Parent Corporation has owned 60% of Subsidiary Corporation’s single class of stock for a number of years. Tyrone owns the remaining 40% of the Subsidiary stock. On August 10, of the current year, Parent purchases Tyrone’s Subsidiary stock for cash. On September 15, Subsidiary adopts a plan of liquidation. Subsidiary then makes a single liquidating distribution on October 1. The
IRC §702(a) emphasizes that partners must report their distributive shares of partnership income. §704(a) says that the partnership agreement determines the partner’s distributive shares of income, gain, loss, deductions, and credits, pursuant to the limitations set forth in §704(b). Such limitations were calculated and phrased in terms of the “tax avoidance test” prior to 1976. This test stated that allocations of income, gain, loss, deductions, or credits would be disregarded if the principal purpose for said allocations was tax avoidance per §704(b)(2). In 1976, a new “substantial economic effect” test was adopted in 1976 to determine the limitations relating to a partner’s distributive share. §702(a)(9) requires an allocation of bottom line income or loss to have economic substance that reflects the actual division of such items when viewed from an economic rather than a tax viewpoint.
T, an individual taxpayer, plans to incorporate his farming and ranching activities, currently operated as a sole proprietorship. His primary purpose of incorporating is to transfer a portion of his ownership in land to his son and daughter. T believes that gifts of stock rather than land will keep his business intact. Included in the property he plans to transfer is machinery purchased two years earlier.
While grantor trusts are commonly created as part of an estate plan, estate planners may inadvertently be creating income tax issues that trustees and tax preparers must deal with during the administration. When the grantor of a grantor trust dies, or the grantor trust status terminates during the life of the grantor, for the most part the tax consequences are well established. What is unclear is what happens if the grantor trust had an outstanding liability to the grantor at the death of the grantor. This paper addresses the issue and how it may be treated. Part I of this paper will briefly address the history of
19) In the current year, Bonnie, who is single, sells stock valued at $60,000 to Linda for $15,000. Later that year, Bonnie gives Linda $25,000 in cash. Bonnie's taxable gifts from these transfers total
· What are the annual and lifetime gift tax exclusions and the estate tax exclusion? Under the United States federal law states that an individual can give $1 million of taxable gift over the course of his or her life time and not pay any tax on them. Also any of the gifts needs to be unified credit and should display his or her final estate taxes. For example if the husband and mother gives their one kid a gift of $13,000 over the 60 year time period which reflects on the percentage share in their Business would not be consider a taxable gift which is up to $ 1 million but anything over would be eligible for taxes. The estate tax is very simple and clear which shows the anyone who is eligible for receiving a gross assets and prior taxable gifts exceeding $1.5 million in 04-05, $2 million in 06-08, $3.5 million in 09, and $5 million for 2010 and later which means if the assets are exceeding these amounts are subject
The tax rules, credits, and exclusions that are applicable to gift and to estates are continuously changing. As a result, one needs to be conscious of these changes so that effective tax reduction plans can be applied to a given event or situation. Although there are many estate planning concepts and provisions from a taxation perspective these concepts are two expansive and often to specialized to be covered all at once or to be relevance to a wide audience. Having said this, it is important to note that there are some foundational concepts that taxpayers and estate planners should be aware of as well as their most up-to-date application. Some of these concepts along with figures relevant to the 2015 tax year are listed below.
7. False – It shall be in writing either as trust inter-vivos or through a will.