FINC 355 WEEK 8 QUIZ

A joint return may be filed for a decedent and surviving spouse for the year of death even if the surviving spouse remarries before the end of the year. A. True B. False

A. True

A leaseback arrangement must include a completed and irrevocable sale and a legally enforceable lease agreement. A. True B. False

A. True

A partnership liquidation agreement is an agreement that is similar to the corporate stock redemption plan. A. True B. False

A. True

An intra-family loan can be used to transfer interest in a family business A. True B. False

A. True

Funds received in a Section 303 stock redemption must be used to pay estate settlement costs. A. True B. False

A. True

If the decedent dies owning U.S. Saving bonds and has not elected to accrue and report the bonds as income interest, the accrued interest is income in respect of a decedent (IRD) and a decedent's estate could elect to accrue it on the estate's income tax return. A. True B. False

A. True

In a SPLIT, ownership of the property is bifurcated into two parts, a term interest and an remainder interest. A. True B. False

A. True

In a joint and last survivor annuity, payments continue until the death of the annuitant. A. True b. False

A. True

In order to qualify for the safe harbor provisions, the leaseback transaction must have "economic reality." A. True B. False

A. True

In terms of valuation, the general rule in the valuation of assets included in the gross estate is date of death fair market value based on the highest and best use of the underlying property. A. True B. False

A. True

The distinguishing feature of the redemption agreement is that individuals agree to purchase (redeem) the stock of a withdrawing or deceased shareholder. A. True B. False

A. True

The term of the SCIN must be less than the life expectancy (actual) of the seller; otherwise, it will be taxed as a private annuity. A. True B. False

A. True

The terms of the note for an intra-family loan can be changed after the loan has been established. A. True B. False

A. True

The below market loan rules generally do not apply if the outstanding balance on the total of all loans made to the borrower from the lender does not exceed A. $5,000 B. $100,000 C. $10,000 D. $50,000

B. $10,000

A SCIN is a specific type of private annuity. A. True B. False

B. False

A SPLIT is not a good protection in the case where someone wants to keep property within the family but needs to use it and to receive income for life. A. True B. False

B. False

If administrative expenses and casualty losses are claimed as income tax deductions, a waiver of the right to claim them as estate tax deductions must be filed. A. True B. False

B. False

The funds received in a Section 303 redemption must to be used to pay estate settlement costs. A. True B. False

B. False

The primary motivation for making interest-free and below market rate loans is tax savings. A. True B. False

B. False

If a loan is considered a gift, the lender is treated as if he or she made a gift to the borrower in the amount of the "forgone interest." A. True B. False

True

The tax implications of an intra-family note include which of the following? a) A repayment of principal will generally qualify for installment sale treatment b) repayment of principal due to sale of property is always treated as a return of capital and not subject to income tax c) If a seller dies during the term of the note, the value of the note is included in the seller's estate with a step-up in basis d) If a loan is structured as a grantor trust, the grantor must pay income tax on any income received during the grantor's life

a) A repayment of principal will generally qualify for installment sale treatment

The interest rate charged in an intra-family loan must be no lower than the _____ in the month the loan was established. a) Applicable Federal Rate b) Applicable Market Rate. c) Average Percentage Rate d) Federal Funds Rate

a) Applicable Federal Rate

SCINs and Private Annuities share which of the following similarities: a) Both require that the present value of the unpaid payments be included in the transferor's gross estate. b) Both spread out the payment of the income tax liability on the sale of property. c) Both require that the property sold be used for charitable purposes. d) Both require that a premium be attached to the payments.

a) Both require that the present value of the unpaid payments be included in the transferor's gross estate.

The disclaimer of an IRA by the surviving spouse can allow tax-deferred growth of the underlying assets over a much longer period of time because: a) the minimum required distributions will be based on the life expectancies of the contingent beneficiaries likely to be much younger than the surviving spouse. b) younger beneficiaries are often taxed at lower rates than the survising spouse. c) the assets may be spread between more benficiaries. d) this technique avoids the generation-skiping transfer tax.

a) the minimum required distributions will be based on the life expectancies of the contingent beneficiaries likely to be much younger than the surviving spouse.

A corporation determines that it needs $5 million in life insurance proceeds to cover a stock redemption obligation. If it is concerned that these proceeds will be subject to the alternative minimum tax, approximately how much life insurance coverage should it purchase? a) $2.5 million b) $5.9 million c) $5 million d) $10 million

b) $5.9 million

A private annuity is an arrangement: a) Between three parties: the annuitant, the transferee, and the transferor. b) Between two parties neither of which is an insurance company. c) Between two parties: the transferee and the obligor. d) Between two parties: the annuitant and the insurance company.

b) Between two parties neither of which is an insurance company.

Amy sells property to Bob subject to an installment note providing "Unless sooner discharged, upon Amy's death, all amounts due under this note shall be deemed to be extinguished and treated as paid." This note is an example of: a) Standard installment note. b) SCIN. c) A windfall for Bob. d) Private annuity.

b) SCIN.

Prior to utilizing a private annuity, all of the following are important considerations except: a) The transferor's life expectancy. b) The annuity premium. c) The fair market value of the property. d) The transferee's ability to make payments.

b) The annuity premium.

With regard to SPLIT interest purchases of property and the tangible property exception to IRC Section 2702: a) The term interest is valued at zero. b) The exception generally applies to property for which no allowance for depreciation or depletion is allowable. c) The term interest is valued using actuarial tables. d) Appraisals are generally given greater weight than comparable sales or rentals.

b) The exception generally applies to property for which no allowance for depreciation or depletion is allowable.

Which of the following is true concerning the taxation of the seller of an asset receiving payments under an installment note? a) The basis recovery portion is subject to ordinary income tax. b) The profit percentage of the payment may be subject to capital gains tax. c) The interest portion of the payment may be subject to capital gains tax. d) The profit percentage of the payment is not subject to income tax.

b) The profit percentage of the payment may be subject to capital gains tax.

The grantor will be taxed on trust income for all of the following except: a) If the grantor retains certain administrative powers. b) When the leaseback is stated in writing. c) If the grantor or his spouse has retained a reversionary interest. d) When the income is used to pay support and maintenance to a person whom the grantor is legally obligated to support.

b) When the leaseback is stated in writing

Family partnerships can be used for all of the following purposes except: a) fractionalizing family assets to create gift and estate tax valuation discounts. b) shifting income taxes from parents to children under age 18. c) shifting income taxes from parents to children age 18 and older. d) protecting family assets from lawsuits and other creditors.

b) shifting income taxes from parents to children under age 18.

Susan creates a family limited partnership in which she owns the general and limited partnership interests. For estate planning purposes, she begins to make gifts of the limited partnership interests to her 4 children and 3 grandchildren in 2015. The value of each of the annual gifts of the limited partnership interests is $25,000 per recipient (after all discounts have been applied). From a gift tax perspective, which of the following statements is true: a) The entire gift of the limited partnership interest will always qualify for the annual exclusion. b) Susan can avoid gift tax if the partnership interests are placed in a trust for her minor-aged descendants. c) All gifts of the limited partnership interests made within 3 years of Susan's death will be included in Susan's gross estate. d) The gift of the limited partnership interest may reduce the lifetime gift tax unified credit applicable exclusion amount available to Susan.

c) All gifts of the limited partnership interests made within 3 years of Susan's death will be included in Susan's gross estate.

Gina owns an office building in which she conducts her accounting practice. She is considering selling the building to a trust and leasing it back. This sale/leaseback would have all of the following benefits for Gina except? a) Removal of future growth from Gina's estate. b) Improved cash flow. c) Avoidance of tax on gain from sale of the asset. d) Off balance sheet financing.

c) Avoidance of tax on gain from sale of the asset.

Which of the following expenses does not qualify for Section 303 redemption? a) Estate taxes. b) Tax on income with respect to a decedent. c) Generation-skipping transfer taxes. d) Funeral and administration expenses.

c) Generation-skipping transfer taxes

Which of the following is (are) true regarding an installment sale? I. A private annuity offers more flexibility than an installment sale. II. An installment sale at full fair market value to a grandchild will avoid the generation skipping transfer tax. III. An installment sale can create a market where none previously existed. a) I and II b) I and III c) II and III d) I, II, and III

c) II and III

Which of the following is true concerning the tax treatment of interest-free and/or below market interest loans? a) The foregone interest is treated as income by the borrower. b) The foregone interest is ignored for both the borrower and lender and should not be reported. c) The foregone interest is income to the lender. d) The foregone interest is treated as a gift by the lender and qualifies for the $14,000 annual gift exclusion.

c) The foregone interest is income to the lender.

In order to avoid IRS treatment of a sale/leaseback as a loan: a) Part of the rent should be applied toward the repurchase price. b) The repurchase option should be compulsory. c) The lessor should have a minimum at risk investment of at least 10 percent. d) The seller should receive the benefit of any appreciation in value.

c) The lessor should have a minimum at risk investment of at least 10 percent.

In the case of a gift-leaseback all of the following are basic prerequisites except: a) The trust must have an independent trustee unrelated to the grantor. b) The leaseback must be in writing and must provide for a reasonable rental (get an appraisal). c) The transactions must constitute a bona fide debt (preferably in writing). d) The title to the property should be in the trust of the child and should be recorded.

c) The transactions must constitute a bona fide debt (preferably in writing).

When life insurance is used to fund the Section 303 redemption, which of the following is false? a) The corporation is the policy owner. b) The corporation cannot be the policy applicant. c) The corporation uses life insurance proceeds to purchase stock qualifying for the Section 303 redemption from the decedent's estate. d) A typical key person policy should be used.

d) A typical key person policy should be used.

For buy-sell purposes, all of the following represent acceptable methods by which to value the business except: a) Book value. b) Formula approach. c) Goodwill method. d) Capitalization of expenses.

d) Capitalization of expenses.

Which of the following events could trigger a buy-sell agreement? I. Conviction of the business owner of a state or federal crime II. Insolvency of the business owner III. Divorce of the business owner a) I and II b) I and III c) I only d) I, II and III

d) I, II and III

Dale Carson is a key employee of Westfall Custom Cabinets , Inc. He has asked the owner, Randy Westfall, for a $200,000 loan to buy a new home at an interest rate of 2%. The market rate is 5%. When Randy makes the loan to Dale, he can protect his own interests and reduce the chance of having Dale hired away by a competitor if he: I. Makes the loan callable if Dale separates from service II. Structures the loan so interest is forgiven in the event of Dale's pre-retirement death as long as he stays with Westfall Custom Cabinets , Inc. III. Structures the loan so forgone interest is treated as a gift rather than as a dividend. a) II and III b) I only c) I and II d) I, II, and III

d) I, II, and III

Joyce Nance died last month. To evaluate whether or not her estate will have to file a gift tax return, the executor of her estate will need to consider if in the three years prior to her death Joyce had I. transferred a life insurance policy II. disposed of a retained interest in a life estate III. established a revocable interest in a gift of property a) II and III b) I and II c) I and III d) I, II, and III

d) I, II, and III

Jenny Johnson owns land worth $75,000 that has a basis of $50,000. Jenny sells the land to her son for $75,000, payable in five equal annual installments of $15,000. (Considerations of interest are to be ignored for purposes of this question.) What is the tax effect, if any, of Jenny immediately canceling her son's obligation? a) Gain is reportable to the extent of any payments received before cancellation, but the seller is subject to a monetary penalty under the "early cancellation rules". b) Gain is reportable and will equal the difference between the value of what is owed to the seller and her basis in the property. c) Gain is reportable only to the extent of any payments received before cancellation. d) No gain is reportable.

d) No gain is reportable.

All of the following are examples of business continuation plans except: a) Cross purchase plan. b) Entity purchase plan. c) Cross purchase buy-out plan. d) Third-party business buy-out plan

d) Third-party business buy-out plan

Under what circumstances will an interest-free term loan be considered a gift loan? a) When the lender intends to make a gift, of the foregone interest, to the borrower. b) When the borrower assumes that the foregone interest is a gift. c) When it is compensation related. d) When the lender does not intend to make a gift of the foregone interest.

d) When the lender does not intend to make a gift of the foregone interest.

More than three years ago, Mr. Stan entered into a private annuity with his daughter. After receiving monthly payments for at least three years, Mr. Stan died, leaving 100% of his estate to his daughter. For estate tax purposes, the value of the future private annuity payments promised to Mr. Stan by his daughter: a) Would be included in Mr. Stan's estate but would be discounted for present value. b) Would be excluded from Mr. Stan's gross estate because the payments were intended to end with his death. c) Would be included in Mr. Stan's estate at full value because if he had lived to his life expectancy he would have been entitled to receive the payments. d) Would be excluded from Mr. Stan's gross estate because at least three years has passed since the private annuity was entered into.

d) Would be excluded from Mr. Stan's gross estate because at least three years has passed since the private annuity was entered into.

How is a term interest in tangible property valued? a) with an appraisal b) with actuarial tables c) using the willing buyer-willing seller test d) it depends on the type of property

d) it depends on the type of property

The parties to a private annuity must be family members. A. True B. False

false