The Guide to Form 709 Gift Tax Returns - Western CPE

The Guide to Form 709 Gift Tax Returns

Robert Keebler

Course #8132433, Version 1801, 2 CPE Credits

Course CPE Information


Course Expiration Date Per AICPA and NASBA Standards (S9-06), QAS Self-Study courses must include an expiration

date that is no longer than one year from the date of purchase or enrollment.

Field of Study Taxes (in NY Taxation). Some state boards may count credits under different categories—check

with your state board for more information.

Course Level Basic.

Prerequisites There are no prerequisites.

Advance Preparation None.

Course Description For tax preparers and clients alike, the IRS rules for gift tax returns can be confusing. In this

course, Robert Keebler provides a detailed synopsis of the rules, requirements, benefits, and

potential traps involved with gifting. The course pays special attention to the marital deduction,

gift splitting, adequate disclosure, the generation-skipping transfer tax, defined value and related

clauses, and potential hazards. The Guide to Form 709 Gift Tax Returns will help you to ensure

that your clients can successfully transfer assets and avoid paying unnecessary penalties.

Course content and learning objectives © Copyright Robert Keebler 2013

Review questions and qualified assessment © Copyright Western CPE 2013

Publication/Revision Date January 2018


Instructional Design

This Self-Study course is designed to lead you through a learning process using instructional methods that will help you achieve the stated learning objectives. You will be provided with course objectives and presented with comprehensive information and facts demonstrated in exhibits and/or case studies. Review questions will allow you to check your understanding of the material, and a qualified assessment will test your mastery of the course.

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achieving the learning objectives.

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why an answer is correct or incorrect. Evaluative feedback to incorrect responses and

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Western CPE Self-Study 243 Pegasus Drive

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Table of Contents

Table of Contents

Section 1

Outline.................................................................................................................................... 1–1:13

Basics of the Gift Tax ............................................................................................................ 1–5:48

Benefits of Gifting ................................................................................................................. 1–6:40

Tax Exclusive Nature of Taxable Gifts ................................................................................. 1–8:08

Tax Exclusive Nature of Taxable Gifts Example .................................................................. 1–9:03

Basics of the Gift Tax: Basis ................................................................................................. 1–9:35

Availability of Annual Exclusion ........................................................................................ 1–11:52

Availability of Annual Exclusion: Crummey Trusts ........................................................... 1–13:07

Availability of Annual Exclusion: 2503(c) Trusts ............................................................... 1–13:52

Deductions ........................................................................................................................... 1–15:01

Education and Medical Expenses ........................................................................................ 1–15:42

Qualified State Tuition Program .......................................................................................... 1–18:37

Filing Requirements ............................................................................................................. 1–19:26

Gift Tax Return Due Date .................................................................................................... 1–21:11

Extensions ............................................................................................................................ 1–21:55

Where to File........................................................................................................................ 1–23:16

Amended Returns................................................................................................................. 1–23:48

Marital Deduction ................................................................................................................ 1–24:31

QTIP Basics ......................................................................................................................... 1–27:35

QTIP Due Date .................................................................................................................... 1–30:08

Gift Splitting ........................................................................................................................ 1–30:30

Due Date .............................................................................................................................. 1–35:57

Statutory Deadline ................................................................................................................1–36.52

Gift Splitting ........................................................................................................................ 1–37:20

Disadvantages ...................................................................................................................... 1–37:40

Gifts to Third Party and to Spouse ....................................................................................... 1–39:43

Gift Splitting ........................................................................................................................ 1–40:18

Adequate Disclosure IRS Sec 6501(c)(9) ............................................................................ 1–42:41

Statute of Limitations for Assessing Additional Gift Tax ................................................... 1–44:05

Effects of Running of the Statute ......................................................................................... 1–45:25

Disclosure Requirements ..................................................................................................... 1–47:16

Adequate Disclosure ............................................................................................................ 1–48:00

Section 2

Taxpayer Relief Act of 1997 .................................................................................................. 2–0:07

Disclosure Requirements for Gifts not Subject to Chapter 14 ............................................... 2–0:24

Information Required for Both Safe Harbors ........................................................................ 2–1:05

Information Required for Detailed Description Safe Harbor ................................................ 2–3:42

Information Required for Appraisal Safe Harbor .................................................................. 2–5:52

Non-Gift Completed Transfers .............................................................................................. 2–9:12

Adequate Disclosure of Incomplete Transfers ..................................................................... 2–10:08

Substantial Compliance ....................................................................................................... 2–11:52

Procedural Issues ................................................................................................................. 2–12:51

Table of Contents

Generation-Skipping Transfer Tax ...................................................................................... 2–14:00

Estate Tax Erosion Example: 40% Tax Rate ....................................................................... 2–16:14


Inclusion Ratio ..................................................................................................................... 2–22:11

Inclusion Ratio/Applicable Fraction .................................................................................... 2–23:30

Unnatural Order of Death Rule ............................................................................................ 2–25:13

Predeceased Parent Rule ...................................................................................................... 2–26:43

Automatic Allocation Rules ................................................................................................. 2–28:10


Other GST Forms ................................................................................................................. 2–32:58

Defined Value and Related Clauses ..................................................................................... 2–33:16

Four Ways to Structure ........................................................................................................ 2–34:11


First Addressed in 1944 in Procter v. Commissioner .......................................................... 2–41:05


Christiansen v. Commissioner (Tax Court) ......................................................................... 2–41:58

Christiansen v. Commissioner ............................................................................................. 2–42:37

Petter v. Commissioner (U.S. Tax Court - 2009) ................................................................ 2–43:03

Wandry v. Commissioner .................................................................................................... 2–44:35

Court-Favored Clauses......................................................................................................... 2–46:43

Valuation Adjustments......................................................................................................... 2–47:38

Potential Penalties: Taxpayer ............................................................................................... 2–48:44

Potential Penalties: Preparer ................................................................................................ 2–50:40

Learning Objectives

Learning Objectives

Section 1 After completing this section of the course, you will be able to:

Recognize how to best provide tax planning and return services with an understanding of

basic rules, requirements, benefits, and potential traps involved with gifting.

Cite and provide tax planning to take advantage of the marital deduction and gift

splitting, while providing adequate disclosure.

Section 2 After completing this section of the course, you will be able to:

Identify adequate disclosure requirements, the generation-skipping transfer tax, defined

value and related clauses, valuation adjustments, and potential hazards associated with

gifting.

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Welcome to Western CPE’s

Presentation of:


Presented by:Robert S. Keebler, CPA, MST Keebler & Associates, LLP

420 S. Washington StreetGreen Bay, WI 54301

(920)[email protected]

• Basics of the gift tax

• Filing requirements

• Marital deduction – IRC Sec. 2523

• Gift splitting – IRC Sec. 2513

• Adequate disclosure – IRC Sec. 6501(c)(9)

• Generation-skipping transfer tax – IRC Sec. 2601

• Defined value and related clauses

• Valuation adjustments

Outline

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Basics of the Gift Tax

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2013 Law:

• Annual gift tax exclusion: $14,000

• Gift tax exclusion: $5,000,000 (indexed for inflation, likely to be $5,250,000)

• Generation-skipping transfer (GST) tax exemption: $5,000,000 (indexed for inflation, likely to be $5,250,000)

• Gift tax/GST rate: 40%

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Basics of the Gift Tax

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• Removes appreciation and future income from donor’s estate

• Gift tax paid removed from donor’s estate if they live more than three years after gift

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Benefits of Gifting

• Gift tax imposed on the donor is calculated based onthe value of the gift passing to the donee (after theimposition of gift tax).

• Estate tax, on the other hand, is calculated based onthe total value of the taxable estate, regardless of thenet amount passing to the beneficiaries of the estate.

• The gift tax is approximately 2/3 of the estate tax.

Tax Exclusive Nature of Taxable Gifts

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Estate Tax Gift TaxTotal Taxable Estate / Gift 4,800,000$ 4,800,000$ Gift Tax -$ 1,703,226$ Estate Tax at 55% 2,640,000$ -$ Net to Family 2,160,000$ 3,096,774$

Savings 936,774$

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Tax Exclusive Nature of Taxable Gifts Example

• Carryover Basis – IRC Sec. 1015

• Plus amount of gift tax paid with respect to that gift

• Not to exceed FMV

Basics of the Gift Tax: Basis

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• If property gifted has a higher basis than value at the time of the gift, for purposes of calculating loss, the basis is limited to the value of the property at the time of the gift.

• Example: Alex purchased stock for $15,000 and gives it to his son, Nicholas, when the value of the stock is $10,000. Nicholas subsequently sells the stock for $8,000. When measuring loss, Nicholas’ basis is $10,000. Therefore, Nicholas’ loss is $2,000.


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• If property gifted has a higher basis than value at the time of the gift, for purposes of calculating gain, the basis is the donor’s basis at the time of the gift.

• Example: Alex purchased stock for $15,000 and gives it to his son, Devin, when the value of the stock is $10,000. Devin subsequently sells the stock for $19,000. When measuring gain, Devin’s basis is $15,000. Therefore, Devin’s gain is $4,000.


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Present Interest• Immediate use, possession, or enjoyment• Annual exclusion available

Future Interest• Donee does not have absolute right to the property

at the present time• No annual exclusion

Availability of Annual Exclusion

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• Annual exclusion

• Withdrawal rights

• Crummey notices Keep copies in file File gift tax return to run SOL

Availability of Annual Exclusion:Crummey Trusts

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• Annual exclusion available

• The gifted property and the income from it may be expended by (or for the benefit of) the beneficiary before age 21

• Passes to beneficiary at age 21

• If the minor dies before reaching age 21, trust will revert to the minor’s estate or will pass to the appointees of the beneficiary under a general power of appointment.

• Can be extended beyond 21

Availability of Annual Exclusion2503(c) Trusts

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• Charitable deduction – IRC Sec. 2522

• Marital deduction – IRC Sec. 2523

• Both unlimited

Deductions

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• Unlimited exclusion – IRC Sec. 2503(e)

• Education – tuition Does not include room and board

• Medical – includes insurance premiums

• Paid directly to education or medical facility

• HEET trust strategy

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Education and Medical Expenses

• IRC Sec. 529

• Present interest

• Used for higher education

• Ratably over five years

Election on gift tax return Attachment

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Qualified State Tuition Program

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Filing Requirements

Gifts not required to be reported when only gifts for the year:

• Transfers that qualify for the annual exclusion

• Transfers that qualify for the educational and medical expenses exclusion

• Certain transfers for which the unlimited marital deduction is allowed QTIP must be reported to elect QTIP treatment

• Transfers of entire interests that qualify for the charitable deduction

Filing Requirements

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• April 15

• If taxpayer dies, no later than due date (with extensions) for estate tax return

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Gift Tax Return Due Date

• Automatic six-month extension

• Income tax return Form 4868

• Form 8892 Needs to be filed if gift tax return due

• Check box on return indicating extension

Extensions

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Extension of time to pay if undue hardship to taxpayer:

• Undue hardship is substantial financial loss• Can occur if the taxpayer can pay tax only by selling

a piece of property at a sacrifice price• Form 1127 • Interest still accrues• Six-month extension• Treas. Reg. 1.6161-1

Extensions

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Department of the TreasuryInternal Revenue Service Center

Cincinnati, OH 45999

Where to File

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• No special return

• File regular Form 709

Mark “amended”

Attachment explaining changes

• Extends the SOL

Amended Returns

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Marital Deduction

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Marital Deduction

Unlimited deduction – IRC Sec. 2523, requirements:

• The spouses are married

• The donee spouse is a U.S. citizen

• The interest transferred is not a nondeductible terminable interest

• The property interest transferred is not otherwise deducted for federal gift tax purposes

• The gifts are included in the total taxable gifts for the year

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Marital Deduction

Non U.S. citizen Spouse:

• Gift do not qualify for marital deduction

• Eligible for increased annual exclusion

$139,000 in 2012

Must be gift of present interest

QTIP does not qualify

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QTIP Basics

Requirements:

• All of the income from the property is payable to the spouse at least annually, and

• No one (including the donee spouse) has a power to distribute or appoint the assets to any person other than the donee spouse during the donee spouse's lifetime (although testamentary powers are acceptable).

Qualifies for unlimited marital deduction

Irrevocable election

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QTIP Basics

• Election made by listing the property on Schedule A, Part 1, and deducting the value of the trust on Part 4, line 4.

• Partial QTIP elections allowed Partial election using formula clause protects against change in value

on audit

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QTIP Due Date

• Can be made on an extended gift tax return

• May not be made on a late filed gift tax return

• Statutory deadline: Relief under Treas. Reg. 301.9100-3 not available

However, an automatic six-month extension from the due date of a return excluding extensions is granted to make statutory elections, provided the taxpayer timely files return and taxpayer takes corrective action (file an original or a supplemental return) within that six-month extension period

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Gift Splitting

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• Treats all gifts made by one spouse as though half made by each spouse Cannot split gifts to spouse

• Each spouse must be a citizen or resident of the United States

• Individual considered as the spouse of another individual, only if they are married to such individual at the time of the gift and does not remarry during the remainder of the calendar year

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Gift Splitting

• Only applies if both spouses have signified their consent to gift splitting in the case of all such gifts made during the calendar year by either while married to the other

Executor can sign for deceased spouse

• Each spouse must sign the other spouse’s return

Mailed to IRS in same envelope

Gift Splitting

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• Community Property

Gift splitting generally not necessary

• In the case of split gifts, gifts attributed to the non-donor spouse are deemed adequately disclosed if the gifts are adequately disclosed on the return filed by the donor spouse

Gift Splitting

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• Consenting spouse need not file Form 709 if:

Only one spouse made gifts during the year and the total value of gifts made to any one donee is less than two times the annual exclusion ($28,000 in 2013). All gifts must be gifts of a present interest.

If both spouses make gifts during the year, and the donor spouse does not make gifts in excess of two times the annual exclusion to any one donee, and all of the consenting spouse's gifts are no greater than the annual exclusion and payable to someone other than the donor spouse's donees. All gifts must be gifts of a present interest.

Gift Splitting

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• Consent to gift splitting may be signified at any time after the close of the calendar year in which the gift was made, subject to the following limitations:

Consent may not be signified after April 15, following the close of such year, unless before such day no return has been filed for such year by either spouse, in which case the consent may not be signified after a return for such year is filed by either spouse.

Consent may not be signified after a notice of deficiency with respect to the tax for such year has been sent to either spouse.

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Due Date

• Relief under Treas. Reg. 301.9100-3 not available

• However, an automatic six-month extension from the due date of a return excluding extensions is granted to make statutory elections provided the taxpayer timely files return and taxpayer takes corrective action (file an original or a supplemental return) within that six-month extension period

Statutory Deadline

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• Not revocable after April 15, following the close of calendar year in which the gift was made if consent was made on or before April 15.

• Not revocable if consent was not signified until after April 15, following the close of calendar year in which the gift was made.

Gift Splitting

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• Joint and several liability for gift tax

• If donor spouse makes a gift and the non-donor spouse consents to gift split, the non-donor using part of the non-donor’s spouse’s unified credit and the donor spouse dies within three years of making the gift, and the donor's gift is includible in the donor's gross estate, the non-donor spouse’s unified credit is not restored

Disadvantages

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• Gifts to person other than spouse are only gifts eligible to gift split

• When gift made to spouse and other person (e.g. gift to trust for benefit of spouse and children), gift to third party can be split if severable and ascertainable from gift to spouse

• If spouse’s interest not severable and ascertainable, gift splitting not allowed

• If spouse’s interest is severable and ascertainable, gift splitting not allowed for gift to spouse, but is allowed for gift to third party

Gifts to Third Party and to Spouse

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• Spouse’s interest may be severable and ascertainable because of Crummey powers

Example:• Donor spouse establishes a trust for the benefit of the spouse and three

children. The trust gives the non-donor spouse a Crummey power up to $5,000 and the three children Crummey powers up to $13,000. The donor spouse transfers $83,000 to the trust. If all the necessary requirements are met, the entire $83,000 transfer qualifies for split-gift treatment.

• The $78,000 that can be withdrawn by the children qualifies as a split gift.

• The $5,000 that can be withdrawn by the non-donor spouse does not qualify for gift splitting.

• See PLR 200130030.

Gift Splitting

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Adequate DisclosureIRC Sec. 6501(c)(9)

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Statute of Limitations for Assessing Additional Gift Tax

• Statute of limitations is ordinarily three years after the later of:

The date the return was filed

Or

The date the return was due

• Time period increases to six years after the later of filing or due date if amounts omitted from the return exceed 25% of the amount reported

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Effects of Running of the Statute

• IRS cannot increase the amount of the initial gift

• IRS cannot increase the amount of a future gift based on an increase in the amount of the initial gift

• IRS cannot increase the amount of adjusted taxable gift included in the estate as a result of the gift

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Disclosure Requirements

Pre-1990• No disclosure requirements

Special valuation rules of Chapter 14

• Statute of limitations would not run with respect to a gift subject to the special valuation rules under § 2701 or § 2702 unless there was adequate disclosure

• Without adequate disclosure, additional tax could be assessed, or a proceeding in court for collection of tax without assessment could be commenced at any time

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Adequate Disclosure

• Statute of limitations can begin running if an amended return is filed satisfying the adequate disclosure rules when the original return did not provide adequate disclosure.

• See Rev. Proc. 2000-34. The top of the first page of the amended return must have the words “Amended Form 709 for gift(s) made in [insert the calendar year that the gift was made] — In accordance with Rev. Proc. 2000-34, 2000-34 I.R.B. 186.”

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Adequate Disclosure

For gifts subject to §§ 2701 and 2702, a return must provide the following information:

• A description of the transactions

• The identity of, and relationship between, the transferor, transferee, and all other persons involved

• A detailed description of the method used to determine the amount of the gift

• Treas. Reg. Sec. 301.6501(c)-1(e)(1)

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Taxpayer Relief Act of 1997

• Added new disclosure rules for gifts not subject to Chapter 14

• Applies to gifts made after August 5, 1997

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Disclosure Requirements for Gifts not Subject to Chapter 14

• If a gift is adequately disclosed on a gift tax return, it may not be revalued by the IRS for gift or estate tax purposes after the statute of limitations has run

• A transfer will be adequately disclosed if it is reported in a manner adequate to apprise the IRS of the nature of the gift and the value so reported

• Two more specific adequate disclosure safe harbors are: Detailed description safe harbor

Appraisal safe harbor

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Information Required for Both Safe Harbors

• A description of the transferred property and any consideration received by the transferor

• The identity of, and relationship between, the transferor and each transferee

• If the property is transferred in trust, the trust's tax identification number and a brief description of the terms of the trust, or in lieu of a brief description of the trust terms, a copy of the trust instrument

• A statement describing any position taken that is contrary to any proposed, temporary, or final Treasury regulations or revenue rulings published at the time of the transfer

• Treas. Reg. Sec. 301.6501(c)-1(e)(2)

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Information Required for Detailed Description Safe Harbor

The following additional information is required:

• Any financial data (e.g., balance sheets, etc. with explanations of any adjustments) that were utilized in determining the value of the property interest

• Any restrictions on the transferred property that were considered in determining the fair market value of the property

• A description of any discounts, such as discounts for blockage, minority or fractional interests, and lack of marketability, claimed in valuing the property

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In the case of a transfer of an interest that is actively traded on an established exchange, the following information will satisfy all additional requirements:

• Recitation of the exchange where the interest is listed

• The CUSIP number of the security

• The mean between the highest and lowest quoted selling prices

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For an interest in an entity that is not actively traded, the following rules apply:

• A description of any discounts claimed in valuing the assets

• If the value of the entity or of the interests in the entity is properly determined based on the net value of the assets held by the entity, an additional statement must be provided

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Information Required for Appraisal Safe Harbor

• An appraisal can be submitted in lieu of the information required for the detailed description safe harbor

• The appraisal must be prepared by a qualified appraiser

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The appraisal must contain:

• The date of the transfer, the date on which the transferred property was appraised, and the purpose of the appraisal.

• A description of the property

• A description of the appraisal process employed

• A description of the assumptions, hypothetical conditions, and any limiting conditions and restrictions on the transferred property

• The information considered in determining the appraised value

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The appraisal must contain (cont.):

• The appraisal procedures followed and the reasoning that supports the analyses, opinions, and conclusions

• The valuation method utilized, the rationale for the valuation method, and the procedure used in determining the fair market value of the asset transferred

• The specific basis for the valuation, such as specific comparable sales or transactions, sales of similar interests, asset-based approaches, merger-acquisition transactions, etc.

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Non-Gift Completed Transfers

• Completed transfers to members of the transferor’s family that are made in the ordinary course of business

Transfers are deemed to be adequately disclosed even if the transfer is not reported on a gift tax return if the transfer is properly reported by all parties for income tax purposes

• Other property transfers reported as non-gift transfers must satisfy two requirements to be considered adequately disclosed:

The general information required for both safe harbors must be provided

There must be an explanation of why the transfer is not a gift under Chapter 12 of the Code

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Adequate Disclosure of Incomplete Transfers

• Adequate disclosure of a transfer that is reported as a completed gift on the gift tax return commences the running of the statute of limitations even if the transfer is ultimately determined to be incomplete for gift tax purposes, (for example, donor retained limited power of appointment)

• If such a transfer is adequately disclosed, after the running of the statutory period the transfer will be included in the donor’s gross estate only to the extent that a completed gift would be so included

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Adequate Disclosure of Incomplete Transfers

• If the transfer is reported as an incomplete gift, the statutory period will not begin to run even if the transfer is ultimately determined to be a completed gift regardless of whether the transfer is adequately disclosed

• Additional gift tax may be assessed on the transfer for up to three years after the donor files a return reporting the transfer as a completed gift with adequate disclosure

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Substantial Compliance

What if taxpayer meets most, but not all, of the requirements in one of the safe harbors?

• If the disclosure was still adequate “to apprise the IRS of the nature of the gift and the value so reported” under the general rule of Reg. § 301.6501(c)-1(f)(2), the taxpayer would have a strong argument that the return should commence the running of the statute of limitations.

• The safe harbors could be seen as nonexclusive ways to satisfy the general rule

• Cautious taxpayers will want to qualify for one of the safe harbors

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Procedural Issues

• To revalue an adequately disclosed gift, the IRS must issue a final notice of redetermination within the applicable statute of limitations, even if the redetermination does not create gift tax payable

• The taxpayer can challenge the redetermined amount by petitioning the Tax Court for a declaratory judgment on the value of gifts, including the amount of applicable exclusion amount used on a transfer

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Procedural Issues

Failure to disclose on a timely filed return can sometimes be corrected.

• An original return would evidently start the statute even if it is filed late

• A timely-filed amended return should start the statute

• A late-filed amended return would not start the statute

• Filing of a false return, a fraudulent return, or no return at all will not start the statute of limitations

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Generation-Skipping Transfer Tax

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• Purpose of GST tax

• Lifetime Exemption

• $5,250,000 – 2013 (likely)

• Can be allocated to direct skips or to transfers in trust that may result in future taxable distributions or terminations


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Wealth of Parents 5,250,000$ 5,250,000$ 5,250,000$ Estate Tax Rate 40% 40% 40%Estate Tax 2,100,000$ 2,100,000$ 2,100,000$

Wealth of Children 3,150,000$ -$ -$ Estate Tax Rate 40% 40% 40%Estate Tax 1,260,000$ -$ -$

Wealth of Grandchildren 1,890,000$ 3,150,000$ -$ Estate Tax Rate 40% 40% 40%Estate Tax 756,000$ 1,260,000$ -$

Wealth of Great-Grandchildren 1,134,000$ 1,890,000$ 3,150,000$

% of Original Wealth Passing to Great-Grandchildren 21.6000% 36.0000% 60.0000%

Estate Tax Erosion Example: 40% Tax Rate

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• Timely allocation permits use of date-of-gift value for purposes of allocation

• Late allocation requires use of values as of date return is filed Special first of the month rule

Treas. Reg. Sec. 26.2642-2(a)(2

65

• Skip Person Person two or more generations below

o Grandchildren Non-relative more than 37½ years younger Certain trusts – all interests held by skip persons

• Non-Skip Person Anyone not a skip person

• Direct skips Gift to skip person

• Indirect skips Not a direct skip Subject to gift tax Made to a GST Trust


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Generation Skipping Transfer Tax

• GST annual exclusion

• Currently $13,000

• Available to direct skips

• Trusts can only qualify if:

Single Beneficiary. During the life of the beneficiary, no distributions may be made to anyone other than the beneficiary, and

Inclusion in Beneficiary’s Estate. At the individual’s death, if the trust is still in existence, the trust assets will be included in the beneficiary’s gross estate.

• IRC Sec. 2642(c)

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Inclusion Ratio

The proportion of the trust that is subject to GST tax. More correctly, it’s a factor in determining the GST Tax Rate.

Tax rate = (Top Estate Tax Rate) X Inclusion Ratio

• 35% X 1 – Amount of the GST exemption allocated to the trust, the value of the property transferred to the trust – (any federal estate tax or state death tax actually recovered from the trust attributable to such property + charitable deduction allowed)

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Inclusion Ratio/Applicable Fraction

Example:

In 2011, Lydia transfers $50,000 to a trust for the benefit of her children and grandchildren. On a timely filed Form 709, she only allocates $40,000 of her GST exemption of this transfer. In 2012, the trustee of the trust makes a $10,000 distribution to Lydia’s grandchild from the trust. The GST tax rate on the $10,000 taxable distribution (i.e. the taxable distribution) is calculated as follows:

• $10,000 distribution X 7% tax rate = $700 GST tax due

35% X 1 – $40,000, which = 35% X 1 -.8, which = 35% X .2, which = 7% tax rate$50,000

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Unnatural Order of Death Rule

An transferor can allocate GST exemption to a previous transfer on a chronological basis if:

• a non-skip person has an interest or a future interest in a trust to which any transfer has been made,

• such person:

is a lineal descendant of a grandparent of the transferor or of a grandparent of the transferor's spouse or former spouse, and

is assigned to a generation below the generation assignment of the transferor, and

such person predeceases the transferor

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Unnatural Order of Death Rule

Example:

Lydia creates a trust for the benefit of her daughter, Esmeralda. Lydia gifts $10,000 a year to this trust in 2012-2013. In 2014, Esmeralda unexpectedly dies in a car accident, leaving two children. Under the terms of the trust, Esmeralda’s children are now the trust beneficiaries. Lydia may now allocate GST exemption to the trust using the date of gift values (i.e. $10,000 for 2012-2013) to make the trust fully GST exempt.

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Predeceased Parent Rule

For purposes of determining whether any transfer is a generation-skipping transfer, if:

• an individual is a descendant of a parent of the transferor (or the transferor's spouse or former spouse)

• such individual's parent, who is a lineal descendant of the parent of the transferor (or the transferor's spouse or former spouse) is dead at the time the transfer (from which an interest of such individual is established or derived) is subject to estate or gift tax imposed upon the transferor (and if there shall be more than one such time, then at the earliest such time)

• such individual shall be treated as if such individual were a member of the generation, which is one generation below the lower of the transferor's generation or the generation assignment of the youngest living ancestor of such individual who is also a descendant of the parent of the transferor (or the transferor's spouse or former spouse), and the generation assignment of any descendant of such individual shall be adjusted accordingly.

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Predeceased Parent Rule

Example:

Ray’s child, Hannah, died in 2010. Hannah was survived by one child, Jolene. In 2011, Ray made an outright gift to Jolene. Under this rule, Jolene moved up one generation at her mother’s death and the 2011 gift from Ray is not considered a gift to a skip person for GST purposes.

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Automatic Allocation Rules

• Lifetime direct skips

• Automatic allocation rules for indirect skips: repealed as of 1/1/2013

• Indirect skip: a transfer that is not a direct skip, which is made to a GST trust

• GST trust: any trust that could have a taxable termination or taxable distribution unless one of six exceptions applies

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Automatic Allocation RulesGST trust: A trust that could have a generation-skipping transfer with respect to the transferor unless:

• The trust instrument provides that more than 25% of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons: Before the date that the individual attains age 46,

On or before one or more dates specified in the trust instrument that will occur before the date that such individual attains age 46, or

Upon the occurrence of an event that, in accordance with regulations prescribed by the Secretary, may reasonably be expected to occur before the date that such individual attains age 46

• The trust instrument provides that more than 25% of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons and who are living on the date of death of another person identified in the instrument (by name or by class) who is more than 10 years older than such individuals

75


GST Trust: A trust that could have a generation-skipping transfer with respect to the transferor unless:

• The trust instrument provides that, if one or more individuals who are non-skip persons die on or before a date or event described in clause, or more than 25% of the trust corpus either must be distributed to the estate or estates of one or more of such individuals or is subject to a general power of appointment exercisable by one or more of such individuals

• The trust is a trust, any portion of which would be included in the gross estate of a non-skip person (other than the transferor) if such person died immediately after the transfer

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GST Trust: A trust that could have a generation-skipping transfer with respect to the transferor unless:

• The trust is a CLAT, CRAT, or CRUT, or

• The trust is a trust with respect to which a deduction was allowed under section 2522 for the amount of an interest in the form of the right to receive annual payments of a fixed percentage of the net fair market value of the trust property (determined yearly), and which is required to pay principal to a non-skip person if such person is alive when the yearly payments for which the deduction was allowed terminate.

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• GST trust

• The value of transferred property is not considered to be includible in the gross estate of a non-skip person or subject to a right of withdrawal by reason of such person holding a right to withdraw so much of such property as does not exceed the gift tax annual exclusion with respect to any transferor

• It is assumed that powers of appointment held by non-skip persons will not be exercised

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• Automatic allocation Direct skips

• GST trust Election into automatic allocation Election out of automatic allocation

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Automatic Allocation

Where to Place on Form 709:

• Non-GST Trusts - Part 1

• GST Trusts - Part 3

• Direct Skip Trusts - Part 2


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• Allocation during estate tax inclusion period (ETIP), i.e., the period asset would be included in donor’s estate

Not allowed

Allocated at end of ETIP based on value at such time

Automatic for indirect skip trust


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Other GST Forms

• Form 706-GS(D)

Used by a skip person distributee to calculate and report the tax due on distributions from a trust that are subject to GST

In general, anyone who receives a taxable distribution from a trust must file this form

Due April 15 of year following distribution

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Other GST Forms

• Form 706-GS(D-1)

Used by trustee to report taxable distributions to skip person distributees and to provide the skip person with information needed to figure the tax due on the distribution

In general, any trustee who makes a taxable distribution from a trust must file this form for each skip person

Due April 15 of year following distribution

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Other GST Forms

• Form 706-GS(T)

Used by trustee to figure and report the tax due from certain trust terminations that are subject to GST

In general, the trustee of any trust that has a taxable termination must file this form

Due April 15 of year following taxable termination

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Defined Value and Related Clauses

85

• Attempt to avoid risk associated with increase in value of gift on audit

• Set the value of the property transferred equal to its value as finally determined for federal gift tax purposes.


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1. Provide that any excess value returns to the donor,

2. Provide that any excess value passes to another person or entity/charity (overflow clause),

3. Transfer all the property, but adjust the price to the value as finally determined for federal gift tax purposes, or

4. Use a formula allocation clause

Four Ways to Structure

87

• Provide that any excess value returns to the donor

• Transfer document provides that if the value of the property as finally determined for federal gift tax purposes exceeds its stated value, any excess value automatically returns to the donor.


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Example:

• Betty Smith wishes to gift units in the Smith FLP to her son Bill. Each unit has an undiscounted value of $2,000. Betty gifts 10,000 units to Bill and claims minority interest and lack of marketability discounts totaling 50%. This reduces the value of the property transferred from $2,000,000 (10,000 units x $200/unit) to the $1,000,000. The IRS audits the return and Betty ends up with a 20% discount instead of 50%. The value of the FLP units as finally determined for federal tax purposes is $160/unit instead of $100/unit.

• $600,000 worth of FLP units would go back to Betty. Given the $160/unit value as finally determined for federal gift tax purposes, Betty would transfer 6,250 units (6,250 units x $160/unit = $1,000,000) and 3,750 units would return to her.


89

• Provide that any excess value passes to another person or entity (overflow clause)

• Transfer a fixed number of units, but provide that they will be split between the donee and a second person or entity.

• The donee would receive units having a stated value and any excess value would pass to the second party.


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Example:

• Betty Smith wishes to gift units in the Smith FLP to her son Bill. Each unit has an undiscounted value of $2,000. Betty gifts 10,000 units to Bill and claims minority interest and lack of marketability discounts totaling 50%. This reduces the value of the property transferred from $2,000,000 (10,000 units x $200/unit) to the $1,000,000. The IRS audits the return and Betty ends up with a 20% discount instead of 50%. The value of the FLP units as finally determined for federal tax purposes is $160/unit instead of $100/unit.

• Betty included a clause stating that any she was transferring 10,000 units to split between Bill and a charity. Bill would receive whatever number of units turned out to have a value of $1,000,000 as finally determined for federal gift tax purposes and the charity would receive the rest.

• Under our facts, Bill would receive 6,250 units and the charity would receive 3,750 units.

• The overflow amount could also be transferred to a spouse, a zeroed-out GRAT or a limited power of appointment trust.


91

• Transfer all the property, but adjust the price to the value as finally determined for federal gift tax purposes

• For sale transaction, seller includes a clause stating that he/she was selling X units to purchaser and the price was whatever value the units were finally determined to have.


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Example:

• Betty Smith wishes to sell units in the Smith FLP to her son Bill. Each unit has an undiscounted value of $2,000. Betty sells 10,000 units to Bill and claims minority interest and lack of marketability discounts totaling 50%. This reduces the value of the property transferred from $2,000,000 (10,000 units x $200/unit) to the $1,000,000. The IRS audits the return and Betty ends up with a 20% discount instead of 50%. The value of the FLP units as finally determined for federal tax purposes is $160/unit instead of $100/unit.

• Betty included a clause stating that she was selling 10,000 units to Bill and the price was whatever value the units were finally determined to have. Under our facts, Betty would transfer 10,000 units and the final price would be $1,600,000.


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• Use a formula allocation clause

• Clause would state that donor was transferring $X worth of property to donee.

• The number of units wouldn’t be known until a final value was determined for federal gift tax purposes

• The number of units is fixed as of the time of the transfer.


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Example:

• Betty Smith wishes to sell units in the Smith FLP to her son Bill. Each unit has an undiscounted value of $2,000. Betty sells 10,000 units to Bill and claims minority interest and lack of marketability discounts totaling 50%. This reduces the value of the property transferred from $2,000,000 (10,000 units x $200/unit) to the $1,000,000. The IRS audits the return and Betty ends up with a 20% discount instead of 50%. The value of the FLP units as finally determined for federal tax purposes is $160/unit instead of $100/unit.

• Betty included a clause stating that Betty was transferring $1,000,000 worth of Smith FLP units to Bill.


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• Taxpayer gifted property to his children, but added a savings clause stating that if it was finally determined for federal gift tax purposes that any part of the transfer was subject to gift tax, such part would be deemed not to be included in the transfer and would remain the property of the donor.

• Court refused to honor the clause: Created a condition subsequent, changing the result of a completed

transaction by returning property to the donor. Against public policy

o The court's decision would not be binding on the transferees because they would not be parties to the action

o It discouraged the collection of tax because efforts to collect would simply undo the gift

o It obstructed justice by requiring courts to rule on a moot case o A judicial determination on the value of the property would be a

declaratory judgment.

First addressed in 1944 in Procter v. Commissioner

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• With the exception of King v. Commissioner, the Procter arguments were successful in invalidating valuation adjustment clauses in every case decided between 1944 and 2006.

• More recent cases support taxpayers and undercut the Procter arguments.


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• Decedent left all her assets to her daughter and daughter made a formula disclaimer of all value above $6.5 million, with the excess passing to charity.

• Public Policy: Clause would not undo a transfer, but only reallocate the

value of the property transferred among the beneficiaries. Court would not be ruling on a moot issue. Strong public policy argument in favor of enforcing the

clause and helping charity.

Christiansen v. Commissioner (Tax Court)

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• Service's role is to enforce the tax laws, not just maximize the amount of tax collected.

• There is no evidence of a clear congressional intent suggesting a policy to maximize incentives for the IRS to challenge or audit returns.

• There are numerous other mechanisms to make sure fiduciaries report accurate estate values. Personal liability for fiduciaries under state law and even

criminal sanctions.

Christiansen v. Commissioner (Eighth Circuit)

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• Taxpayer transferred LLC units to a trust and to charity.

• Transfer documents provided that taxpayer assigned 8,459 units by sale to trusts and by gift to charities.

• When value of units increased on audit, trustee was obligated to transfer the excess amount to the charities.

Petter v. Commissioner (U.S. Tax Court – 2009)

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• Donor trying to take property back (condition subsequent), versus donor who gives away a fixed set of rights with uncertain value.

• Under the terms of the transfer documents, the charities received a predefined number of units. The only unknown was the value of an LLC unit at the time of the sale. Although that value was unknown, it was constant, so that both before and after the IRS audit, the charities were entitled to receive the same number of units.

• General public policy in favor of encouraging gifts to charities.

Petter v. Commissioner (U.S. Tax Court – 2009)

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Wandry v. Commissioner

• I hereby assign and transfer as gifts, effective as of January 1, 2004, a sufficient number of my units as a Member of Norseman Capital, LLC, a Colorado limited liability company, so that the fair market value of such units for federal gift tax purposes shall be as follows:

Name Gift Amount

Child 1 $261,000

Child 2 261,000

Child 3 261,000

Child 4 261,000

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Wandry v. Commissioner

• Court rejected IRS‘s argument that the gift descriptions on Donors' gift tax returns were binding admissions that they transferred fixed Norseman percentage interests to the donees.

• It is inconsequential that the adjustment clause reallocates membership units among petitioners and the donees rather than a charitable organization, because the reallocations do not alter the transfers.

• Lack of charitable component in the cases at hand does not result in a “severe and immediate” public policy concern.

• IRS has filed a notice of appeal in this case

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Court-Favored Clauses• Wandry formula allocation clause

Simplest of the clauses

Downside—not be quite as safe as the other clauses.

• An overflow clause to a noncharitable beneficiary

Might provide better protection against the condition subsequent argument

Courts have taken the position that there is a condition subsequent if property could return to the transferor

Might appeal to a cautious taxpayer or to one who intended to create a GRAT anyway or who didn’t mind transferring any excess value to a spouse.

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Court-Favored Clauses

• An overflow clause to charity. For very cautious taxpayers or taxpayers with strong

charitable intent Safer than a Wandry Clause:

o Three Tax Court cases approving it (Christiansen (8th Cir.), Petter (9th

Cir.), and Hendrix (5th Cir.)) o The charitable lid has also been approved by two circuit courts of

appeals (8th and 9th Circuits). o IRS public policy argument may be weaker when there is a charitable

beneficiary. o Charity has a strong interest in ensuring a fair valuation. Future courts

may not find the argument that the self-interest of family members provides a mechanism for ensuring fair valuation like the interest of a charity does.

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Valuation Adjustments

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• Minority interest discount

• Marketability discount

• Fractional interest discount

• Gift tax return Check box Attach valuation report/fractional interest statement

Valuation Adjustments

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• Accuracy-Related Penalty

IRC Sec. 6662

20% on portion of an underpayment that is attributable to one or more of the following: o Negligence or disregard of the rules or regulations.o Any substantial estate, generation-skipping transfer, or gift tax

valuation understatement (65% test).o Transactions lacking economic substance.

Defense: taxpayer had reasonable cause for taking the position on the tax return that caused the underpayment and acted in good faith

Potential Penalties: Taxpayer

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Negligence or disregard of rules or regulations • IRC Sec. 6662(b)(1)• 20% for (1) negligence or (2) disregard of rules or regulations. • Taxpayer can avoid the disregard penalty for positions contrary to

revenue rulings and notices by: making adequate disclosure (Form 8275/8275-R) or by showing the position has a “realistic possibility of being sustained

on its merits” o approximately 33% or better chance that tax position will be

sustained on its merits reasonable cause/good faith defense

Potential Penalties: Taxpayer

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Unreasonable position

• IRC Sec. 6694

• A preparer who prepares a return or claim for refund, for which any part of an understatement of liability is due to an unreasonable position (and the preparer knew, or should have known, of the position), is liable for a penalty in an amount equal to the greater of (1) $1,000 or (2) 50% of the tax return preparation fees

Potential Penalties: Preparer

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Unreasonable position:

• Position is unreasonable unless there is or was substantial authority for the position.

• For a disclosed position, (which is not a reportable transaction or tax shelter), the position is unreasonable unless there is a reasonable basis for the position. Disclose: Form 8275/8275-R

• For a tax shelter or reportable transaction, a position is unreasonable unless it is reasonable to believe that the position will more likely than not be sustained on its merits.

Potential Penalties: Preparer

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Appraiser penalty

• IRC Sec. 6695A

• If a person prepares a property appraisal and such person knows (or reasonably should have known) that the appraisal would be used in connection with a return or a claim for refund, that person is subject to a penalty if the claimed property value results in: a substantial gift tax valuation misstatement, or a gross gift tax valuation misstatement

• Penalty equals the lesser of: the greater of: 10% of the underpayment or $1,000, or 125% of the gross income received by the appraiser for the appraisal

services.

• Defense: appraiser establishes that the appraised value was “more likely than not” the proper value.

Potential Penalties: Appraiser

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Presented by:

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420 S. Washington Street

Green Bay, WI 54301

(920)593-1701

[email protected]

Thank you for Attending

Western CPE's Presentation of:

Review Questions

1

Review Questions

The review questions accompanying this course are designed to assist you in achieving the course learning objectives. The review section is not graded; do not submit it in place of your qualified assessment. While completing the review questions, it may be helpful to study any unfamiliar terms in the glossary in addition to course content. After completing the review questions, proceed to the review question answers and rationales.

Section 1

1. For which of the following must you either elect in or elect out, and the election may last

forever?

A. Marital deduction.

B. Gift splitting.

C. Generation-skipping transfer tax.

D. Valuation adjustments.

2. In general, which of the following is true regarding the statute of limitations for gift

taxes?

A. The statute of limitations is five years.

B. The statute of limitations begins with the timely filing of a gift tax return.

C. The statute of limitations begins with the giving of the gift.

D. Amended returns do not affect the statute of limitations.

3. Gifts of _______, even when given as a direct payment, are subject to the annual

exclusion.

A. Tuition.

B. Room and board at a university.

C. Insurance premiums.

D. Charity.

4. The marital deduction applies when:

A. The donor is a U.S. citizen.

B. A gift tax return and claim for exemption are filed.

C. The two parties consider themselves to be married.

D. The gift is a deductible terminable interest.

Review Questions

2

5. In non-community property states, gift splitting only applies when:

A. Either spouse is a citizen or resident of the United States.

B. The spouses were married at any time during the tax year of the gift.

C. All gifts made by that spouse that year are split.

D. Either spouse consents.

Section 2

6. A taxpayer transfers $100,000 to a trust for the taxpayer's children and grandchildren, and

timely files a gift tax return allocating $75,000 as a GST exemption. Then the trustee

distributes $20,000 to the grandchildren. At a 40% GST rate, what is the tax on that

distribution?

A. $2,000.

B. $6,000.

C. $8,000.

D. $18,750.

Review Question Answers and Rationales


Review question answer choices are accompanied by unique, logical reasoning (rationales) as to

why an answer is correct or incorrect. Evaluative feedback to incorrect responses and

reinforcement feedback to correct responses are both provided.

Section 1

1. For which of the following must you either elect in or elect out, and the election may last

forever?

A. Marital deduction. Incorrect. The marital deduction is available without any

election.

B. Gift splitting. Incorrect. Consent by both spouses is required, but not election in or

out.

C. Generation-skipping transfer tax. Correct. Once elected, the election lasts

either 360 years or forever, depending upon the state. A taxpayer must either

elect in or elect out for this tax.

D. Valuation adjustments. Incorrect. Valuation adjustments are not elections, but are

part of the valuation process.

2. In general, which of the following is true regarding the statute of limitations for gift

taxes?

A. The statute of limitations is five years. Incorrect. The statute of limitations is three

years.

B. The statute of limitations begins with the timely filing of a gift tax return.

Correct. Unless a return is filed, the statute of limitations does not begin.

C. The statute of limitations begins with the giving of the gift. Incorrect. The date the

gift is given is irrelevant to the start of the statute. The filing of gift tax returns

begins the statute of limitations.

D. Amended returns do not affect the statute of limitations. Incorrect. The statute of

limitations is extended when an amended return is filed.

3. Gifts of _______, even when given as a direct payment, are subject to the annual

exclusion.

A. Tuition. Incorrect. When gifted as a direct payment, there is an unlimited

exclusion for tuition under §2503(e), not an annual exclusion.

B. Room and board at a university. Correct. The unlimited exclusion for direct

payments for education does not include room and board.

C. Insurance premiums. Incorrect. When gifted as a direct payment, there is an

unlimited exclusion for medical gifts that includes insurance premiums, as long as

there is medical necessity.

D. Charity. Incorrect. Both the marital deduction and the charitable deduction are

unlimited.


4. The marital deduction applies when:

A. The donor is a U.S. citizen. Incorrect. The recipient of the donation must be a

U.S. citizen.

B. A gift tax return and claim for exemption are filed. Correct. For the marital

deduction, the taxpayer must file a gift tax return and claim an exemption.

C. The two parties consider themselves to be married. Incorrect. The two spouses

must be legally married.

D. The gift is a deductible terminable interest. Incorrect. Only nondeductible

terminable interest transfers are eligible for the marital deduction.

5. In non-community property states, gift splitting only applies when:

A. Either spouse is a citizen or resident of the United States. Incorrect. Each spouse

must be a citizen or resident of the United States to take advantage of gift

splitting.

B. The spouses were married at any time during the tax year of the gift. Incorrect.

The spouses must be married at the time of the gift and may not remarry during

the remainder of the calendar year.

C. All gifts made by that spouse that year are split. Correct. The consent treats

all gifts made by one spouse as though half of the gifts are made by each

spouse.

D. Either spouse consents. Incorrect. Both spouses must signify their consent to gift

splitting by signing each other's return.

Section 2

6. A taxpayer transfers $100,000 to a trust for the taxpayer's children and grandchildren, and

timely files a gift tax return allocating $75,000 as a GST exemption. Then the trustee

distributes $20,000 to the grandchildren. At a 40% GST rate, what is the tax on that

distribution?

A. $2,000. Correct. The tax is a rate calculated by 40% of ((the allocated portion

divided by the total transfer) subtracted from 1) times the distribution. (0.40

x (1- 75,000/100,000)) x 20,000 = (0.40 x .25) x 20,000 = .1 x 20,000 = 2,000.

B. $6,000. Incorrect. This would be the tax if the allocated portion divided by the

total transfer was not subtracted from one = (0.40 (75,000/100,000)) x 20,000.

C. $8,000. Incorrect. This would be an unallocated tax of 40% on the entire

distribution = 0.40(20,000).

D. $18,750. Incorrect. This is 25% of the entire allocation, not the distribution =

75,000(0.25).

Glossary

Glossary

This is a glossary of key terms with definitions. Please review any terms with which you are not

familiar.

Estate tax: Imposed on the estate and calculated on the total value of the taxable estate,

regardless of the net amount passing to the beneficiaries of the estate.

Future interest: A donee does not have absolute right to the property at the present time; no

annual exclusion available.

Gift splitting: All gifts made by a spouse is treated as each spouse gives half.

Gift tax: Tax imposed on the donor, which is calculated on the value of the gift passing to the

donee, after the imposition of gift tax.

Generation-skipping tax (GST) trust: Any trust that could have a taxable termination or

taxable distribution unless one of six exceptions applies.

Inclusion ratio: The proportion of the trust that is subject to GST, which is a factor in

determining the GST rate.

Indirect skip: A transfer that is not a direct skip, which is made to a GST trust.

Marital deduction: A gift will qualify for a marital deduction if the spouses are married, the

donee spouse is a U.S. citizen, the interest transferred is not a nondeductible terminable interest,

the property transferred is not otherwise deducted, and the gifts are included in the total taxable

gifts for the year.

Qualified Terminable Interest Property (QTIP): A type of trust used for estate planning.

Taxpayer Relief Act of 1997: Applies to gifts made after August 5, 1997, and added new

disclosure rules for gifts not subject to Chapter 14.

Unnatural order of death rule: A transferor can allocate GST exemption to a previous transfer

on a chronological basis if a non-skip person has an interest or a future interest in a trust to which

any transfer has been made.

Index

Index

A

Adequate Disclosure ............................................................................................................ 1–48:00

Adequate Disclosure IRS Sec 6501(c)(9) ............................................................................ 1–42:41

Adequate Disclosure of Incomplete Transfers ..................................................................... 2–10:08

Amended Returns................................................................................................................. 1–23:48

Automatic Allocation Rules ................................................................................................. 2–28:10

Availability of Annual Exclusion ........................................................................................ 1–11:52

Availability of Annual Exclusion: 2503(c) Trusts ............................................................... 1–13:52

Availability of Annual Exclusion: Crummey Trusts ........................................................... 1–13:07

B

Basics of the Gift Tax ............................................................................................................ 1–5:48

Basics of the Gift Tax: Basis ................................................................................................. 1–9:35

Benefits of Gifting ................................................................................................................. 1–6:40

C

Christiansen v. Commissioner ............................................................................................. 2–42:37

Christiansen v. Commissioner (Tax Court) ......................................................................... 2–41:58

Court-Favored Clauses......................................................................................................... 2–46:43

D

Deductions ........................................................................................................................... 1–15:01




Disadvantages ...................................................................................................................... 1–37:40

Disclosure Requirements ..................................................................................................... 1–47:16

Disclosure Requirements for Gifts not Subject to Chapter 14 ............................................... 2–0:24

Due Date .............................................................................................................................. 1–35:57

E

Education and Medical Expenses ........................................................................................ 1–15:42

Effects of Running of the Statute ......................................................................................... 1–45:25

Estate Tax Erosion Example: 40% Tax Rate ....................................................................... 2–16:14

Extensions ............................................................................................................................ 1–21:55

F

Filing Requirements ............................................................................................................. 1–19:26

First Addressed in 1944 in Procter v. Commissioner .......................................................... 2–41:05

Four Ways to Structure ........................................................................................................ 2–34:11

G



Index


Gift Splitting ........................................................................................................................ 1–30:30

Gift Splitting ........................................................................................................................ 1–37:20

Gift Splitting ........................................................................................................................ 1–40:18

Gift Tax Return Due Date .................................................................................................... 1–21:11

Gifts to Third Party and to Spouse ....................................................................................... 1–39:43

I

Inclusion Ratio ..................................................................................................................... 2–22:11

Inclusion Ratio/Applicable Fraction .................................................................................... 2–23:30

Information Required for Appraisal Safe Harbor .................................................................. 2–5:52

Information Required for Both Safe Harbors ........................................................................ 2–1:05

Information Required for Detailed Description Safe Harbor ................................................ 2–3:42

M

Marital Deduction ................................................................................................................ 1–24:31

N

Non-Gift Completed Transfers .............................................................................................. 2–9:12

O

Other GST Forms ................................................................................................................. 2–32:58

Outline.................................................................................................................................... 1–1:13

P

Petter v. Commissioner (U.S. Tax Court - 2009) ................................................................ 2–43:03

Potential Penalties: Preparer ................................................................................................ 2–50:40

Potential Penalties: Taxpayer ............................................................................................... 2–48:44

Predeceased Parent Rule ...................................................................................................... 2–26:43

Procedural Issues ................................................................................................................. 2–12:51

Q

QTIP Basics ......................................................................................................................... 1–27:35

QTIP Due Date .................................................................................................................... 1–30:08

Qualified State Tuition Program .......................................................................................... 1–18:37

S

Statute of Limitations for Assessing Additional Gift Tax ................................................... 1–44:05

Statutory Deadline ................................................................................................................1–36.52

Substantial Compliance ....................................................................................................... 2–11:52

T

Tax Exclusive Nature of Taxable Gifts ................................................................................. 1–8:08

Tax Exclusive Nature of Taxable Gifts Example .................................................................. 1–9:03

Taxpayer Relief Act of 1997 .................................................................................................. 2–0:07

Index

U

Unnatural Order of Death Rule ............................................................................................ 2–25:13

V

Valuation Adjustments......................................................................................................... 2–47:38

W

Wandry v. Commissioner .................................................................................................... 2–44:35

Where to File........................................................................................................................ 1–23:16

Qualified Assessment

Qualified AssessmentThe Guide to Form 709 Gift Tax Returns

Course #8132433, Version 1801 Publication/Revision Date:

January 2018

Course Expiration Date Per AICPA and NASBA Standards (S9-06), QAS Self-Study courses must include an expiration

date that is no longer than one year from the date of purchase or enrollment.

Complete this assessment online at www.westerncpe.com and receive your certificate and results

instantly!

1. For 2013, what is the individual annual gift tax exclusion?

A. $5,000.

B. $13,000.

C. $14,000.

D. $28,000.

2. Gift tax is imposed upon the:

A. Donor.

B. Donee.

C. Estate.

D. Trustee.

3. What is the due date for a gift tax return?

A. March 15.

B. April 15.

C. October 15.

D. Six months following the gift.

4. Which of the following is true regarding QTIP elections?

A. They may be revoked.

B. Elections may be made on amended returns.

C. The donee spouse may distribute the assets to descendants.

D. They are statutory elections.


Qualified Asssessment

5. The statute of limitations may be extended if _______% of amounts reported are omitted

from the return.

A. 10.

B. 15.

C. 25.

D. 40.

6. What are the disclosure requirements for starting the statute of limitations?

A. Only a description of the transactions.

B. Only a description of the gift.

C. Only a description of the transaction, the identity, and relationships between all

persons involved.

D. A description of the transactions and the valuation method, as well as the identity

and relationships between all persons involved.

7. Which of the following is required for both disclosure safe harbors?

A. Financial data used to determine the value for the property interest.

B. A statement describing any taken position that is contrary to published rules and

regulations.

C. A description of any discounts claimed.

D. A description of the assumptions made and limiting conditions of the transferred

property.

8. For failures to disclose, which of the following would start the statute of limitations?

A. A late-filed original return.

B. A timely-filed false or fraudulent return.

C. A late-filed amended return.

D. A challenge to a redetermination.

9. What valuation date must be used if an allocation to generation-skipping transfer tax is

filed late?

A. Date of the transfer.

B. Date the original return was due.

C. Date of the extended return was filed.

D. Date of the late filed return.

Qualified Assessment

10. Which defined value clause would be most appropriate for a very cautious taxpayer with

strong charitable intent?

A. A Proctor allocation clause

B. A Wandry allocation clause.

C. A formula allocation clause

D. An overflow clause.

Answer Sheet

1

Answer Sheet The Guide to Form 709 Gift Tax Returns

Course #8132433, Version 18012 CPE Credits

Date:

Name: Phone:

Address:

City: State: Zip:

Fax: E-mail*: *E-mail address MUST be unique (not shared with another CPA) for Western CPE to grade your assessment

Name of purchaser (if other than person taking assessment):

If course was purchased as part of the MEGA TAX LIBRARY please include $4/credit for grading:

VISA/MC/Discover/Amex # Exp.

Course expires 1 Year from date of

purchase or enrollment

Online Grading: visit www.westerncpe.com to complete your

assessment online and receive your certificate of completion and

results instantly.

1. ___ 3. ___ 5. ___ 7. ___ 9. ___

2. ___ 4. ___ 6. ___ 8. ___ 10. ___


Course Evaluation

1

Course Evaluation The Guide to Form 709 Gift Tax Returns

Course #8132433, Version 1801

Thank you for taking the time to fill out this course and customer experience evaluation. Your responses help us to

build better courses and maintain the highest levels of service. If you have comments not covered by this

evaluation, or need immediate assistance, please contact us at 800.822.4194 or [email protected].

Course and Instructor Evaluation

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Based on 50 minutes per credit hour, the time to take this

course accurately reflects the credit hours assigned to it. O O O O O

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Course Evaluation

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The Guide to Form 709 Gift Tax Returns - Western CPE

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