Chapter 14
Which of the following acts by a CPA will not result in a CPA’s incurring an IRS penalty?
C. Understating a client’s tax liability as a result of an error in calculation.
An estate with gross income greater than____ is required to file a tax return.
$600
Explain the difference between a simple trust and a complex trust
A complex trust is one that is allowed to accumulate income, has a charitable beneficiary, or distributes principal.
How are gifts valued?
fair market value of the donated property on the date the gift becomes complete
Tax return preparers can be subject to penalties under the Internal Revenue Code for failure to do any of the following, except
B. Disclose a conflict of interest.
Life insurance proceeds are generally includible in the _________ but are not considered ___________
Life insurance proceeds are generally includible in the _Value of the gross estate________ but are not considered _______income of the estate______.
Who pays the tax on income distributed from a trust?
The beneficiaries
Wilma and Harry are married and live in Michigan, a common-law state. For the holidays Wilma gave cash gifts of $30,000 to Steve and $41,000 to Dina. Wilma and Harry did not elect to split gifts. What is the amount of Wilma's taxable gifts?
15,000 + 26,000 = $41,000
Which of the following bodies has the authority to suspend or revoke a CPA’s license for acts discreditable to the profession?
When (what date) is the gross estate valued?
Date of death or alternate valuation date
A ____________ is a type of irrevocable trust and is most commonly used to pass assets from parents to children at the time of the second parent's death. It is structured so the children will not have to pay estate taxes on those assets in excess of the current estate tax exemption.
Bypass trust
Wilma and Harry are married and live in Michigan, a common-law state. For the holidays Wilma gave cash gifts of $30,000 to Steve and $41,000 to Dina. Wilma and Harry elect to split gifts. What is the amount of Wilma's taxable gifts?
0 + 5,500
A CPA assists a taxpayer in tax planning regarding a transaction that meets the definition of a tax shelter as defined in the Internal Revenue Code. Under the AICPA Statements on Standards for Tax Services, the CPA should inform the taxpayer of the penalty risks unless the transaction, at the minimum, meets which of the following standards for being sustained if challenged?
Define the Unified Credit and explain its purpose.
The unified credit exempts cummulative transfers of up to 11,180,000 million
Serves to conjoin the estate tax and gift taxes
This type of trust is commonly used by individuals who have children from another marriage. They enable the grantor to look after his or her current spouse and ensure that the assets from the trust are then passed on to beneficiaries of his or her choice, such as the children from the grantor's first marriage.
Qualified terminable Interest Property (QTIP)
Define a present interest with respect to gifts
A present interest in property includes an unrestricted right to immediate possession or enjoyment of the property or income from the property.
A penalty applies to the portion of tax underpayment attributable to
I. Negligence or a disregard of the tax rules or regulations
II. Willful understatement of income tax
C. Both I and II.
Property is worth 120,000 at time of death and it was purchased for 90,000. The decedent contributed $30K to the purchase and owned a 1/3 interest. How much is included in the estate if the decedent is unmarried and owned the property Joint Tenant with Right of Survivorship?
$40,000
What is a grantor trust?
A grantor trust is any trust to the extent the grantor is the effective beneficiary.
Gifts of future interests in property (such as remainders or reversions) do not qualify for_____.
The annual exclusion.