Estate, Gift, and Generation-Skipping Transfer Tax Returns and Audits (Portfolio 822)

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Tax Management Portfolio, Estate, Gift, and Generation-Skipping Transfer Tax Returns and Audits, No. 822-3rd, is designed as a practical guide to preparation of the Form 706, Form , Form , Form , Form , Form 707-GS(T), and Form , the federal estate (and generation-skipping transfer) and gift (and generation-skipping transfer) tax returns, respectively. Data gathering, preparation, and audit are covered with special attention to problem areas which are often overlooked. To view this Portfolio, take a free trial to Tax.

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Description

Tax Management Portfolio, Estate, Gift, and Generation-Skipping Transfer Tax Returns and Audits, No. 822-3rd, is designed as a practical guide to preparation of the Form 706, Form  , Form  , Form  , Form  , Form 707-GS(T), and Form  , the federal estate (and generation-skipping transfer) and gift (and generation-skipping transfer) tax returns, respectively. Data gathering, preparation, and audit are covered with special attention to problem areas which are often overlooked.

A decedent's executor is charged with the duty of filing the Form 706 or Form   within nine months after the date of death. Proper filing requires not only knowledge of relevant Code provisions, but also the practical mechanics of actual return preparation. This Portfolio leads the practitioner through the preparation of Form 706 using the current revision (with appropriate references to prior versions), schedule by schedule, and the 706 elections. In addition, it discusses the Form 706 audit, which is different from an income tax audit, and includes audit tips. The preparation of Form  , which must be filed when a taxable gift has been made, is also covered. A discussion of the forms required to report generation-skipping transfers is also included. Finally, conditions under which a Form   must be filed by a trustee are also covered. Sample filled-in returns for all three taxes appear in the  .

Authors

Laura H. Peebles, CPA/PFS

Laura H. Peebles, Director, Deloitte & Touche. B.S., Accounting, University of New Orleans (summa cum laude) (1987); Certified Public Accountant, District of Columbia and Louisiana (Elijah Watts Sells Award 1988); Personal Financial Specialist. Member, AICPA and State Society of Louisiana CPAs. Editorial Board, Planned Giving Design Center. Frequent writer and speaker on estate planning and charitable planning topics.

Craig L. Janes, CPA

Craig L. Janes, Principal, National Director of Estate, Gift and Trust Services, Deloitte & Touche. B.S., Accounting, Utah State University (summa cum laude, valedictorian) (1985); M.P.A., University of Texas at Austin (1988). Certified Public Accountant, Texas. Member, AICPA. Editorial Board, Estate Planning (WG&L). Frequent writer and speaker on estate and post mortem planning and estate administration topics.

Table of Contents

Detailed Analysis
I. Form 706 Preliminary Considerations
A. Introduction
B. Preliminary Steps
C. Filing Threshold
1. Post-1976 Taxable Gifts
2. Exemption for Certain 1976 Gifts
3. Recalculation of Applicable Exclusion Amount for Certain Married Same-Sex Taxpayers
4. Finality of Gift and Estate Tax Values
D. General Filing Format
II. A Guide to Form 706 Elections and Part 4 Questions
A. Introduction
B. Section 2032 Alternate Valuation Election
C. Section 2032A Special Use Valuation
D. Section 2056(b)(7) QTIP Election and §2056A QDOT Election
1. QTIP Election
2. Qualified Domestic Trust Election
3. Electing QDOT Status for Nonassignable Assets
E. Section 6163 Election to Postpone Tax on Reversions or Remainders
F. Section 6166 Extension Where Estate Consists Largely of a Closely-Held Business
G. GST Exemption Allocation and Reverse QTIP Election
1. Allocation of GST Exemption
2. Reverse QTIP Election
H. Part 4 Questions
I. Part 6: Portability of Deceased Spousal Unused Exclusion (DSUE)
1. Background
2. DSUE Amount Portable to the Surviving Spouse
a. When the Surviving Spouse is a U.S. Citizen
b. When the Surviving Spouse is not a U.S. Citizen or Transfer Tax Resident
c. Procedural and Reporting Aspects of the Election
(1) Estates Eligible to Make the Election
(2) Making the Election
(3) Deadline for Making the Election
(4) Who May Make the Election on Behalf of the Estate?
(a) Appointed Executor
(b) Non-appointed Executor
(5) Applying the Simplified Reporting Procedures
(a) When the Simplified Reporting Procedures Apply
(b) Exceptions to the Applicability of the Simplified Reporting Procedures
(c) Tax Return Reporting Using the Simplified Reporting Procedures
(6) Reporting the DSUE Amount Portable to the Surviving Spouse
d. Opting Out of Portability
e. Coordinating the Portability Election with other Elections
f. Coordinating Portability in States having Different Filing Thresholds
g. Application of Portability to QDOTs
(1) Background
(2) Finality of QDOT Tax Calculation
(3) Attainment of U.S. Citizenship by Surviving Spouse
(4) Reporting on Form 706
h. DSUE Amount Received from Predeceased Spouse
(1) General Rule for Computation
(2) Date at which Surviving Spouse Takes DSUE Amount into Account
(a) General Rule
(b) Exceptions
(3) Special Rule for Computation in Case of Multiple Deceased Spouses and Previously Applied DSUE Amount
i. Finality of the DSUE Amount Received from the Predeceased Spouse
j. Often Overlooked Points
J. Carryover Basis Election for Decedents Dying in 2010
III. Preparation of Form 706 Schedules
A. Schedule A — Real Estate
1. In General
2. Includible Interests
3. Descriptions
4. Valuation
5. Documentation/Attachments
6. Often Overlooked Points
7. Valuation of Contaminated Property
B. Schedule B — Stocks and Bonds
1. In General
2. Includible Interests
3. Description
4. Valuation
a. Traded Securities and Related Considerations
b. Stock not traded on a Securities Exchange.
5. Valuation Issues Arising with respect to a Prior Transfer of Stock in a Family-Controlled Corporation Having More than One Equity Class — § 2701
6. Valuation Issues Arising with Respect to Shareholder and Other Agreements for Stock in a Family-Controlled Corporation — § 2703
7. Valuation Issues Arising with Respect to Interests to which § 2704(b) Applies
8. Special Considerations with Respect to S Corporation Stock
9. Documentation/Attachments
10. Often Overlooked Points
C. Schedule C — Mortgages, Notes, and Cash
1. In General
2. Cash
3. Includible Interests
4. Valuation
5. Documentation/Attachments
6. Self-Canceling Installment Note
7. Recovery Rights Incident to Split-Dollar Arrangements
8. Often Overlooked Points
D. Schedule D — Life Insurance
1. In General
2. Includible Interests
3. Valuation
4. Documentation/Attachments
5. Special Considerations for International Life Insurance Assets
6. Often Overlooked Points
E. Schedule E — Jointly Owned Property
1. Includible Interests
2. Valuation
3. Documentation/Attachments
F. Schedule F — Miscellaneous Property
1. Includible Interests
2. General Considerations
a. Special Considerations Regarding Foreign Assets
3. Sole Proprietorships and Tax-Only Partnerships
4. Family Limited Partnerships and Multiple Member Limited Liability Companies
5. Single Member Limited Liability Companies
6. Options, Forward Contracts, Notional Principal Contracts, and Similar Derivative Financial Instruments
a. Options
b. Forward Contracts
c. Notional Principal Contracts
7. Patents, Licenses, Franchises, Copyrights, Trademarks, and Retained Royalty Interests
8. Likeness and Image – the Assets of Celebrity
9. Actuarial Interests in Trusts and Property
10. Marital Trusts Subject to Inclusion under §2044
a. Relief from Unnecessary QTIP Elections
b. Problems Arising from Commingled Trust Funds
11. Insurance Policies and Annuities on Another's Life
12. Choses in Action Including Bankruptcy Claims
13. Unclaimed Property
14. Estimated Taxes and Applied Overpayments and Claims for Tax Refunds
15. Employment-Related Assets and Retirement Assets
16. Tangible Personal Property
a. Generally
b. Fine Art and Collectibles
c. Household and Personal Effects
17. Bitcoin and Other Digital Assets
18. Section 529 Considerations
19. Valuation Issues Arising with Respect to Interests to Which § 2704(a) Applies
G. Schedule G — Inter Vivos Transfers
1. Includible Interests
2. Transfers in Trust
a. Revocable (Living) Trusts
b. Trusts with Retained Economic Interests or Control
c. Charitable Remainder Trusts
d. Charitable Lead Trusts and Private Foundations
e. GRITs, GRATs, and GRUTs
f. Qualified Personal Residence Trusts
g. Self-Settled Trusts and Similar Arrangements
3. Voidable Transfers
4. Recalled Transfer of Family Residence
5. Section 2036(b) and Stock in Controlled Corporation
6. Family Limited Partnership
7. Totten Trusts
8. Deathbed Checks
9. When Tax was Paid on a Gift Now Included in the Gross Estate under §2035-§2038, §2042
10. Consideration Offsets Under § 2043
11. Gift Tax Paid with Respect to Gifts Made Within Three Years of Death
12. Often Overlooked Points including Documentation/Attachments
H. Schedule H — Powers of Appointment
1. Includible Interests
a. Five and Five Powers
2. Valuation
3. Documentation/Attachments
4. Often Overlooked Points
I. Schedule I — Annuities
1. Includible Interests
2. Private Annuities
3. Lottery Winnings
4. Valuation
5. Documentation/Attachments
6. Often Overlooked Points
J. Schedule J — Funeral and Administrative Expenses
1. Deductible Items — Generally
2. Funeral Expenses
3. Administrative Expenses Generally
4. Executor's Commissions
5. Trustees’ Commissions
6. Attorney's Fees
7. Miscellaneous Administrative Expenses
8. Expenses to Preserve and Maintain Property
9. Expense for Selling Property
10. Post-Mortem Interest Expenses
11. Cash Disbursements to Entities of which the Estate is an Owner
12. Complications of Deducting Administrative Expenses on Form 1041
13. Often Overlooked Points
K. Schedule K — Debts
1. Deductible Debts, Claims, and Obligations
2. Considerations Imposed by the Regulations
a. Contested Liabilities and the Merit of Subsequent Events
b. The Bona Fide Claim Requirement and Related Party Obligations
3. Guarantees
4. Post-Marital and Child Support Obligations
5. Charitable Pledges
6. Medical Expenses
7. Accrued but Unpaid Taxes
a. Income Tax
b. Property Tax
c. Gift Tax
d. State and Foreign Death Taxes
8. Checks Outstanding at the Date of Death
9. Mortgages and Liens
10. Often Overlooked Points
L. Schedule L — Losses and Non-Claim Expenses
M. Schedule M — Marital Deduction
1. Deductible Interests
2. Valuation
3. Qualified Terminable Interest Property — Section 2056(b)(7)
4. Retirement Assets and the QTIP Election
5. The Marital Trust with a Charitable Remainder — Section 2056(b)(8)
6. Transfers to Non-U.S. Citizen Spouses
7. Often Overlooked Points
a. Noncitizen Surviving Spouse
b. Statutory Rights of Spouse
c. Use of Disclaimers
d. Restrictions on Property
e. The Impact of Post-Mortem Disputes on the Marital Deduction
O. Schedule O — Charitable Deduction
1. Deductible Interests
2. The Partial-Interest Limitation
3. Valuation — Generally
4. Valuation — Actuarial
5. The Impact of Taxes and Expenses Borne by the Charitable Deduction
6. Documentation/Attachments
7. Often Overlooked Points
P. Schedule P — Credit for Foreign Death Taxes
1. Requirements for Taking the Credit
2. Amount of Credit Permitted
3. Taking a Foreign Death Tax Deduction in Lieu of a Credit
4. Estate Tax Treaties
5. Documentation/Attachments
6. Often Overlooked Points
Q. Schedule Q — Credit for Tax on Prior Transfers
1. The Calculations
a. Transferred Property
b. Reductions to the Value of Transferred Property
c. The Limitations
2. Documentation/Attachments
3. Often Overlooked Points
R. Schedule R and Schedule R-1 — Generation-Skipping Transfer Tax
1. Background
2. The Need to Reconcile the Amount of Unused GST Exemption
3. The Schedule R and the Schedule R-1
a. Schedule R
b. Schedule R-1
4. Valuation of Testamentary Direct Skip Transfers
5. Often Overlooked Points
T. Former Schedule T — Qualified Family-Owned Business Interest Deduction
U. Schedule U — Qualified Conservation Easement Exclusion
V. Schedule PC – Protective Claim for Refunds
W. State Death Tax Credits
1. Introduction
2. Computation
3. Often Overlooked Points
IV. Filing and Paying the Estate Tax
A. Signature Requirement
B. Time for Filing Form 706
C. Where to File
D. Amended Return
E. How to File Form 706
F. General Cash Payment
G. Extended Estate Tax Payments
1. Reasonable Cause Payment Extension
2. Special Reasonable Cause Extension
3. Extension to Pay Tax on a Reversion or Remainder
4. Extension of Payment on Business Assets
V. Community Property and Form 706
A. Introduction
B. Differences in the Community Property Form 706
VI. Estate Tax Returns for Non-U.S. Citizen, Non-U.S. Domiciled Decedents — Form 706-NA
A. Introduction
B. Similarities between Form 706-NA and Form 706
C. Differences between Form 706-NA and Form 706
D. Often Overlooked Points
E. Property Owned Jointly with Spouse
F. Transfer Certificates
VII. Estate Tax Return for Qualified Domestic Trusts — Form 706-QDT
A. In General
B. Taxable Events Triggering a Filing Requirement
C. Who Must File
D. When to File
E. Where to File
F. Attachments
G. Property Related Information
H. Allowable Deductions
I. Available Elections
J. Tax Computation Including Available Credits
K. Annual Statements
L. When the Surviving Spouse becomes a U.S. Citizen
VIII. The Federal Estate Tax Audit
A. Introduction
B. Preparing for an Audit
C. Engaging in the Audit
D. Closing the Estate Tax Return Audit in Agreement
E. IRS Appeals Review of the Estate Tax Return
IX. Information Regarding Beneficiaries Acquiring Property from a Decedent — Form 8971
A. Introduction
B. Form 8971 and the §6035 Reporting Obligation
1. Who Must File Form 8971
2. Signature Requirement
3. Time for Filing Form 8971
4. Where and How to File Form 8971 and Schedule(s) A
C. Which Beneficiaries Must Be Listed on Form 8971
D. What Property Must Be Reported on Schedule(s) A
E. How to Report Property on Schedule(s) A, Part 2
1. Description of Property Acquired From the Decedent
2. Did the Asset Increase the Estate Tax Liability?
3. Estate Tax Value
F. Situations Requiring Supplemental Reporting
1. Duty to Supplement
2. When the Beneficiary Cannot Be Found
3. Subsequent Transfers
G. A General Discussion on Penalties
1. Penalties Applicable to Persons Required to File Form 8971 and Schedule(s) A
2. Penalties Applicable to Beneficiaries for Inconsistent Filing
H. Disclosures and Other Attachments to Form 8971 and Schedule(s) A
I. Practical Considerations to Reduce the Burden Imposed by §6035
J. Often Overlooked Points
X. Preparation of the Federal Gift Tax Return — Form 709
A. Introduction
B. Who Must File
C. Required Thresholds for Filing Form 709
D. When to File
E. Where to File
F. Includible Information
G. Generation-Skipping Transfers
1. The Importance of Selecting GST Trust Status
2. The Importance of Tracking and Reporting ETIP Terminations
3. The Importance of Tracing Unused GST Exemption
H. Valuation
I. Attachments
J. QTIP Gift Tax Election
K. Gifts to §529 Qualified Tuition Programs
L. Special Valuation Rules
M. Split Gifts
N. The Annual Exclusion
O. Recalculation of Applicable Exclusion Amount for Certain Married Same-Sex Taxpayers
P. Often Overlooked Points
Q. Form 709 Audit Tips
R. The Gift Tax Statute of Limitations and the Finality of Reported Gift Tax Values
XI. Taxable Distributions and Taxable Terminations — Form 706-GS(D), Form 706-GS(D-1), and Form 706-GS(T)
A. Introduction
B. Who Must File
C. When and Where to File
D. Includible Information
E. Documentation/Attachments
F. Often Overlooked Points
XII. Qualified Severances
A. Introduction
B. What is a Qualified Severance?
C. Planning Approaches for Qualified Severances
D. Income Tax Consequences of a Qualified Severance
E. Timing of Qualified Severances
F. When and How to Report a Qualified Severance

Working Papers

Table of Worksheets
Worksheet 1 Sample Filled-In Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
Worksheet 2 Sample Filled-In Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
Worksheet 3 Sample Filled-In Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent
Worksheet 4 Sample Filled-In Form 706 GS(D), Generation-Skipping Transfer Tax Return for Distributions; Form 706-GS(D-1), Notification of Distribution From a Generation-Skipping Trust; and Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations
Worksheet 5 Where to List Assets on Form 706
Worksheet 6 Master List of Form 706 Attachments
Worksheet 7 Estate and Gift Tax Inflation Adjustments for Various Years
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