PORTFOLIO

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

Tax Management Portfolio, Estate, Gift, and Generation-Skipping Tax Returns and Audits, No. 822-2nd, is designed as a practical guide to preparation of the Forms 706 and 709, the federal estate (and generation-skipping transfer) and gift (and generation-skipping transfer) tax returns, respectively.

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DESCRIPTION

Tax Management Portfolio, Estate, Gift, and Generation-Skipping Tax Returns and Audits, No. 822-2nd, is designed as a practical guide to preparation of the Forms 706 and 709, 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 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 709, 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. Sample filled-in returns for all three taxes appear in the Worksheets.
This Portfolio may be cited as Peebles and Janes, 822-2nd T.M., Estate, Gift, and Generation-Skipping Tax Returns and Audits.


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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. 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

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

5. Documentation/Attachments

6. Often Overlooked Points

C. Schedule C - Mortgages, Notes and Cash

1. In General

2. Cash

3. Includible Interests

4. Valuation

5. Documentation/Attachments

6. Often Overlooked Points

7. Self-Canceling Installment Note

D. Schedule D - Life Insurance

1. In General

2. Includible Interests

3. Valuation

4. Documentation/Attachments

5. Often Overlooked Points

E. Schedule E - Jointly Owned Property

1. Includible Interests

2. Valuation

3. Documentation/Attachments

4. Often Overlooked Points

F. Schedule F - Miscellaneous Property

1. Includible Interests

2. General Considerations

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 Financial Instruments

a. Options

b. Forward Contracts

c. Notional Principal Contracts

7. Patents, Licenses, Franchises, Copyrights, Trademarks, and Retained Royalty Interests

8. Vested Remainder Interests in Trusts, Estates and Property Subject to a Life Estate

9. Qualified Terminable Interest Property

10. Insurance Policies and Annuities on Another's Life

11. Rights to Recover Damages in Pending Legal Actions, Including Bankruptcy Claims

12. Estimated Taxes and Applied Overpayments and Claims for Tax Refunds

13. Employment-Related Assets and Retirement Assets

14. Tangible Personal Property

a. Generally

b. Fine Art and Collectibles

c. Household and Personal Effects

G. Schedule G - Inter Vivos Transfers

1. Includible Interests

2. Documentation/Attachments

3. Often Overlooked Points

a. Gifts Made Within Three Years of Death

b. Transfer of Family Residence

c. Stock in Controlled Corporation

d. Family Limited Partnership

e. Sections 2701-2704 Transactions

f. Totten Trusts

g. Deathbed Checks

H. Schedule H - Powers of Appointment

1. Includible Interests

2. Valuation

3. Documentation/Attachments

4. Often Overlooked Points

a. Surviving Spouse as Trustee

b. Five and Five Powers

c. General Power of Appointment in Another's Estate

I. Schedule I - Annuities

1. Includible Interests

2. Private Annuities

3. Valuation

4. Documentation/Attachments

5. Often Overlooked Points

J. Schedule J - Funeral and Administrative Expenses

1. Deductible Items

a. Funeral Expenses

b. Administrative Expenses Generally

c. Executor's Commissions

d. Trustees' Commissions

e. Attorney's Fees

f. Miscellaneous Administrative Expenses

g. Expenses to Preserve and Maintain Property

h. Expense for Selling Property

i. Post-Mortem Interest Expenses

2. Often Overlooked Points

K. Schedule K - Debts

1. Deductible Debts, Claims and Obligations

2. 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 (QTIP)

4. Transfers to Non-U.S. Citizen Spouses

5. Often Overlooked Points

a. Noncitizen Surviving Spouse

b. Statutory Rights of Spouse

c. Use of Disclaimers

d. Funding the Marital Share

e. Valuation Issues

f. Restrictions on Property

N. Schedule N - ESOP Deduction

O. Schedule O - Charitable Deduction

1. Deductible Interests

2. Valuation

3. Documentation/Attachments

4. Often Overlooked Points

P. Schedule P - Credit for Foreign Death Taxes

1. Requirements for Taking the Credit

2. Amount of Credit Permitted

3. Documentation/Attachments

4. 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 R-1 - Generation-Skipping Transfer Tax

1. Background

2. The Schedule R and the Schedule R-1

3. Valuation

4. Often Overlooked Points

S. Former Schedule S - Estate Tax on Excess Retirement Accumulations

T. Schedule T - Qualified Family-Owned Business Interest Deduction

U. Schedule U - Qualified Conservation Easement Exclusion

V. State Death Tax Credits

1. Introduction

2. Valuation

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. Nonresident Alien Estate Tax Return - Form 706-NA

A. Introduction

B. Similarities between Forms 706-NA and 706

C. Differences between Forms 706-NA and 706

D. Often Overlooked Points

E. Property Owned Jointly with Spouse

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. Includible Information

H. Allowable Deductions

I. Available Elections

J. Tax Computation

K. Annual Statements

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 Appellate Review of the Estate Tax Return

F. Estate Tax Closing Letter

IX. 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

H. Valuation

I. Attachments

J. QTIP Gift Tax Election

K. Gifts to § 529 Qualified Tuition Programs

L. Special Valuation Rules

M. Split Gifts

N. Often Overlooked Points

O. Form 709 Audit Tips

P. Finality of Reported Gift Tax Values

X. Taxable Distributions and Taxable Terminations - Forms 706-GS(D), 706-GS(D-1) and 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


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Completed Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return

Worksheet 2 Completed Form 706NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return (Nonresident Alien)

Worksheet 3 Completed Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return

Worksheet 4 Form 890, Waiver of Restrictions on Assessment and Collection of Deficiency and Acceptance of Overassessment - Estate and Gift Tax

Worksheet 5 Form 890-AD, Estate Tax Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and of Acceptance of Overassessment

Worksheet 6 Completed Form 4768, Application for Extension of Time to File U.S. Estate (and Generation-Skipping Transfer) Tax Return and/or Pay Estate (and Generation-Skipping Transfer) Tax(es)

Worksheet 7 [Reserved]

Worksheet 8 Completed Forms 706 GS(D), Generation-Skipping Transfer Tax Return for Distributions; 706-GS(D-1) Notification of Distribution From a Generation-Skipping Trust; and 706-GS(T) Generation-Skipping Transfer Tax Return for Terminations

Worksheet 8A Completed Form 8892, Payment of Gift/GST Tax and/or Application for Extension of Time to File Form 709

Worksheet 9 Sample Estate Tax Closing Letter (Including Rev. Proc. 94-68)

Worksheet 10 Request for Prompt Audit and Release of Executor from Personal Liability

Worksheet 11 Where to List Assets on Form 706

Worksheet 12 Master List of Form 706 Attachments

Worksheet 13 Internal Revenue Manual 4.25.1 Estate and Gift Tax Examinations

Bibliography

OFFICIAL

Statutes:

Regulations:

Public Laws:

Treasury Rulings:

Cases:

UNOFFICIAL

Periodicals:

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