Exam 19: Family Tax Planning

The quantity of stock that a decedent owns in a closely held corporation can have an effect on its valuation. Explain this statement.

If a decedent's household goods are sold through public auction, the price received should be the valuation used for Federal estate tax purposes.

In arriving at the value of stock in a closely held business, the IRS frequently imputes goodwill. Comment on how the following independent factors would affect the determination of goodwill. a. Past profits include a large nonoperating gain. b. Shareholder-employees have not been receiving adequate compensation for their services. c. The shareholders have been financing corporate operations with interest-free loans.

Which, if any, of the following statements correctly reflects the operational rules under § 2032A ("special use" valuation)?

Match each statement with a correct choice. Choices may be used more than once. a. Increases the probate estate b. Decreases the probate estate c. Has no effect on the probate estate -Mother purchases land listing ownership with decedent as joint tenants.

Liam and Isla are husband and wife and have always lived in a community property state. At the time of Isla's prior death, part of their community property includes: Under Isla's will, all of her property passes to Liam. After Isla's death, Liam's income tax basis in this property is:

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Increases the probate estate b. Decreases the probate estate c. Has no effect on the probate estate -Made life insurance payable to children.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Increases the probate estate b. Decreases the probate estate c. Has no effect on the probate estate -Sold out-of-state realty.

Funding an entity type of buy and sell agreement with life insurance requires fewer policies than in the case of the cross-purchase type.

What are the advantages of § 6166 (extension of time when the estate consists largely of an interest in a closely held business)?

At the time of Addison'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 Addison's gross estate?

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Use IRS valuation tables b. Blockage rule c. Special use value d. Best or most suitable use value e. Cost of going public f. Replacement cost of a comparable contract g. Portion of a deceased spouse's share of community property that passes to a surviving spouse h. Cross-purchase buy and sell agreement i. Entity buy and sell agreement j. Bypass amount k. No correct choice is given -Exemption equivalent

In an estate freeze, the preferred stock is taxed twice-first upon the gift, and second when the donor dies.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Step-up in basis b. Step-down in basis c. Gift of installment notes receivable d. Gift of property that has § 1245 or § 1250 potential for recapture of depreciation e. Donor's basis on date of gift (appreciated property given, no gift tax due) f. The amount of the deceased spouse's taxable estate does not change g. Fair market value on date of gift h. Expected surviving spouse is in good health and 10 years younger i. No income tax consequences to the beneficiary j. Income in respect of a decedent (IRD) k. No correct choice is given -Donee's basis for gain.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Increases the probate estate b. Decreases the probate estate c. Has no effect on the probate estate -Two years prior to her death, the insured transferred by gift all of the incidents of ownership in an insurance policy on her life. The gift was to her son, the beneficiary of the policy.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. a. Step-up in basis b. Step-down in basis c. Gift of installment notes receivable d. Gift of property that has § 1245 or § 1250 potential for recapture of depreciation e. Donor's basis on date of gift (appreciated property given, no gift tax due) f. The amount of the deceased spouse's taxable estate does not change g. Fair market value on date of gift h. Expected surviving spouse is in good health and 10 years younger i. No income tax consequences to the beneficiary j. Income in respect of a decedent (IRD) k. No correct choice is given -Decedent owned traditional IRA that has appreciated.

Paula owns an insurance policy on her life payable to her estate. On Paula's death, the insurance proceeds are included in her gross estate and her probate estate.

Mel's estate includes a number of notes receivable signed by his daughter, Tammy. These notes were issued by Tammy on different occasions when she obtained funds from Mel. The total face amount of these notes is $150,000. The notes are forgiven by Mel's will. How much, if any, regarding these notes should be included in Mel's gross estate?

Any recapture of special use valuation estate tax savings is imposed on the executor of the estate.

Which, if any, of the items listed below are valid factors utilized in valuing the stock in a closely held corporation?