Advanced Accounting 11th Edition by Paul Fischer,William Tayler, Rita Cheng

Exercise 1

Taxation of gifts. Determine the correct value for each of the following questions:
1. Assume that an individual gives cash to the following parties: $25,000 to a charitable organization, $15,000 to her grandson for his college tuition, $8,000 to her granddaughter to buy a car, and $14,000 to her spouse for a trip to France. What amount of gifts is considered taxable?
2. Assume that an individual has given $25,000 to each of his four grandchildren for each of the past three years and $50,000 to a charitable organization. If he wants to make a single gift to each of his four grandchildren, what would the maximum gift per grandchild be in order to avoid all gift tax?
3. Your client made the following gifts last year: $200,000 to each of her three children, $50,000 to her brother, and $10,000 to each of her eight grandchildren. Prior to that, your client made a single gift of $50,000 to each of her two nieces. If she made a gift of $500,000 to her sister in the current year, what amount of gift tax would be due?
4. Assume the same facts as in item (3) above except that your client married during the current year prior to making the gift to her sister. Furthermore, assume that her spouse is a consenting spouse for purposes of gifting to the sister and they both gave the gift to the sister. The new spouse had prior taxable gifts of $100,000. What amount of gift tax would be due?
5. Assume that an individual and his consenting spouse hadmade no gifts prior to last year.However, last year, they gave $50,000, $32,000, and $72,000, to their daughter, son, and neighbor, respectively. This year, they want to do significant gifting to the same three individuals but do not want the cumulative net tax on gifts to exceed $61,500 per spouse. Assuming a minimum gift of $30,000 to each party, what is the sum of all gifts that could be made this year?