IRS Homework Help

IRS

Steven, who is married to Betty, made no taxable gifts prior to 2013. Steven has three children, Allie, Bobby and Carla. Steven made the following gifts in 2013:

• Steven gave his daughter Allie a fur coat worth $6,000 that he purchased for $10,000
• Steven gave his son Bobby a car worth $18,000 that he purchased for $10,000
• Steven gave his other daughter Carla $20,000 in cash

Steven has a brother Tommy. Tommy fell on hard times in 2013 and Steven was there to help him out. Tommy lost his job and lost his home. Since he is a great brother, Steven lent Tommy his car to use so that Tommy could drive to job interviews. In addition, Steven let Tommy stay in his home. Since Tommy could not pay his own rent, Tommy agreed to wash Steven’s car every weekend.

In 2014, Steven creates a trust with income to Betty for 15 years, remainder to Carla or Carla’s estate. Steven as trustee retains the power to accumulate the income. Steven makes no other gifts in 2014.

Later in 2014, Allie moves to Florida. Being that she was in Florida, Allie would not need her fur coat so she sold it on craigslist for $9,000. Bobby also moves from Albany NY to Manhattan. Since Bobby moved to Manhattan he no longer had use for his car and he sold it for $20,000.

In 2017, Steven receives a notice from the IRS explaining that his gift tax return for 2013 is under audit. Steven comes to you seeking advice.
Questions:
Note: For the purposes of these questions, please assume that the annual gift exclusion is $14,000 per donee, the lifetime exclusion is $5.25 million and the estate and gift tax is 40%.

1. What, if any, is Steven’s gift tax liability for 2013?
2. To the extent that Steven has gift tax liability, provide Steven advice on how he could have minimized his gift tax for 2013.
3. What is the basis of any property that you believe Steven gifted? Explain your answer.
4. Has Steven made any taxable gifts in 2014? If Steven within three years of the creation of the trust, are there any estate tax consequences to Steven’s estate? Fully explain your answer.
5. With regard to Steven’s gift tax audit, does Steven have any defenses to protect himself against the audit? Fully explain your answer, and where necessary, explain what additional information you would need to know to adequately provide Steven with an advice?

Question 2
Kanye West walks into your office and is interested in setting up an estate and gift tax plan. His goals are, among other things, to minimize any potential gift and estate tax consequences while still being able to utilize the assets he currently owns during his life and provide for his family after his death. Kanye explains to you that he currently owns the following:
• $10.5 million dollars in cash sitting in his Bank of America checking account
• IBM stock with a fair market value of $100,000
• Treasury bonds with a fair market value of $200,000
• An annuity valued at $1 million dollars, in which Kanye contributed 50% of its purchase price
• Life insurance policy naming his estate as beneficiary worth $100 million dollars
• Personal residence in Los Angeles with a basis of $100,000 and fair market value of $1 million dollars.
Kanye explains to you that he is currently engaged to the love of his life, Kim Kardashian. Ms. Kardashian lives in Los Angeles but is a domiciliary of the Netherlands and intends to move back there in five years. Kanye has one child, a daughter named North West. Kanye wants to make sure that both his wife and child are financially secure after he dies. However, Kanye, does not trust his wife with all of his assets and would rather provide for his child through a trust relationship. In addition, Kanye also wants to make a contribution to his favorite charity, HIPHOP Stars, with is a private charity foundation under the internal revenue code.
Kanye’s estate plan is as follows:
• Kanye wants to immediately transfer outright the $10 million dollars in his bank account to his soon-to-be wife
• Kanye wants to transfer his stocks and bonds to an irrevocable trust for the benefit of his child. Kanye will name his brother as trustee. Kanye wants the trustee to make distributions to his child for maintenance, happiness, education, comfort, health and support.
• Kanye wants to leave the life insurance in the name of his estate;
• Kanye wants to transfer ½ of the value of the home he owns to his wife as joint tenants; and
• He wants to contribute the after death annuity payments to a trust for the benefit of favorite his private foundation charity
Advise Kanye on the gift and estate tax consequences of his current proposals and where applicable, provide Kanye with recommendations as to avoid the imposition of the estate and gift tax.
the same questions here in a word file named “Estate and Gift Tax” for your convenience.

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