Question 1

Application of the blockage rule has not been limited to just the valuation of stocks and securities but has been applied to other assets.

Accepted Answer

A) True 
 B)False

Question 2

Which, if any, are characteristics of the valuation tables issued by the IRS?

Accepted Answer

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 mid-term interest rate for the month of the transfer must be known. 
E) None of the above.

Question 3

How could the election of the alternate valuation date (§ 2032) increase a decedent's marital deduction?

Accepted Answer

The answer of How could the election of the alternate...

Question 4

At the time of Elijah's death, he owned stock in Grey Corporation. The stock is traded on a local exchange with the most recent selling prices as follows. $\begin{array}{lc} 
&\text { Per Share }\
& \text { Price } \
\text { Four trading days prior to Elijah's death } & \$ 120 \
\text { Six trading days affer Elijah's death } & 100
\end{array}$  Presuming no alternate valuation date election, Elijah's gross estate should include a per share value of:

Accepted Answer

A) $108. 
B) $110. 
C) $112. 
D) $120. 
E) None of the above.

Question 5

Match each statement with the correct choice. Some choices may be used more than once or not used at all.
-Discount attributable to a large number of shares.

Accepted Answer

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

Question 6

Presuming the § 2032A election is properly made for a decedent who died in 2016, what value is included in the gross estate in each of the following independent situations? $$\begin{array} { l c c } 
& \text { Special Use } & \text { Best Use } \
& \text { Value } & \text { Value } \
\text { Situation A } & \$ 4,000,000 & \$ 4,900,000 \
\text { Situation B } & 1,200,000 & 3,000,000
\end{array}$$

Accepted Answer

The answer of Presuming the § 2032A election is properly...

Question 7

Curt owns the following assets which he gives to his daughter Carla. No gift tax results. $\begin{array}{lll}&&\text { Fair Market }\&\text { Basis }&\text { Value }\
\text { Land } & \$ 200,000 & \$ 400,000 \
\text { Securities } & 800,000 & 600,000
\end{array}$ 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:

Accepted Answer

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.

Question 8

Zane makes a gift of stock in Cerulean Company to family members. Cerulean is a closely held corporation that is not traded on any exchange. To hedge on the value used for gift tax purposes, Zane also donates some of the stock to a qualified charity. Explain the advantage of this approach.

Accepted Answer

The answer of Zane makes a gift of stock in...

Question 9

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)?

Accepted Answer

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.

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

Buy and sell agreements can be used to help solve the estate tax valuation problems involved in the transfer by death of an interest in a small business.

Accepted Answer

A) True 
 B)False

Question 12

The election by an estate of § 2032A (special use valuation as to real estate) or § 2032 (the alternate valuation date) will have no effect on the income tax basis of the property received by the heirs.

Accepted Answer

A) True 
 B)False

Question 13

A farm has a best use valuation of $2.9 million and a current use valuation of $2 million. If § 2032A is elected, the farm can be valued in the deceased owner's gross estate at $2 million.

Accepted Answer

A) True 
 B)False

Question 14

Clancy and Maureen are husband and wife and have always lived in a community property state. When Clancy learns that he is terminally ill, he gives to Maureen all of his share of the community investments that have declined in value. Why?

Accepted Answer

The answer of Clancy and Maureen are husband and wife...

Question 15

In 2015, 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 2016 and the other in 2017. She did not elect out of the installment method of recognizing gain. In 2016 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:

Accepted Answer

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.

Question 16

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: $\begin{array}{lcc} 
& \text { Adjusted } & \text { Fair Market } \
&\text { basis } & \text { Value } \
\text { Stock in Scarlet Corporation } & \$ 2,000,000 & \$ 1,000,000 \
\text { Apartment building } & 3,000,000 & 6,000,000
\end{array}$ Under Isla's will, all of her property passes to Liam. After Isla's death, Liam's income tax basis in this property is:

Accepted Answer

A) $2,500,000. 
B) $3,500,000. 
C) $7,000,000. 
D) $8,000,000. 
E) None of the above.

Question 17

Match each statement with the correct choice. Some choices may be used more than once or not used at all.
-Valuation of life estate interest created by transfer in trust.

Accepted Answer

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

Question 18

Match each statement with the correct choice. Some choices may be used more than once or not used at all.
-Decedent owned Roth IRA that has appreciated.

Accepted Answer

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 (IR
D) 
K)No correct choice is given

Question 19

Eight months after Noah died, Audrey sells stock that she inherited from him. If the stock was sold for less than its value on the date of Noah's death, Audrey has a short-term capital loss.

Accepted Answer

A) True 
 B)False

Question 20

Match each statement with the correct choice. Some choices may be used more than once or not used at all.
-Reasonable cause will justify election.

Accepted Answer

A) Revocable trusts 
B) Income in respect of a decedent (IR
D)  
C) Conservation easement 
D) Discretionary extension of time to pay estate tax (§ 6161) 
E) Estate freeze-corporations
F)Extension of time involving interest in closely held business (§ 6166)
G)Special use valuation as to certain realty (§ 2032
A) 
H)Depreciation recapture potential eliminated
I)Alternate valuation date (§ 2032)
J)Election to split gifts (§ 2513)
K)No correct choice is given

Exam 19: Family Tax Planning

Application of the blockage rule has not been limited to just the valuation of stocks and securities but has been applied to other assets.

Which, if any, are characteristics of the valuation tables issued by the IRS?

How could the election of the alternate valuation date (§ 2032) increase a decedent's marital deduction?

Match each statement with the correct choice. Some choices may be used more than once or not used at all. -Discount attributable to a large number of shares.

Zane makes a gift of stock in Cerulean Company to family members. Cerulean is a closely held corporation that is not traded on any exchange. To hedge on the value used for gift tax purposes, Zane also donates some of the stock to a qualified charity. Explain the advantage of this approach.

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) ?

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.

Buy and sell agreements can be used to help solve the estate tax valuation problems involved in the transfer by death of an interest in a small business.

The election by an estate of § 2032A (special use valuation as to real estate) or § 2032 (the alternate valuation date) will have no effect on the income tax basis of the property received by the heirs.

A farm has a best use valuation of $2.9 million and a current use valuation of $2 million. If § 2032A is elected, the farm can be valued in the deceased owner's gross estate at $2 million.

Clancy and Maureen are husband and wife and have always lived in a community property state. When Clancy learns that he is terminally ill, he gives to Maureen all of his share of the community investments that have declined in value. Why?

Match each statement with the correct choice. Some choices may be used more than once or not used at all. -Valuation of life estate interest created by transfer in trust.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. -Decedent owned Roth IRA that has appreciated.

Eight months after Noah died, Audrey sells stock that she inherited from him. If the stock was sold for less than its value on the date of Noah's death, Audrey has a short-term capital loss.

Match each statement with the correct choice. Some choices may be used more than once or not used at all. -Reasonable cause will justify election.