prepayment, however, earns no
interest. pp. C12-29 through C12-30.
C12-25 Gifts are reportable on a calendar-year basis. The due date for a gift tax return is generally
April 15th of the year following the year in which the gifts were made even if the donor reports on a
fiscal year for income tax purposes. If the donor dies during the year, the gift tax return must be filed
no later than the due date for the estate tax return (nine months after the date of death). If an
extension is requested for filing the donor's individual income tax return, an extension until August
15 is also granted for filing the gift tax return. pp. C12-30 and C12-31.
C12-26 a.
Frank did not file a gift tax return for 1992; therefore, the IRS may collect the gift tax
in 2001.
b.
Section 6662 imposes a penalty on a sliding-scale basis for certain undervaluations of
property for estate and gift tax purposes. The penalty rate (either 20% or 40%) is a function of the
relationship between the value claimed on the return and the correct value. Even though no return
was filed and, therefore, no value was literally claimed on the return, the penalty would likely be
assessed. The penalty would be 40% of the transfer tax attributable to the $300,000 unreported gift.
The donor would also owe the failure-to-file and failure-to-pay penalties that are discussed in
Chapter C15. p. C12-32.
C12-4
Issue Identification Questions
C12-27 ·
·
·
Will the gift to Maya be eligible for the marital deduction? If not, should he consider
postponing the gift until after the wedding?
Will gift splitting be available on the planned gifts to the three children?
If gift splitting is available, would the election produce favorable tax results?
The gift to Maya will not be eligible for the marital deduction unless he postpones the gift
until after their marriage. Because the anticipated gift to Maya is substantial, and his only tax break
if he makes the gift before marriage is the $10,000 annual exclusion, he should consider postponing
the gift and having it be nontaxable under the unlimited marital deduction rules.
Gift splitting will be available on the planned gifts to the children only if he makes them
after marrying Maya.
Gift splitting would produce favorable tax results because with gift splitting the $20,000
planned gift to each child would be fully shielded by two $10,000 per donee annual exclusions.
pp. C12-4, C12-5 and C12-18.
C12-28 ·
·
·
Will any portion of Janet's transfer be classified as a gift of a present interest?
Will the transfer in trust qualify for an annual exclusion under the Sec. 2503(c) trust
provisions?
Does gift splitting seem to be advisable?
The trust is a discretionary trust, and Joanna will not receive anything until 20 years from
now. Thus, Janet will make no transfers of present interests.
The trust is not a 2503(c) trust because it does not terminate when Gordon becomes age 21
(or does not give Gordon a "window" soon after attaining age 21 to ask for the trust assets). In
addition, when the trust terminates, some of the assets will go to Gordon's sister instead of all of
them passing to Gordon.
We do not have sufficient facts about the spouses' prior gift history to give a definitive
answer about whether gift splitting would be advisable. Because no annual exclusions will be
allowed, the usual benefit of doubling the annual exclusion will not be available. However, if both
spouses still have most of their unified credit available, gift splitting will likely be beneficial by
reducing the tax rate on the gifts and allowing use of two unified credits.
pp. C12-4, C12-5, C12-16 through C12-18.
C12-29 ·
·
·
Do the somewhat recently enacted estate freeze rules apply to this transaction?
If they do, what is the amount of the deemed gift from Melvin to Pamela?
What is the significance of the 6.5% income yield?
C12-5
The estate freeze rules of Sec. 2702 do apply to this transaction. Melvin makes a transfer
for the benefit of a family member (a daughter) and retains an interest in such trust. His retained
interest is not, however, an annuity interest or a unitrust interest (a specified percentage of the fair
market value of the trust assets, as redetermined annually).
Because Melvin did not keep an annuity interest or a unitrust interest, the value of his
retained interest is treated as being zero. Thus he is deemed to have made a gift to Pamela of the
total value, or $1,000,000.
If Melvin had kept an annuity interest or a unitrust interest, then the 10% interest rate would
have been used to value his interest. The actual income yield of 6.5% would not be relevant in
arriving at the valuation.
p. C12-14.
Problems
C12-30 a.
Tax on $6,000,000
$2,940,800
Minus: Tax on $1,000,000 (current rate schedule)
( 345,800)
Tax on $5,000,000
$2,595,000
Minus: Remaining unified credit
($202,050 - $121,800 used)
( 80,250)
Tax payable
$2,514,750
b.
The current rate schedule is used to determine the tax on the $1,000,000 gift. The
computation would be the same except that the remaining unified credit would be $202,050. Since
the $1,000,000 gift was made prior to the advent of the unified credit, none of the credit has been
used. The tax payable would be $2,392,950. pp. C12-23 through C12-25.
C12-31
Tax on $950,000
Minus: Tax on $750,000 (current rate schedule)
Tax on $200,000
Minus: Remaining unified credit
($202,050 - $34,000 used in 1978)
Tax payable
$326,300
(248,300)
$ 78,000
(168,050)
$ -0-
pp. C12-23 through C12-25.
C12-32 a.
Beth made gifts of $34,000 [($40,000 - $18,000) + $12,000] to Linda. Beth receives
an annual exclusion of $10,000. Beth's taxable gifts are $24,000.
b.
Beth's taxable gift to Linda is $12,000 [($40,000 - $18,000) - $10,000] and to Patrick
is $2,000 ($12,000 - $10,000). Total taxable gifts for Beth are $14,000. pp. C12-4 and C12-7.
C12-6
C12-33 a.
8 x ($30,000 - $10,000) = $160,000 taxable gifts.
b.
Each spouse is deemed to have given each grandchild $15,000. Taxable gifts are
$40,000 [8 x ($15,000 - $10,000)] for each spouse, or $80,000 total. pp. C12-4 and C12-5, C12-22
and C12-23.
C12-34 a.
Diane's gifts:
To Mel
To Nan
Total
Minus: One-half of Diane's gift deemed made by spouse
Plus: One-half of husband's gifts
Minus: Exclusions (3 x $10,000)
Taxable gifts
$ 50,000
120,000
$170,000
( 85,000)
75,000
( 30,000)
$130,000
Diane's husband's gifts:
To Opal
$150,000
Minus: One-half of gifts deemed made by Diane
( 75,000)
Plus: One-half of Diane's gifts
85,000
Minus: Exclusions (3 x $10,000)
( 30,000)
Taxable gifts
$130,000
b.
There would be only two donees and only $20,000 of exclusions for each donor.
Taxable gifts for both Diane and her husband would instead be $140,000. pp. C12-4, C12-5, C12-22
and C12-23.
C12-35 a.
No gift arises because there is no completed transfer. The designation is not
irrevocable. p. C12-14.
b.
There is a gift to Matt of $12,000 when Matt makes the withdrawal. pp. C12-13 and
C12-14.
c.
There is no gift because the transaction is a direct payment of medical expenses. pp.
C12-7 and C12-8.
d.
There is a $60,000 gift to Olive. p. C12-7.
C12-36 Emily's current gifts from Problem C12-35 total $72,000 ($12,000 + $60,000). Her taxable
gifts are $52,000 ($72,000 - $20,000 of exclusions). Emily's gift tax liability is determined as
follows:
Tax on $2,552,000
$1,053,360
Minus: Tax at current rates on $2,500,000 of prior gifts
(1,025,800)
Tentative tax
$ 27,560
Minus: Remaining unified credit ($202,050 - $96,300 used
in 1984)
( 105,750)
Tax payable
$ -0pp. C12-23 through C12-25.
C12-7
C12-37 a.
There is a gift of the remainder interest which is valued at $45,206 [$100,000 ($8,000 x 6.8492)]. The factor for the annuity (6.8492) is determined by subtracting the factor for
the remainder interest (0.31508, Table S, Age 67, 10.0% interest rate, Appendix H) from 1.0 and
dividing the difference by the 10% interest rate [(1.0 - 0.31508)/10% = 6.8492 factor]. pp. C12-11
through C12-13.
b.
The statute exempts this type of transaction from classification as a gift. pp. C12-7
and C12-8.
c.
There is a gift of $72,000. p. C12-7.
d.
The $150,000 transfer is not a gift because it is an incomplete transfer. The trust is
revocable. The payment of the $18,000 of income is a completed transfer and, thus, a gift. pp. C1210 and C12-11.
C12-38 a.
There is a gift of $800,000 ($1,800,000 - $1,000,000). p. C12-7.
b.
There is a gift of $800,000 because giving up of the marital rights is not consideration
in money or money's worth. pp. C12-8 and C12-9.
c.
There is no gift because the transaction occurs in the ordinary course of the business.
p. C12-7.
d.
There is no gift because the expenditures are made for support of the donor's minor
child. p. C12-8.
e.
The statute exempts this type of transaction from classification as a gift. p. C12-8.
f.
There is a gift of the foregone interest. The interest amount is determined by
multiplying the $600,000 principal amount times the applicable federal interest rate times the portion
of the year (5 months) for which the loan was outstanding. Since the applicable federal interest rate
is 10%, the foregone interest is $25,000 ($600,000 x 0.10 x 5/12). pp. C12-27 and C12-28.
C12-39 a.
$202,050 - (0.20 x $30,000) = $196,050
b.
$202,050; here, the credit is not reduced because Mike used the specific exemption
against a gift made in May 1976 instead of a gift made between September 9 and December 31,
1976. pp. C12-23 through C12-25.
C12-40 $30,000 + (9/12 x $1,800) = $31,350. p. C12-14.
C12-41 The marital deduction is $390,000, and the charitable contribution deduction is $50,000.
These deductions are available for gift tax purposes. These deductions are available in addition to
the $10,000 annual exclusion for each gift. Incidentally, the charitable transfer does not need to be
reported on a gift tax return because the museum received Tina’s entire interest in the property. The
income tax charitable contribution deduction is $60,000, providing this amount does not exceed
Tina's 50% of AGI limitation. pp. C12-18 through C12-22.
C12-42 a.
A $10,000 exclusion is available; this is a Section 2503(c) trust.
b.
No exclusion is available; May does not have a present interest, and this is not a
Section 2503(c) trust.
C12-8
c.
$10,000 exclusion is available; May receives a present interest of $10,000. This is a
Crummey trust. pp. C12-16 through C12-18.
C12-43 Will and Helen each will receive annual gift tax exclusions as follows:
Will, Jr.
Suzy (future interest)
Joyce (0.50 x $8,000)
Total
$10,000
-04,000
$14,000
The exclusion for the gift to Joyce is limited to $4,000, the amount of the deemed gift after gift
splitting. Together the total gift tax exclusions for Will and Helen are $28,000 ($14,000 x 2). pp.
C12-16 through C12-18.
C12-44 Bonnie receives one exclusion; only Carol has a present interest. (The trust beneficiaries, not
the trust, are the donees.) p. C12-17.
C12-45 The gift tax liability calculation for each Hugo and Wanda is as follows:
Last Year
Gift to each donee after gift splitting
(0.50 x $10,000)
Minus: Exclusion per donee
Taxable gift per donee
$ 5,000
( 5,000)
$ -0-
Gift tax liability
$ -0-
This Year
Gift to each donee after gift splitting
(0.50 x $30,000)
Minus: Exclusion per donee
Taxable gift per donee
Times: Number of donees
Taxable gifts for each spouse
$ 15,000
( 10,000)
$ 5,000
x
30
$150,000
Tentative tax (no previous taxable gifts)
Minus: Remaining unified credit
Gift tax liability
$ 38,800
(202,050)
$ -0-
pp. C12-22 and C12-23.
C12-9
C12-46 a.
If Hugh makes an election, Hugh receives a $490,000 marital deduction on this QTIP
transfer.
b.
No marital deduction is available; this trust does not meet the QTIP requirements
because the spouse is not entitled to the income for life. pp. C12-18 through C12-20.
C12-47 a.
The marital deduction is $35,000 ($45,000 - $10,000 exclusion). pp. C12-18 and
C12-19.
b.
No marital deduction is available because the transfer is of a nondeductible
terminable interest. The property passes to the daughter at the end of 15 years. pp. C12-19 and C1220.
C12-48 a.
b.
$31,508 [0.31508 (Table S, Appendix H, 10.0%, Age 67) x $100,000]
No charitable contribution deduction. pp. C12-20 through C12-22.
C12-49 a.
Wilma's tax liability:
Gift to Art
Plus: Gift to Bart
Total gifts
Minus: One-half of Wilma's gifts deemed made
by Homer (0.50 x $508,000)
Plus: One-half of Homer's gifts to third parties
(0.50 x $1,160,000)
Minus: Exclusions
Taxable gifts
Tax on $810,000
Minus: Remaining unified credit
Tax payable
$ 500,000
8,000
$ 508,000
( 254,000)
(
580,000
24,000)a
$ 810,000
$ 271,700
( 202,050)
$ 69,650
Homer's tax liability:
Gift to Linda
Plus: Gift to Norma (future interest)
Total gifts
Minus: One-half of Homer's gifts to
third parties deemed made by Wilma
Plus: One-half of Wilma's gifts
Minus: Exclusions
Taxable gifts
( 580,000)
254,000
( 24,000)a
$ 810,000
Tax on $1,810,000
Minus: Tax at current rates on $1,000,000
Tax on $810,000
$ 695,300
( 345,800)
$ 349,500
C12-10
$ 700,000
460,000
$1,160,000
Minus: Remaining credit ($202,050 - $96,300
used in 1984)
Tax payable
( 105,750)
$ 243,750
a
Exclusions are available for the gifts to Art, Bart and Linda. The exclusion for the gift to Bart is
only $4,000 per deemed donor. There is no exclusion for the gift of a future interest to Norma.
Note: Homer’s charitable gift does not need to be reported on the gift tax return. The taxable
charitable gift is zero because of the exclusion and deduction.
The total tax that is payable with gift splitting is $313,400 ($69,650 + $243,750).
b.
Wilma's tax liability:
Gift to Art
Plus: Gift to Bart
Total gifts
Minus: Exclusions
Taxable gifts
$ 500,000
8,000
$ 508,000
( 18,000)
$ 490,000
Tax on $490,000
Minus: Unified credit
Tax payable
$ 152,400
( 202,050)
$ -0-
Homer's tax liability:
Gift to Linda
Plus: Gift to Norma (future interest)
Total gifts
Minus: Exclusion
Taxable gifts
$ 700,000
460,000
$1,160,000
( 10,000)
$1,150,000
Tax on $2,150,000
Minus: Tax on $1,000,000
Tax at current rates on $1,150,000
Minus: Remaining credit ($202,050 - $96,300
used in 1984)
Tax payable
$ 854,300
( 345,800)
$ 508,500
( 105,750)
$ 402,750
The total tax payable without gift splitting is $402,750 ($0 + $420,750), or $89,750 ($402,750 $313,400) more than with gift splitting. The lower tax liability in part a comes about because gift
splitting permits Homer and Wilma to use a larger total unified credit amount and receive greater
annual exclusions in the aggregate. In addition, with gift splitting Homer's marginal rate is reduced
from 49% to 45%. pp. C12-22 and C12-23.
C12-11
C12-50 Gift to Janet
Plus: Gift to Cindy
Plus: Gift to Henry (spouse)
Total gifts
Minus: One-half of Winnie's gifts to third parties
deemed made by Henry (0.50 x $150,000)
Plus: One-half of Henry's gifts
Minus: Exclusions (three donees)
Marital deduction
Taxable gifts
Tax on $1,070,000
Minus: Tax at current rates on $1,000,000
Tax on $70,000
Minus: Remaining credit ($202,050 - $121,800
used in 1985)
Tax payable
$ 80,000
70,000
40,000
$190,000
( 75,000)
15,000
( 30,000)
( 30,000)
$ 70,000
$374,500
(345,800)
$ 28,700
( 80,250)
$ -0-
pp. C12-22 and C12-23.
C12-51 a.
The taxable gift is zero because of the annual exclusion and marital deduction.
b.
$75,000 ($95,000 - $20,000 Karen's former basis). Hal's basis is Karen's former basis
because the property was appreciated and Karen paid no gift tax.
c.
$85,000.
d.
$20,000 because Hal (the donee) dies within a year of receiving the appreciated
property, and he wills the property to the donor (Sec. 1014(e)).
e.
$85,000 because he survives the date of the gift by more than one year.
pp. C12-25 through C12-27.
C12-52 Siu should give away the Gold stock. This plan would be the better approach from an
income-tax standpoint because the donee would have a higher basis ($450,000 instead of $100,000).
The transfer tax implications are neutral because each stock has the same FMV and the same
anticipated appreciation rate. pp. C12-25 through C12-29.
C12-53 Sam makes a gift to Tom of the foregone interest ($10,000,000 x 0.09 x 1/4 year), or
$225,000. Sam reports interest income in the amount of the foregone interest. Tom has $225,000 of
imputed interest expense, but, depending upon the classification of the interest, all or a portion of
this amount may be personal interest and, thus, nondeductible. pp. C12-27 and C12-28.
C12-54 Sam makes a gift to Tom of the foregone interest ($42,000 x 0.09 x 1/4 year), or $945.
Under the de minimis rule, Tom and Sam's interest income and expense would be treated as being $0
because of Tom's low interest income. pp. C12-27 and C12-28.
C12-12
C12-55 No, Germana may not file Form 709A because she makes gifts that are taxable. After gift
splitting she made deemed gifts of more than $10,000 per donee. pp. C12-30 and C12-31.
Tax Form/Return Preparation Problems
C12-56 (See Instructor's Guide)
C12-57 (See Instructor's Guide)
Case Study Problems
C12-58 (See Instructor's Guide)
C12-59 (See Instructor's Guide)
Tax Research Problems
C12-60 (See Instructor's Guide)
C12-61 (See Instructor's Guide)
C12-62 (See Instructor's Guide)
C12-13