tax cases

timer Asked: Sep 15th, 2013

Question description

ACC 618

Gift Tax

Form 709

John D. and Rose W. Smith (SSN’s 555-12-8899 and 555-21-7788) live at 18 Torchwood Drive, Area 51, AZ 88951. John and Rose have been married for many years and own and operate a profitable real estate business. They have two children, Donna (age 20) and Mickey (age 22), both of whom attend college. During 2010, the Smith’s made the following transfers:

1.  John paid college expenses of $50,000 in tuition and $12,000 in room and board. To establish financial responsibility with their kids, they gave the money directly to Donna and Mickey.

2.  Rose reimbursed Martha (Donna’s aunt) for her kidney transplant. Martha is not the dependent of the Smith’s.

3.  John used $150,000 in insurance proceeds he received on the death of his grandfather to purchase land in Bad Wolf Bay, listing title as “John, Donna, and Mickey Smith, equal tenants in common.”

4.  As a wedding anniversary present, John and Rose each gave $55,000 to purchase an RV for Rose’s parents (Jackie and Ben Tyler).

5.  John and Rose each gave a cash contribution of $5,000 to the reelection campaign of the Mayor of Area 51.

In creating several trusts in 2008, the Smith’s made taxable gifts of $2million. Consequently, no gift tax was due because of the specific exemption ($1million for each donor spouse).

Prepare 2010 gift tax returns (Form 709 for the Smith’s. As in the past, the Smith’s made the Section 2513 election to split the gifts. 

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