Prepare an estate tax return (Form 706) for Adam Zugg

Prepare an estate tax return (Form 706) for Adam Zugg of 45 Cornfield Place, Midwest City, IL 60000. Adam died October 31, 2017. He was survived by his wife, Callie, and their son, Zebulon. At the time of his death, Adam was employed by a farm equipment distributor as its office manager. T he executor reports that he has discovered the property listed below.

Other information includes the following:

1. Adam owned the life insurance policy, and his estate is the beneficiary.

2. Callie is the beneficiary of the retirement plan.

3. Adam willed his to Callie and the rest of his property to Zebulon.

4. Adam owed $13,200 on a car loan.

5. The estate’s administrative expenses were $32,000, and his funeral expenses were $8,000.

6. Assume that the estate paid state estate taxes of $45,000.

7. Adam made his only taxable gift, $6 million taxable amount, in December 2015 and paid all the gift taxes from an account solely in his name.

8. Assume the estate’s marginal income tax rate will be 35%.

Prepare an estate tax return (Form 706) for Marcia Miller,

Prepare an estate tax return (Form 706) for Marcia Miller, who died July 23, 2017. Marcia (born April 2, 1930) resided at 117 Brandywine Way, Eastern City, PA 19000 and was a lifelong Pennsylvania resident. Her first husband, Arthur Adams, died in 1995. In June 1999, she married Matt Miller, a U.S. citizen, who survived her. Marcia has three children (Andy, Annie, and Archie Adams) from her first marriage. 

Date of death values of the properties discovered at Marcia’s death are listed below.

  • Principal residence with a value of $420,000. Purchased by Marcia in 2001 and titled in the names of Matt and Marcia Miller, joint tenants with right of survivorship.
  • Household furnishings acquired by Marcia during her first marriage and valued at $62,000 when she died.
  • $1 million cash in a money market account in Marcia’s name. On her date of death, there also was $2,200 of accrued interest in the account.
  • $17,000 checking account at Keystone State Bank in the names of Marcia and Matt as tenants in common.
  • Stock in Marcia’s name with fair market value at her death of $5.6 million.
  • $1 million life insurance policy. Marcia purchased the policy in 1990 and held incidents of ownership. Beneficiary is Marcia’s estate.
  • QTIP trust established at Franklin State Bank by Arthur Adams. His executor claimed a 60% marital deduction on the trust, valued then at $750,000. Marcia received all the income monthly for life, and the remainder is to go to the three Adams children in equal shares. The trust was valued at $1.8 million at Marcia’s death. 
  • Trust at Quaker State Bank with value of $500,000. The trust was created under the will of Marcia’s uncle, Josh Judson, who died in 1992. Marcia was entitled to receive all the income annually for life and was granted the power to will the property to such of her descendants as she so desired with the specification that, if she did not exercise the power, the property would pass to Josh’s former housekeeper, Yvonne Jones. 

Marcia’s will included the following provisions:

  • I bequeath to my spouse Matt all of my tangible, personal property.
  • To First Lutheran Church I leave $50,000.
  • To a trust with PHL Bank I leave $200,000. Matt is to receive all the trust income quarterly for life, and the remainder is to be divided equally at his death among my three children or their estates.
  • I leave my sister Annette $100,000, but if she disclaims this amount, it will go instead to my beloved spouse.
  • I appoint the property in the trust at Quaker State Bank to Annie Adams (my daughter).
  • The rest of my property I leave to Andy Adams (my first born). 

Other pertinent information follows:

  • As of her date of death, Marcia owed her country club $800.
  • The cost of Marcia’s funeral and tombstone totaled $15,000.
  • Her accountant’s, attorney’s, and executor’s fees are estimated to be $120,000.
  • Annette made a qualified disclaimer of the $100,000 bequest.
  • Marcia’s executor, Hy Phee, will make whatever elections will result in the lowest estate tax payable. During her life, Marcia never made any taxable gifts and never consented to gift splitting .
  • Assume that, under state Jaw, taxes and any other costs associated with death are payable from the estate’s residue and that the state death tax owed is equal to the state death tax credit available on the federal estate tax return.

Healthwise Medical Supplies Company is located at 2400 Second Street,

Healthwise Medical Supplies Company is located at 2400 Second Street, City, ST 12345. The company is a general that uses the calendar year and accrual basis for both book and tax purposes. It engages in the development and sale of specialized surgical tools to hospitals. The employer identification number (EIN) is XX-2019017. The company formed and began business on January 1, 2016. It has no foreign partners or other foreign dealings. The company is neither a tax shelter nor a publicly traded The company has made no distributions other than cash, and no changes in ownership have occurred during the current year. Dr. Bailey is the Tax Matters Partner. The makes no special elections. Table C:9-3 contains book information at the beginning and end of the current year, and Table C:9-4 presents a book income statement for the current year. Other information follows:

Information on Formation:

Two individuals formed the on January 1, 2016: Dr. Leisa H. Bailey (1200 First Pike, City, ST 12345) and Dr. Thomas J. Firth (3600 Third Blvd., City, ST 54321). For a 30% interest, Dr. Bailey contributed $960,000 cash. She is an active general partner who manages the company. For a 70% interest, Dr. Firth contributed $1,856,000 cash and 1,000 shares of Fastgrowth, Inc. stock having, at the time of contribution, a $384,000 fair market value (FMV) and a $76,800 adjusted basis. Dr. Firth is an active general partner who designs and develops new products. For book purposes, the company recorded the contribution of stock at fair market value. 

Inventory and Cost of Goods Sold (Form 1125-A}:

The company uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, , and purchases should be reflected in Schedule A. No other costs or expenses are allocated to cost of goods sold. Assume the company is exempt from the uniform capitalization (UNICAP) rules.

Line 9 (a) . . . . . . . . . . . . . . . Check (ii)

(b)-(d) . . . . . . . . . . . . . . . . Not applicable

(e) & (f) . . . . . . . . . . . . . . . . . No

Capital Gains and Losses (Schedule D):

The company sold all 1,000 shares of the Fast growth, Inc. on July 2, 2017, for $1,152,000. Dr. Firth acquired the stock on January 2, 2014, for $76,800 and contributed the stock to the company on January 1, 2016, when its FMV was $384,000. This transaction was not reported on Form 1099-B.

Table C: 9-3:

Table C: 9-4:

Fixed Assets and Depreciation (Form 4562}:

The company acquired the equipment on January 2, 2016, and placed it in service on that date. The equipment, which originally cost $1.28 million, is MACRS seven-year property. The company did not elect Sec. 179 expensing in the acquisition year and elected out of bonus depreciation. The company claimed the following depreciation on this property:

Year . . . . . . . . . . . . . . . . Book and Regular  Tax Depreciation

2016 . . . . . . . . . . . . . . . . . . $182,912

2017 . . . . . . . . . . . . . . . . . . 313,472

On March 1, 2017, the company acquired and placed in service additional equipment costing $510,000. The company made the Sec. 179 expensing election for the entire cost of this new equipment. No depreciation or expensing is reported on Schedule A. Other Information:

• The company paid Dr. Bailey a $120,000 guaranteed payment for her management services.

• The company made a $44,000 cash contribution to Fort Sanders Hospital System on December 1 of the current year.

• During the current year, the company made a $480,000 cash to Dr. Bailey and a $1.12 mill ion cash to Dr. Firth.

• The municipal bonds, acquired in 2016, are general revenue bonds, not private-activity bonds. Assume that no expenses of the company are allocable to the tax-exempt interest generated from the municipal bonds. 

• Ignore the U.S. (domestic) production activities deduction.

• Use book numbers for Schedule L, Schedule M-2, and Line 1 of Schedule M-1. Also use book numbers for Item L of Schedule K-1, and check the box for Sec. 704(b) book. 

• The partners share liabilities, which are recourse, in the same proportion as their ownership percentages.

Required: 

Prepare the 2017 tax return (Form 1065), including the following additional schedules and forms: Schedule D, Form 4562, and Schedule K-1. 

Optional: Prepare a schedule for each partner’s basis in his or her interest. At January 1, 2017, Bailey’s basis was $1,282,781, and Firth’s was $2,685,957.

The Dapper-Dons Partnership was formed ten years ago as a

The Dapper-Dons was formed ten years ago as a general to custom tailor men’s clothing. Dapper-Dons is located at 123 Flamingo Drive in City, ST, 54321. Bob Dapper manages the business and has a 40% capital and profits interest. His address is 709 Brumby Way, City, ST, 54321. Jeremy Dons owns the remaining 60% interest but is not active in the business. His address is 807 Ninth Avenue, City, ST, 54321. The values its inventory using the cost method and did not change the method used during the current year. The uses the accrual method of accounting. The has no foreign partners, no foreign transactions, no interests in foreign trusts, and no foreign financial accounts. This is neither a tax shelter nor a publicly traded No changes in ownership of interests occurred during the current year. The made cash distributions of $155,050 and $232,576 to Dapper and Dons, respectively, on December 30 of the current year. It made no other property distributions. for the current year are presented in Tables C:9-1 and C:9-2. Ignore the U.S. (domestic) production activities deduction. Dapper Dons, being an eligible small pass-through uses the small business simplified overall method for reporting these activities (see discussion for Line 13d of Schedules K and K-1 in the Form 1065 instructions). 

Prepare a current year (2017 for this problem) tax return for Dapper-Dons Partnership.

Table C:9-1:

Table C: 9-2:

Flying Gator Corporation and its 100%-owned subsidiary, T Corporation, have

Flying Gator and its 100%-owned subsidiary, T have filed consolidated tax returns for many years. Both corporations use the hybrid method of accounting and the calendar year as their tax year. During 2017 (which is the current year for this problem), they report the operating results as listed in Table C:8-2. Note the following additional information:

• Flying Gator and T Corporations are the only members of their controlled group.

• Flying Gator’s address is 2101 W. University Ave., Gainesburg, FL 32611. Its employer identification number is 38-2345678. Flying Gator was incorporated on June 11, 2005. Its total assets are $430,000.

• A $50,000 consolidated NOL carryover from the preceding year is available. The NOL is wholly attributable to Flying Gator.

• Flying Gator and T use the first-in, first-out (FIFO) inventory method. T began selling inventory to Flying Gator in the preceding year, which resulted in a $40,700 deferred intercompany profit at the end of the preceding year. Flying Gator is deemed to realize this profit in the current year because it uses the FIFO method. During the current year,
T sells additional inventory to Flying Gator, realizing a $300,000 profit. At the end of the current year, Flying Gator holds inventory responsible for $45,100 of this profit.

• Flying Gator receives all its dividends from T. T receives all its dividends from a 60%owned domestic All distributions are from E&P.

• For 2017, the dividends-received deduction percentage is 80% if the shareholder owns at least 20% but less than 80% of the distributing corporation’s stock.

• Flying Gator receives all its interest income from T. T pays Flying Gator the interest on March 31 of the current year on a loan that was outstanding from October 1 of the preceding year through March 31 of the current year. Flying Gator and T did not accrue any interest at the end of the preceding year because they use the hybrid method of accounting. T pays $5,000 of its interest expense to a third party.

• Officer’s salaries are $80,000 for Flying Gator and $65,000 forT. These amounts are included in salaries and wages in Table C:8-2.

• Flying Gator’s capital losses include a $9,000 long-term loss on a sale of land to T in the current year. T holds the land at year-end.

• The corporations have no nonrecaptured net Sec. 1231 losses from prior tax years.

• Ignore the U.S. production activities deduction.

• Estimated tax payments for the current year are $150,000.

• Use a 34% flat tax rate for 2017, regardless of taxable income.

Determine the consolidated group’s 2017 tax liability. Prepare the first page of the consolidated group’s current year corporate income tax return (Form 1120). 

Table C: 8-2:

Permtemp Corporation formed in 2016 and, for that year, reported

Permtemp formed in 2016 and, for that year, reported the following book income statement and excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities:

Additional information for 2016:

• The investment in corporate stock is comprised of less-than-20%-owned corporations. The dividends-received deduction percentage in 2016 and 2017 was 70% for less than 20%-owned property.

• Depreciation for tax purposes is $1.4 mill ion under MACRS.

• Bad debt expense for tax purposes is $150,000 under the direct write off method.

• Because of limitations, none of the charitable contributions will be deductible for tax purposes, and $22,500 of the meals and entertainment expenses will be disallowed for tax purposes.

• Ignore the U.S. production activities deduction. 

• The corporate tax rate in 2016 was 34%.

Required for 2016:

a. Prepare page 1 of the 2016 Form 1120, computing the corporation’s NOL.

b. Determine the corporation’s deferred tax asset and deferred tax liability situation, and then complete the income statement and to reflect proper accounting under ASC 740. Use the information to prepare Schedule L of the 2016 Form 1120.

c. Prepare the 2016 Schedule M-3 for Form 1120. 

d. Prepare a schedule that reconciles the corporation’s effective tax rate to the statutory 34% tax rate.

For 2016 forms, go to forms and publications, prior year, at the IRS website, www.irs.gov.

For 2017, Permtemp reported the following book income statement and excluding the federal income tax expense, deferred tax assets, and deferred tax liabilities:

Additional information for 2017:

• Because of limitations, $30,000 of the meals and entertainment expenses will be disallowed for tax purposes.

• Depreciation for tax purposes is $2.45 million under MACRS.

• Bad debt expense for tax purposes is $425,000 under the direct write-off method.

• Ignore the U.S. production activities deduction

• The corporate tax rate in 2017 was 34%.

• At the end of 2017, Congress reduced the corporate tax rate to 21% effective for 2018.

Required for 2017:

a. Prepare page 1 of the 2017 Form 1120, computing the corporation’s taxable income and tax liability.

b. Determine the corporation’s deferred tax asset and deferred tax liability situation, and then complete the income statement and to reflect proper accounting ASC 740. Because of the enacted tax rate change, deferred assets and liabilities at the end of 2017 will need to be valued at 21%. Use the information to prepare Schedule L of the 2017 Form 1120.

c. Prepare the 2017 Schedule M-3 for Form 1120.

d. Prepare a schedule that reconciles the corporation’s effective tax rate to the statutory 34% tax rate. This schedule will need a line to reflect the change in the future tax rate.

In 2014, Leon Lopez funded Lopez Trust #3, an irrevocable

In 2014, Leon Lopez funded Lopez Trust #3, an irrevocable trust, at First Bank, 125 Seaview, Northwest City, WA 98112, for the benefit of his twin children, Loretta and Jorge. The trust’s tax ID number is 74-1243565. The trustee, in its discretion, is to distribute income and/or principal to one or both of the beneficiaries and does not need to maintain separate shares. The trust is to terminate in 2025, when the beneficiaries reach age 35. Leon transferred corporate bonds and municipal bonds to the trust in January 2014. In 2017, the trustee distributed $8,600 to Loretta (whose address is 123 Maple Ave., Northwest City, WA 98115) and nothing to Jorge. Half of the trustee’s fee is to be charged to income and half to principal; gains and losses affect principal. Other current year information for the trust is as follows:

Interest from corporate bonds………………………………………….$9,200

Interest from municipal bonds…………………………………………. 6,800

Short-term capital gain on sale of bonds……………………………..300

CPA’s fee for preparation of prior year’s tax return………………525

Trustee’s fee ……………………………………………………………………….800

Estimated federal income taxes paid from principal…………..2,400

Prepare a Form 1041 and Schedule K-1 for the trust. Ignore the alternative minimum tax.

Mark Meadows funded a trust in 2014 with Merchants Bank

Mark Meadows funded a trust in 2014 with Merchants Bank named as trustee. He paid no gift tax on the transfer. The trustee in its discretion is to pay out income, but not principal, to Mark’s children, Angela and Barry, for 15 years. Then the trust will terminate, and its assets, including accumulated income, will be paid to Angela and Barry in equal amounts. (Separate shares are not to be maintained.) In the current year, the trustee distributes $3,000 to Angela and $9,000 to Barry. The trust paid estimated federal income taxes of $6,000 from the principal account and reported the following additional results for the current year. The trust instrument requires trustee’s fees to be paid from principal.

Prepare a Form 1041, including any needed Schedule K-1s, for the trust established by Mr. Meadows. Ignore the alternative minimum tax (AMT). The trustee’s address is 201 Fifth Ave., Northeast City, NY 10000. The trust’s identification number is 74-1212121. Angela and Barry reside at 3 East 46th St., North City, NY 11000.

John Lawrence Bailey is employed in Country T by American

John Lawrence Bailey is employed in Country T by American Conglomerate Corporation. Bailey has resided with his wife and three children in Country T for seven years. He made one five-day business trip back to the United States in the current year, and $2,000 of his salary (but none of the allowances) is allocable to the U.S. business trip. Bailey reports the following tax-related information for the current year:

Complete a 2017 Form 2555 for the Baileys’ current tax year. Assume Mr. Bailey established foreign residency in 2013, and all prior tax returns were filed with a Form 2555 claiming that Mr. Bailey was a bonafide foreign resident.

Stephen R. and Rachel K. Bates, both U.S . citizens,

Stephen R. and Rachel K. Bates, both U.S . citizens, resided in Country K for the entire current year except when Stephen was temporarily assigned to his employer’s home office in the United States. They file a joint return and use the calendar year as their tax year. The Bateses report the following current-year income and expense items:

Last year, the Bateses elected to accrue their foreign income taxes for foreign tax credit purposes. No foreign tax credit carryovers to the current year are available. Stephen Bates estimates the family will owe 75,000 tesos in Country K income taxes for this year on the Country K salary and dividends. The average annual for the current year is 4 tesos to $1 (U.S.). The teso-U.S. dollar did not change between year-end and the date the Bates paid their Country K taxes. No Country K taxes were withheld on the foreign dividend.

Complete the two Form 1116s the Bateses must file with their income tax return to claim a credit for the foreign taxes paid on the salary and dividends. Use 2017 tax forms and ignore the implications of the Sec. 911 earned income exclusion, itemized deduction and personal exemption phase-outs, and alternative minimum tax provisions.