Publication 904 (5-1985) INTERRELATED COMPUTATIONS FOR ESTATE AND GIFT TAXES
Publication 904 (5-1985)
- Institutional AuthorsInternal Revenue Service
- Jurisdictions
- LanguageEnglish
Editor's Note: Although Publication 904 is not current and has not been updated by the IRS since the unified credit was increased, Tax Analysts has decided to continue to make it available to our subscribers because the basic math principles used in the examples are still valid and are not readily available from any other source.
]This publication explains and illustrates the methods to use when an interrelated computation is necessary for determining estate or gift taxes. For estate tax purposes, you must make an interrelated computation if a deduction is allowed for property passing to a charity (charitable deduction) or to a surviving spouse (marital deduction), if the property is burdened by the payment of death taxes. For gift tax purposes, you must make an interrelated computation if the person receiving the gift (the donee) agrees to pay the gift tax on the transfer.
See Publication 448, Federal Estate and Gift Taxes, for a discussion of the estate and gift tax provisions.
This publication is divided into four parts. Part I contains the tax tables and also describes the conventional and alternate methods for figuring the estate tax and the gift tax. The two methods are used to figure the estate tax and the deductions in the examples in Part II and the gift tax in the examples in Part III.
Part IV describes how to request a ruling, computation, or actuarial factor from the Internal Revenue Service if you need help in preparing an estate or gift tax return.
PART I--TAX TABLES
Table A--Unified Rate Schedule. Both the estate tax and the gift tax are determined by using the Unified Rate Schedule. Table A shows the tax brackets and rates for a taxable amount of less than $2,500,000.
Table A--1. This table is a continuation of Table A. The tax brackets and rates for taxable amounts of $2,500,000 or more differ depending on the year in which the transfer, whether because of a death or a gift, is made. Be sure to use the bracket and rate that apply to the year of the transfer.
Table B--Unified Credit. This table is the unified credit that is allowed against estate and gift taxes. The amount of the credit depends on the year in which the transfer is made. For the estate and gift tax the credit is reduced by 20% of the specific (lifetime) exemption allowed for any gifts made by the individual after September 8, 1976, and before 1977. In addition, the credit for gift tax purposes is reduced by any unified credit that was allowable in a prior period. The amount of the unified credit is limited to the amount of the gross estate tax or gross gift tax liability.
Table C--Maximum Credit for State Death Taxes.
An estate is allowed a credit for any estate, inheritance, legacy, or inheritance tax paid to a state or the District of Columbia. The maximum state death tax credit allowed is determined by using this table. The credit is based on the federal adjusted taxable estate. This is the federal taxable estate (line 3, Form 706) minus $60,000.
Table C-1. This table provides an alternate method for determining the maximum state death tax credit. The federal taxable estate does not have to be reduced if this table is used.
Computation methods. Tables A and C have five columns instead of the usual four. The extra column makes possible an alternate tax computation method. The first four columns are used to figure the tax by the conventional method. Columns 1, 2, 4, and 5 are used to figure the tax by the alternate method.
The alternate method has two advantages over the conventional method. First, it requires fewer steps to figure the tax. Secondly, it eliminates certain negative numbers when figuring the trial estate tax.
The following examples show the difference between the conventional method and the alternate method.
Example 1.
Conventional Method
Taxable estate................................. $90,000.00
Minus: Bracket from Table A, Column 1.......... 80,000.00
Excess......................................... $10,000.00
Times: Marginal rate from Table A, Column 4.... x .28
Product........................................ $ 2,800.00
Plus: Tax on bracket from Table A, Column 3.... 18,200.00
Tax on taxable estate.......................... $21,000.00
Alternate Method
Taxable estate................................. $90,000.00
Times: Marginal rate from Trade A, Column 4.... x .28
Product........................................ $25,200.00
Minus: Subtractive term from Table A, Column 5. 4,200.00
Tax on taxable estate.......................... $21,000.00
Example 2.
Conventional Method
Taxable estate............................ $ 490,000.00+.8F
Minus: Bracket from Table A, Column 1. 500,000.00
Excess.....................................$- 10,000.00+.8F
Times: Marginal rate from Table A, Column 4 x .37
Product....................................$- 3,700.00+.296F
Plus: Tax on bracket from Table A,Column 3. 155,800.00
Tax on taxable estate...................... $152,100.00+.296F
Alternate Method
Taxable estate............................. $490,00.00+.8F
Times: Marginal rate from Table A, Column 4. x .37
Product.................................... 181,300.00+.296F
Minus: Subtractive term from Table A,
Column.................................... 529,200.00
Tax on taxable estate......................$152, 100.00+.296F
Table A
Unified Rate Schedule
Rate of tax on Subtractive
Taxable amount Taxable excess over term for
equal to or amount tax on amount amount in alternate
more than- less than- in column (1) column (1) method
(1) (2) (3) (4) (5)
0 10,000 0 .18 0
10,000 20,000 1,800 .20 200
20,000 40,000 3,800 .22 200
40,000 60,000 8,200 .24 1,400
60,000 80,000 13,000 .26 2,600
80,000 100,000 18,200 .28 4,200
100,000 150,000 23,800 .30 6,200
250,000 500,000 70,800 .34 14,200
500,000 750,000 155,800 .37 29,200
750,000 1,000,000 248,300 .39 44,200
1,000,000 1,250,000 345,800 .41 64,200
1,500,000 2,000,000 555,800 .45 119,200
2,000,000 2,500,000 780,800 .49 199,200
Table A-1
1984--1987
2,500,000 3,000,000 1,025,800 .53 299,200
3,000,000 ......... 1,290,800 .55 359,200
1988 and
later
2,500,000 ......... 1,025,800 .50 224,200
Table B
Unified Credit
For transfers in-- The credit is--
1984 $ 96,300
1985 121,800
1986 155,800
1987 and later 192,800
Table C
Maximum Credit for State Death Taxes
(Based on federal adjusted taxable estate, which is the
federal taxable estate reduced by $60,000)
Adjusted Rate of credit subtractive
taxable estate Adjusted Credit on on excess over term for
equal to or taxable estate amount in amount in alternate
more than- less than- column (1) column (1) method
(1) (2) (3) (4) (5)
0 40,000 0 None 0
40,000 90,000 0 .008 320
90,000 140,000 400 .016 1,040
140,000 240,000 1,200 .024 2,160
240,000 440,000 3,600 .032 4,080
440,000 640,000 10,000 .040 7,600
640,000 840,000 18,000 .048 12,720
840,000 1,040,000 27,600 .056 19,440
1,040,000 1,540,000 38,800 .064 27,760
1,540,000 2,040,000 70,800 .072 40,080
2,040,000 2,540,000 106,800 .080 56,400
2,540,000 3,040,000 146,800 .088 76,720
3,040,000 3,540,000 190,800 .096 101,040
3,540,000 4,040,000 238,800 .104 129,360
4,040,000 5,040,000 290,800 .112 161,680
5,040,000 6,040,000 402,800 .120 202,000
6,040,000 7,040,000 522,800 .128 250,320
7,040,000 8,040,000 650,800 .136 306,640
8,040,000 9,040,000 786,800 .144 370,960
9,040,000 10,040,000 930,800 .152 443,280
10,040,000 ......... 1,082,800 .160 523,600
Table C-1
Alternate Method Computation of Maximum Credit for State
Death Taxes
NOTE. The $60,000 adjustment to the federal taxable estate
is included in Table C-1. A separate computation for this
reduction is not necessary. Refer to Line 3, Form 706, for
the amount of the federal taxable estate.
Taxable estate
equal to or Taxable estate Subtractive
more than-- less than- Rate of credit term
(1) (2) (3) (4)
0 100,000 None 0
100,000 150,000 .008 800
150,000 200,000 .016 2,000
200,000 300,000 .024 3,600
300,000 500,000 .032 6,000
500,000 700,000 .040 10,000
700,000 900,000 .048 15,600
900,000 1,100,000 .056 22,800
1,100,000 1,600,000 .064 31,600
1,600,000 2,100,000 .072 44,400
2,100,000 2,600,000 .080 61,200
2,600,000 3,100,000 .088 82,000
3,100,000 3,600,000 .096 106,800
3,600,000 4,100,000 .104 135,600
4,100,000 5,100,000 .112 168,400
5,100,000 6,100,000 .120 209,200
6,100,000 7,100,000 .128 258,000
7,100,000 8,100,000 .136 314,800
8,100,000 9,100,000 .144 379,600
9,100,000 10,100,000 .152 452,400
10,100,000 .......... .160 533,200
PART II--ESTATE TAX
In figuring the taxable estate of a decedent, a deduction is sometimes allowed for the value of property passing for charitable purposes or to a surviving spouse. If the value of this deductible property is burdened with the payment of any death taxes, the amount of the deduction is reduced by the amount used to pay the taxes. The payment of death taxes from a deductible interest requires what is known as an interrelated computation of the federal estate tax.
There is no estate tax liability if the entire estate passes to the surviving spouse and all of the property qualifies for the marital deduction. However, this unlimited marital deduction does not apply and an interrelated computation may be necessary if:
1) The property passes under a will executed before September 12, 1981, or a trust created before that date, that contains a maximum marital deduction formula,
2) The formula was not amended after September 12, 1981, and before the death of the decedent to refer specifically to the unlimited marital deduction, and
3) The state does not enact a law applicable to the estate that construes the formula as referring to the unlimited marital deduction.
In this case, the marital deduction is limited to the greater of $250,000, or 50% of the adjusted gross estate.
The examples in this Part show the methods for figuring interrelated computations. The examples deal with the charitable deduction. These methods also apply if an interrelated computation is necessary for property passing to a surviving spouse.
Examples A, B, and C illustrate the use of the trial and substitution method of solution. Examples D, E, and F illustrate the use of the algebraic method.
In all interrelated computations, the first step is to determine the distribution of the decedent's estate. The second step is to determine what property must bear the payment of death taxes. Once these two steps are complete, the interrelated computation may be figured.
The trial and substitution method requires a series of computations to reach the correct answer. The first computation is done on the basis of reducing the deductible interest by only those taxes that are constant. All taxes that are variable are assumed to be $0.00. The second computation is made on the basis of the taxes figured in the first computation. The third computation is based on the taxes figured in the second computation, and so on. The computations are continued until the taxes figured in two successive computations are equal. When two successive computations produce the same result, the last computation represents the correct computation of the taxes.
The algebraic method is a shorter method for figuring the taxes. However, as more elements of the computation become interrelated, this system becomes more difficult to use. In the algebraic method, the deductible interest is figured on the basis of an unknown amount of tax. The tax is then figured on the basis of a variable deduction and algebra is used to solve for the value of the unknown. It should be noted that, when using the algebraic method, it is sometimes necessary to carry the figures to eight decimal places to determine the correct amount of tax.
Example A. Trial and Substitution Method
- State death tax is constant.
- Taxable interests include adjusted taxable gifts.
An individual died in 1985 leaving a gross estate valued at $400,000. The debts and expenses of the estate were $20,000, and noncharitable bequests totaled $5,000. One-tenth of the estate residue passed to a charity. The state death tax was $10,000, and the will directed that all death taxes were to be paid as a general charge against the residue.
In 1978 the decedent had made a gift of a future interest valued at $150,000. The gross gift tax was $38,800, and the decedent applied $34,000 of the unified credit against the gift tax. The amount of gift tax paid was $4,800.
This example uses the conventional method for determining the amount of the charitable deduction, the maximum credit for state death taxes, and the net estate tax.
Trial 1
1)Trial distribution of estate
Gross estate....................................... $400,000.00
Minus: Debts and expenses............. $ 20,000.00
Bequests.............................. 5,000.00
State death tax....................... 10,000.00
Federal estate tax from
previous trial........................ 0.00 35,000.00
Net residue........................................ $365,000.00
Times: Factor for charity.......................... x .1
Trial charitable deduction......................... $ 36,500.00
2)Computation of trial federal estate tax
Gross estate....................................... $400,000.00
Minus: Debts and expenses............. $ 20,000.00
Trial charitable deduction............ 36,500.00 56,500.00
Trial taxable estate............................... $343,500.00
Plus: Adjusted taxable gifts....................... 150,000.00
Trial taxable interests............................ $493,500.00
Minus: Bracket from Table A, Column 1.............. 250,000.00
Excess............................................. $243,500.00
Times: Marginal rate from Table A, Column 4........ x .34
Product............................................ $ 82,790.00
Plus: Tax on bracket from Table A, Column 3........ 70,800.00
Trial tentative tax................................ $153,590.00
Minus: Gift taxes paid for gifts after 12/31/76.... 4,800.00
Trial estate tax................................... $148,790.00
Minus: Unified credit.............................. 121,800.00
Trial estate tax after unified credit.............. $ 26,990.00
Minus: State death tax credit--
Trial taxable estate........... $343,500.00
Minus: $60,000................. 60,000.00
Trial adjusted taxable
estate....................... $283,500.00
Minus: Bracket from Table
C, Column 1.................. 240,000.00
Excess......................... $ 43,500.00
Times: Marginal rate from
Table C, Column 4............ x .032
Product........................ $ 1,392.00
Plus: Tax on bracket from
Table C, Column 3............ 3,600.00
Trial state death tax credit....................... 4,992.00
Trial net federal estate tax....................... $21,998.00
Trial 2
1)Trial distribution of estate
Gross estate ..................................... $400,000.00
Minus: Debts and expenses............. $ 20,000.00
Bequests....................... 5,000.00
State death tax................ 10,000.00
Federal estate tax from
previous trial............... 21,998.00 56,998.00
Net residue ....................................... $343,002.00
Times: Factor for charity.......................... x .1
Trial charitable deduction........................ $ 34,300.20
2)Computation of trial federal estate tax
Gross estate ...................................... $400,000.00
Minus: Debts and expenses............. $ 20,000.00
Trial charitable deduction..... 34,300.20 54,300.20
Trial taxable estate .............................. $345,699.80
Plus: Adjusted taxable gifts ...................... 150,000.00
Trial taxable interests ........................... $495,699.80
Minus: Bracket from Table A, Column 1 ............. 250,000.00
Excess............................................. $245,699.80
Times: Marginal rate from Table A, Column 4........ x .34
Product ........................................... $83,537.93
Plus: Tax on bracket from Table A, Column 3 ..... 70,800.00
Trial tentative tax................................ $154,337.93
Minus: Gift taxes paid for gifts after 12/31/76 .. 4,800.00
Trial estate tax................................... $149,537.93
Minus: Unified credit.............................. 121,800.00
Trial estate tax after unified credit.............. $ 27,737.93
Minus: State death tax credit--
Trial taxable estate........... $345,699.80
Minus: $60,000................. 60,000.00
Trial adjusted taxable
estate....................... $285,699.80
Minus: Bracket from Table
C, Column 1.................... 240,000.00
Excess......................... $ 45,699.80
Times: Marginal rate from
Table C, Column 4.............. x .032
Product........................ $ 1,462.39
Plus: Tax on bracket from
Table C, Column 3.............. 3,600.00
Trial state death tax credit....................... 5,062.39
Trial net federal estate tax....................... $ 22,675.54
Trial 3
1)Trial distribution of estate
Gross estate ...................................... $400,000.00
Minus: Debts and expenses............. $ 20,000.00
Bequests....................... 5,000.00
State death tax................ 10,000.00
Federal estate tax from
previous trial............... 22,675.54 57,675.54
Net residue........................................ $342,324.46
Times: Factor for charity.......................... x .1
Trial charitable deduction......................... $ 34,232.45
2)Computation of trial federal estate tax
Gross estate....................................... $400,000.00
Minus: Debts and expenses............. $ 20,000.00
Trial charitable deduction..... 34,232.45 54,232.45
Trial taxable estate .............................. $345,767.55
Plus: Adjusted taxable gifts ...................... 150,000.00
Trial taxable interests .......................... $495,767.55
Minus: Bracket from Table A, Column 1 ............. 250,000.00
Excess ........................................... $245,767.55
Times: Marginal rate from Table A, Column 4 ....... x .34
Product .......................................... $ 83,560.97
Plus: Tax on bracket from Table A, Column 3........ 70,800.00
Trial tentative tax ............................... $154,360.97
Minus: Gift taxes paid for gifts after 12/31/76 ... 4,800.00
Trial estate tax .................................. $149,560.97
Minus: Unified credit ............................ 121,800.00
Trial estate tax after unified credit.............. $ 27,760.97
Minus: State death tax credit--
Trial taxable estate........... $345,767.55
Minus: $60,000................. 60,000.00
Trial adjusted taxable
estate....................... $285,767.55
Minus: Bracket from Table
C, Column 1.................. 240,000.00
Excess......................... $ 45,767.55
Times: Marginal rate from
Table C, Column 4............ x .032
Product........................ $ 1,464.56
Plus: Tax on bracket from
Table C, Column 3............ 3,600.00
Trial state death tax credit................ 5,064.56
Trial net federal estate tax....................... $ 22,696.41
Trial 4
1)Trial distribution of estate
Gross estate ...................................... $400,000.00
Minus: Debts and expenses ............ $ 20,000.00
Bequests ...................... 5,000.00
State death tax ............... 10,000.00
Federal estate tax from
previous trail............... 22,696.41 57,696.41
Net residue ...................................... $342,303.59
Times: Factor for charity ........................ x .1
Trial charitable deduction ........................ $ 34,230.36
2)Computation of trial federal estate tax
Gross estate ...................................... $400,000.00
Minus: Debts and expenses ............ $ 20,000.00
Trial charitable deduction .... 34,230.36 54,230.36
Trial taxable estate .............................. $345,769.64
Plus: Adjusted taxable gifts....................... 150,000.00
Trial taxable interests ........................... $495,769.64
Minus: Bracket from Table A, Column 1 ............ 250,000.00
Excess ............................................ $245,769.64
Times: Marginal rate from Table A, Column 4 ....... x .34
Product ........................................... $ 83,561.68
Plus: Tax on bracket from Table A, Column 3 ....... 70,800.00
Trial tentative tax ............................... $154,361.68
Minus: Gift taxes paid for gifts after 12/31/76 ... 4,800.00
Trial estate tax .................................. $149,561.68
Minus: Unified credit ............................. 121,800.00
Trial estate tax after unified credit.............. $ 27,761.68
Minus: State death tax credit--
Trial taxable estate .......... $345,769.64
Minus: $60,000 ................ 60,000.00
Trial adjusted taxable
estate ...................... $285,769.64
Minus: Bracket from Table
C, Column 1 ................. 240,000.00
Excess ........................ $ 45,769.64
Times: Marginal rate from
Table C, Column 4 ........... x .032
Product ....................... $ 1,464.63
Plus: Tax on bracket from
Table C, Column 3 ........... 3,600.00
Trial state death tax credit ...................... 5,064.63
Trial net federal estate tax ...................... $ 22,697.05
Trial 5
1)Trial distribution of estate
Gross estate ...................................... $400,000.00
Minus: Debts and expenses ............ $ 20,000.00
Bequests ...................... 5,000.00
State death tax ............... 10,000.00
Federal estate tax from
previous trial .............. 22,697.05 57,697.05
Net residue ....................................... $342,302.95
Times: Factor for charity ......................... x .1
Trial charitable deduction ........................ $ 34,230.30
2)Computation of trial federal estate tax
Gross estate ...................................... $400,000.00
Minus: Debts and expenses ............ $ 20,000.00
Trial charitable deduction .... 34,230.30 54,230.30
Trial taxable estate .............................. $345,769.70
Plus: Adjusted taxable gifts ...................... 150,000.00
Trial taxable interests ........................... $495,769.70
Minus: Bracket from Table A, Column 1 ............. 250,000.00
Excess ............................................ $245,769.70
Times: Marginal rate from Table A, Column 4 ....... x .34
Product ........................................... $ 83,561.70
Plus: Tax on bracket from Table A, Column 3........ 70,800.00
Trial tentative tax ............................... $154,361.70
Minus: Gift taxes paid for gifts after 12/31/76 .. 4,800.00
Trial estate tax .................................. $149,561.70
Minus: Unified credit ............................ 121,800.00
Trial estate tax after unified credit ............. $ 27,761.70
Minus: State death tax credit--
Trial taxable estate .......... $345,769.70
Minus: $60,000.00 ............ 60,000.00
Trial adjusted taxable
estate ...................... $285,769.70
Minus: Bracket from Table
C, Column 1 ................. 240,000.00
Excess ........................ $ 45,769.70
Times: Marginal rate from
Table C, Column 4 ........... x .032
Product ....................... $ 1,464.63
Plus: Tax on bracket from
Table C, Column 3 ........... 3,600.00
Trial state death tax credit ............... 5,064.63
Trial net federal estate tax ...................... $ 22,697.07
Trial 6 (Final computation)
1)Trial distribution of estate
Gross estate ...................................... $400,000.00
Minus: Debts and expenses............. $ 20,000.00
Requests ...................... 5,000.00
State death tax ............... 10,000.00
Federal estate tax from
previous trial .............. 22,697.07 57,697.07
Net residue ....................................... $342,302.93
Times: Factor for charity ......................... x .1
Trial charitable deduction ........................ $ 34,230.29
2)Computation of trial federal estate tax
Gross estate ...................................... $400,000.00
Minus: Debts and expenses ........... $ 20,000.00
Trial charitable deduction ... 34,230.29 54,230.29
Trial taxable estate .............................. $345,769.71
Plus: Adjusted taxable gifts ..................... 150,000.00
Trial taxable interests ........................... $495,769.71
Minus: Bracket from Table A, Column 1.............. 250,000.00
Excess ............................................ $245,769.71
Times: Marginal rate from Table A, Column 4 ....... x .34
Product ........................................... $83,561.70
Plus: Tax on bracket from Table A, Column 3 ....... 70,800.00
Trial tentative tax ............................... $154,361.70
Minus: Gift taxes paid for gifts after 12/31/76.... 4,800.00
Trial estate tax .................................. $149,561.70
Minus: Unified credit ............................. 121,800.00
Trial estate tax after unified credit.............. $ 27,761.70
Minus: State death tax credit--
Trial taxable estable ......... $345,769.71
Minus: $60,000 ................ 60,000.00
Trial adjusted taxable
estate ...................... $285,769.71
Minus: Bracket from Table
C, Column 1 ................. 240,000.00
Excess ........................ $ 45,769.71
Times: Marginal rate from
Table C, Column 4 .......... x .032
Product........................ $ 1,464.63
Plus: Tax on bracket from
Table C, Column 3 ........... 3,600.00
Trial state death tax credit ............... 5,064.63
Trial net federal estate tax....................... $ 22,697.07
Therefore, in Example A, the interrelated computation results in a charitable deduction of $34,230.29, a state death tax credit of $5,064.63, and a net estate tax of $22,697.07.
Example B. Trial and Substitution Method
- State death tax is equal to credit for state death taxes.
- Taxable interests include adjusted taxable gifts.
In 1985 an individual died leaving a gross estate of $320,000.
Debts and expenses of the estate were $15,000, and noncharitable bequests totaled $8,000. One-tenth of the residue will pass to a charity. All death taxes were to be paid as a general charge against the residue.
In 1979 the decedent made a gift of a future interest valued at $200,000. The gross gift tax was $54,800, and the decedent applied $38,000 of the unified credit against the gift tax. The gift tax paid on the gift was $16,800.
This example uses the alternate method for determining the amount of the charitable deduction, the maximum credit for state death taxes, and the net estate tax.
Trial 1
1)Trial distribution of estate
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Bequests ...................... 8,000.00
State death tax from
previous trial .............. -0-
Federal estate tax from
previous trial .............. -0- 23,000.00
Net residue ....................................... $297,000.00
Times: Factor for charity ......................... x .1
Trial charitable deduction ........................ $ 29,700.00
2)Computation of trial state death tax
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction .... 29,700.00 44,700.00
Trial taxable estate .............................. $275,300.00
Minus: $60,000 .................................... 60,000.00
Trial adjusted taxable estate ..................... $215,300.00
Times: Marginal rate from Table C, Column 4 ....... x .024
Product ........................................... $ 5,167.20
Minus: Subtractive term from Table C,
Column 5 ........................................ 2,160.00
Trial state death tax ............................. $ 3,007.20
3)Computation of trial federal estate tax
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction .... 29,700.00 44,700.00
Trial taxable estate .............................. $275,300.00
Plus: Adjusted taxable gifts ...................... 200,000.00
Trial taxable interests ........................... $475,300.00
Times: Marginal rate from Table A, Column 4 ....... x .34
Product ........................................... $161,602.00
Minus: Subtractive term from Table A,
Column 5 ........................................ 14,200.00
Trial tentative tax ............................... $147,402.00
Minus: Gift taxes paid for gifts after 12/31/76 ... 16,800.00
Trial estate tax .................................. $130,602.00
Minus: Unified credit ............................. 121,800.00
Trial estate tax after unified credit ............. $ 8,802.00
Minus: State death tax credit ..................... 3,007.20
Trial net federal estate tax ...................... $ 5,794.80
Trial 2
1)Trial distribution of estate
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Bequests ...................... 8,000.00
State death tax from
previous trial .............. 3,007.20
Federal estate tax from
previous trial .............. 5,794.80 31,802.00
Net residue ....................................... $288,198.00
Times: Factor for charity ......................... x .1
Trial charitable deduction ........................ $ 28,819.80
2)Computation of trial state death tax
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction .... 28,819.80 43,819.80
Trial taxable estate .............................. $276,180.20
Minus: $60,000 .................................... 60,000.00
Trial adjusted taxable estate ..................... $216,180.20
Times: Marginal rate from Table C, Column 4 ....... x .024
Product ........................................... $ 5,188.33
Minus: Subtractive term from Table C,
Column 5 ........................................ 2,160.00
Trial state death tax ............................. $ 3,028.33
3)Computation of trial federal estate tax
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction .... 28,819.80 43,819.80
Trial taxable estate .............................. $276,180.20
Plus: Adjusted taxable gifts ...................... 200,000.00
Trial taxable interests ........................... $476,180.20
Times: Marginal rate from Table A, Column 4 ....... x .34
Product ........................................... $161,901.27
Minus: Subtractive term from Table A,
Column 5 ........................................ 14,200.00
Trial tentative tax ............................... $147,701.27
Minus: Gift taxes paid for gifts after 12/31/76 ... 16,800.00
Trial estate tax .................................. $130,901.27
Minus: Unified credit ............................. 121,800.00
Trial estate tax after unified credit ............. $ 9,101.27
Minus: State death tax credit ..................... 3,028.33
Trial net federal estate tax ...................... $ 6,072.94
Trial 3
1)Trial Distribute of estate
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Bequests ...................... 8,000.00
State death tax from
previous trial .............. 3,028.33
Federal estate tax from
previous trial .............. 6,072.94 32,101.27
Net residue ....................................... $287,898.73
Times: Factor for charity ......................... x .1
Trial charitable deduction ........................ $ 28,789.87
2)Computation of trial state death tax
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction .... 28,789.87 43,789.87
Trial taxable estate .............................. $276,210.13
Minus: $60,000 .................................... 60,000.00
Trial adjusted estate ............................. $216,210.13
Times: Marginal rate from Table C, Column 4 ....... x .024
Product ........................................... $ 5,189.04
Minus: Subtractive term from Table C,
Column 5 ........................................ 2,160.00
Trial state death tax ............................. $ 3,029.04
3)Computation of trial federal estate tax
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction .... 28,789.87 43,789.87
Trial taxable estate .............................. $276,210.13
Plus: Adjusted taxable gifts ...................... 200,000.00
Trial taxable interests ........................... $476,210.13
Times: Marginal rate from Table A, Column 4 ....... x .34
Product ........................................... $161,911.44
Minus: Subtractive term from Table A,
Column 5 ........................................ 14,200.00
Trial tentative tax ............................... $147,711.44
Minus: Gift taxes paid for gifts after 12/31/76 ... 16,800.00
Trial estate tax .................................. $130,911.44
Minus: Unified credit ............................. 121,800.00
Trial estate tax after unified credit ............. $ 9,111.44
Minus: State death tax credit ..................... 3,029.04
Trial net federal estate tax ...................... $ 6,082.40
Trial 4
1)Trial distribution of estate
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Bequests ...................... 8,000.00
State death tax from
previous trial .............. 3,029.04
Federal estate tax from
previous trial .............. 6,082.40 32,111.44
Net residue ...................................... $287,888.56
Times: Factor for charity ........................ x .1
Trial charitable deduction ....................... $ 28,788.86
2)Computation of trial state death tax
Gross estate ...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction .... 28,788.86 43,788.86
Trial taxable estate .............................. $276,211.14
Minus: $60,000 .................................... 60,000.00
Trial adjusted taxable estate ..................... $216,211.14
Times: Marginal rate from Table C, Column 4 ....... x .024
Product ........................................... $ 5,189.07
Minus: Subtractive term from Table C,
Column 5 ........................................ 2,160.00
Trial state death tax ............................. 3,029.07
3)Computation of trial federal estate tax
Gross estate ..................................... $320,000.00
Minus: Debts and expenses ........... $ 15,000.00
Trial charitable deduction .......... 28,788.86 43,788.86
Trial taxable estate ............................. $276,211.14
Plus: Adjusted taxable gifts ..................... 200,000.00
Trial taxable interests .......................... $476,211.14
Times: Marginal rate from Table A, Column 4 ...... x .34
Product .......................................... $161,911.79
Minus: Subtractive term from Table A,
Column 5 ......................................... 14,200.00
Trial tentative tax .............................. $147,711.79
Minus: Gift taxes paid for gifts after 12/31/76 .. 16,800.00
Trial estate tax ................................. $130,911.79
Minus: Unified credit ............................ 121,800.00
Trial estate tax after unified credit ............ $ 9,111.79
Minus: State death tax credit .................... 3,029.07
Trial net federal estate tax ..................... $ 6,082.72
Trial 5
1)Trial distribution of estate
Gross estate ..................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Bequests ............................. 8,000.00
State death tax from
previous trial ....................... 3,029.07
Federal estate tax from
previous trial ....................... 6,082.72 32,111.79
Net residue ...................................... $287,888.21
Times: Factor for charity ........................ x .1
Trial charitable deduction ....................... $ 28,788.82
2)Computation of trial state death tax
Gross estate...................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction ........... 28,788.82 43,788.82
Trial taxable estate ............................. $276,211.18
Minus: $60,000 ................................... 60,000.00
Trial adjusted taxable estate .................... $216,211.18
Times: Marginal rate from Table C, Column 4 ...... x .024
Product .......................................... $ 5,189.07
Minus: Subtractive term from Table C,
Column 5 ......................................... 2,160.00
Trial state death tax ............................ $ 3,029.07
3)Computation of trial federal estate tax
Gross estate ..................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction ........... 28,788.82 43,788.82
Trial taxable estate ............................. $276,211.18
Plus: Adjusted taxable gifts ..................... 200,000.00
Trial taxable interests .......................... $476,211.18
Times: Marginal rate from Table A, Column 4 ...... x .34
Product .......................................... $161,911.80
Minus: Subtractive term from Table A,
Column 5 ......................................... 14,200.00
Trial tentative tax .............................. $147,711.80
Minus: Gift taxes paid for gifts after 12/31/76 .. 16,800.00
Trial estate tax ................................. $130,911.80
Minus: Unified credit ............................ 121,800.00
Trial estate tax after credit .................... $ 9,111.80
Minus: State death tax credit .................... 3,029.07
Trial net federal estate tax ..................... $ 6,082.73
Trial 6 (Final computation)
1)Trial distribution of estate
Gross estate ..................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Bequests ............................. 8,000.00
State death tax from
previous trial ....................... 3,029.07
Federal estate tax from
previous trial .................... 6,082.73 32,111.80
Net residue ...................................... $287,888.20
Times: Factor for charity ........................ x .1
-
Trial charitable deduction ....................... $ 28,788.82
2)Computation of trial state death tax
Gross estate ..................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction ........ 28,788.82 43,788.82
Trial taxable estate ............................. $276,211.18
Minus: $60,000 ................................... 60,000.00
Trial adjusted taxable estate .................... $216,211.18
Times: Marginal rate from Table C, Column 4 ...... x .024
Product .......................................... $ 5,189.07
Minus: Subtractive term from Table C,
Column 5 ....................................... 2,160.00
Trial state death tax ............................ $ 3,029.07
3)Computation of trial federal estate tax
Gross estate ..................................... $320,000.00
Minus: Debts and expenses ............ $ 15,000.00
Trial charitable deduction ........ 28,788.82 43,788.82
Trial taxable estate ............................. $276,211.18
Plus: Adjusted taxable gifts ..................... 200,000.00
Trial taxable interests .......................... $476,211.18
Times: Marginal rate from Table A, Column 4 ...... x .34
Product .......................................... $161,911.80
Minus: Subtractive term from Table A,
Column 5 ...................................... 14,200.00
Trial tentative tax .............................. $147,711.80
Minus: Gift taxes paid for gifts after 12/31/76 .. 16,800.00
Trial estate tax ................................. $130,911.80
Minus: Unified credit ............................ 121,800.00
Trial estate tax after unified credit ............ $ 9,111.80
Minus: State death tax credit .................... 3,029.07
Trial net federal estate tax ..................... $ 6,082.73
Therefore, in Example B, the interrelated computation results in a charitable deduction of $28,788.82, a state death tax credit of $3,029.07, and a net estate tax of $6,082.73.
Example C. Trial and Substitution Method
- State death tax is constant.
- No adjusted taxable gifts are involved.
- U.S. Treasury Bonds are redeemable to pay the estate tax.
In 1985 an individual died leaving a gross estate valued at $650,000. The debts and expenses of the estate were $60,000, and nonprobate property was valued at $75,000. Noncharitable bequests totaled $130,000, and 20% of the estate residue passed to a charity. The state death tax was $12,000, and all death taxes were paid as a general charge against the residue.
The gross estate included eighty $1,000 4% U.S. Treasury bonds that are sold in the market at $750 per bond on the date of death. Thus, the 80 bonds had a face value of $80,000 and a fair market value of $60,000. The difference between the face value ($1,000) and the market value ($750) of each bond was $250 per $1,000 or a premium rate of 25%.
The executor paid the estate tax due with the U.S. Treasury bonds, on a date that was 60 days after the previous interest payment. The semiannual period has 184 days, and the interest factor for 60 days is .00652173912 (60 days x .000108695652). (See Department of Treasury, Bureau of the Public Debt, Dept. Circular No. 300.) The bonds that can be used to pay the estate tax must be included in the gross estate at face (par) value. The executor does this by adding the premium on these redeemable bonds to the gross estate.
This example uses the alternate method.
Trial 1
1)Trial analysis of bond redemption
Net federal estate tax from prior trial .......... $ 0.00
Minus: Interest on bonds from prior trial ........ 0.00
Balance .......................................... $ 0.00
Redemption limit (Rounded to next lowest $500) ... $ 0.00
2)Premium on bonds redeemable
Bonds redeemable ................................. $ 0.00
Times: Premium rate .............................. x .25
Premium .......................................... $ 0.00
3)Trial distribution of estate
Gross estate (Including bonds at market rate) .... $650,000.00
Premium on bonds redeemable ...................... 0.00
Gross estate ..................................... $650,000.00
Minus: Debts and expenses ............ $ 60,000.00
Nonprobate items .................. 75,000.00
Bequests .......................... 130,000.00
State death tax ................... 12,000.00
Federal estate tax from
previous trial .................... 0.00 277,000.00
Net residue ...................................... $373,000.00
Times: Factor for charity ........................ x .2
Trial charitable deduction ....................... $ 74,600.00
4)Computation of trial federal estate tax
Gross estate ..................................... $650,000.00
Minus: Debts and expenses ............ $ 60,000.00
Trial charitable deduction ........ 74,600.00 134,600.00
Trial taxable interests .......................... $515,400.00
Times: Marginal rate from Table A, Column 4 ...... x .37
Product .......................................... $190,698.00
Minus: Subtractive term from Table A,
Column 5 ...................................... 29,200.00
Trial estate tax ................................. $161,498.00
Minus: Unified credit ............................ 121,800.00
Trial estate tax after unified credit ............ $ 39,698.00
Minus: State death tax credit--
Trial taxable estate ............. $ 515,400.00
Minus: $60,000 .................... 60,000.00
Trial adjusted taxable
estate ............................ $455,400.00
Times: Marginal rate from
Table C, Column 4 ................. x .04
Product ........................... $ 18,216.00
Minus: Subtractive term
from Table C, Column 5 ............ 7,600.00
Trial state death tax credit .................. 10,616.00
Trial net federal estate tax ..................... $ 29,082.00
5)Trial analysis of bond redemption
Trial net federal estate tax ..................... $29,082.00
Minus: Interest on bonds from prior trial ........ 0.00
Balance .......................................... $29,082.00
Redemption limit ................................. $29,000.00
6)Interest on bonds redeemable
Bonds redeemable ................................. $29,000.00
Times: Interest rate ........................... x.00652173912
Interest on bonds ................................ $ 189.13
Trial 2
1)Trial analysis of bond redemption
Net federal estate tax from prior trial .......... $29,082.00
Minus: Interest on bonds from prior trial ........ 189.13
Balance .......................................... $28,892.87
Redemption limit (Rounded to next lowest $500) $28,500.00
2)Premium on bonds redeemable
Bonds redeemable ................................. $28,500.00
Times: Premium rate .............................. x .25
Premium .......................................... $ 7,125.00
3)Trial distribution of estate
Gross estate (Including bonds at market rate) .... $650,000.00
Premium on bonds redeemable ...................... 7,125.00
Gross estate ..................................... $657,125.00
Minus: Debts and expenses ............ $ 60,000.00
Nonprobate items .................. 75,000.00
Bequests .......................... 130,000.00
State death tax ................... 12,000.00
Federal estate tax from
previous trial .................... 29,082.00 306,082.00
Net residue ...................................... $351,043.00
Times: Factor for charity ........................ x .2
Trial charitable deduction ....................... $ 70,208.60
4)Computation of trial federal estate tax
Gross estate ..................................... $657,125.00
Minus: Debts and expenses ............ $ 60,000.00
Trial charitable deduction ........ 70,208.60 130,208.60
Trial taxable interests .......................... $526,916.40
Times: Marginal rate from Table A, Column 4 ...... x .37
Product .......................................... $194,959.07
Minus: Subtractive term from Table A,
Column 5 ...................................... 29,200.00
Trial estate tax ................................. $165,759.07
Minus: Unified credit ............................ 121,800.00
Trial estate tax after unified credit ............ $ 43,959.07
Minus: State death tax credit--
Trial taxable estate .............. $526,916.40
Minus: $60,000 ..................... 60,000.00
Trial adjusted taxable
estate ............................ $466,916.40
Times: Marginal rate from
Table C, Column 4 ................. x .04
Product ........................... $ 18,676.66
Minus: Subtractive term
from Table C, Column 5 ............ 7,600.00
Trial state death tax credit .................. 11,076.66
Trial net federal estate tax ..................... $ 32,882.41
5)Trial analysis of bond redemption
Trial net federal estate tax...................... $32,882.41
Minus: Interest on bonds from prior trial......... 189.13
Balance........................................... $32,693.28
Redemption limit.................................. $32,500.00
6)Interest on bonds redeemable
Bonds redeemable.................................. $32,500.00
Times: Interest rate............................ x.00652173912
Interest on bonds................................. $ 211.96
Trial 3
1) Trial analysis of bond redemption
Net federal estate tax from prior trial........... $32,882.41
Minus: Interest on bonds from prior trial......... 211.96
Balance........................................... $32,670.45
Redemption limit (Rounded to next lowest $500).... $32,500.00
2)Premium on bonds redeemable
Bonds redeemable.................................. $32,500.00
Times: Premium rate............................... x .25
Premium........................................... $ 8,125.00
3)Trial distribution of estate
Gross estate (Including bonds at market rate)..... $650,000.00
Premium on bonds redeemable....................... 8,125.00
Gross estate...................................... $658,125.00
Minus: Debts and expenses............. $ 60,000.00
Nonprobate items...................... 75,000.00
Bequests.............................. 130,000.00
State death tax....................... 12,000.00
Federal estate tax from
previous trial........................ 32,882.41 309,882.41
Net residue....................................... $348,242.59
Times: Factor for charity......................... x .2
Trial charitable deduction........................ $ 69,648.52
4)Computation of trial federal estate tax
Gross estate...................................... $658,125.00
Minus: Debts and expenses............. $ 60,000.00
Trial charitable deduction............ 69,648.52 129,648.52
Trial taxable interests........................... $528,476.48
Times: Marginal rate from Table A, Column 4....... x .37
Product........................................... $195,536.30
Minus: Subtractive term from Table A,
Column 5.......................................... 29,200.00
Trial estate tax.................................. $166,336.30
Minus: Unified credit............................. 121,800.00
Trial estate tax after unified credit............. $ 44,536.30
Minus: State death tax credit--
Trial taxable estate.................. $528,476.48
Minus: $60,000........................ 60,000.00
Trial adjusted taxable
estate................................ $468,476.48
Times: Marginal rate from
Table C, Column 4..................... x .04
Product............................... $ 18,739.06
Minus: Subtractive term
from Table C, Column 5................ 7,600.00
Trial state death tax credit...................... 11,139.06
Trial net federal estate tax...................... $ 33,397.24
5)Trial analysis of bond redemption
Trial net federal estate tax...................... $33,397.24
Minus: Interest on bonds from prior trial......... 211.96
Balance........................................... $33,185.28
Redemption limit.................................. $33,000.00
6)Interest on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Interest rate........................... x.00652173912
Interest on bonds................................. $ 215.22
Trial 4
1)Trial analysis bond redemption
Net federal estate tax from prior trial........... $33,397.24
Minus: Interest on bonds from prior trial........ 215.22
Balance........................................... $33,182.02
Redemption limit (Rounded to next lowest $500).... $33,000.00
2)Premium on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Premium rate.............................. x .25
Premium........................................... $ 8,250.00
3)
Trial distribution of estate
Gross estate (including bonds at market rate)..... $650,000.00
Premium on bonds redeemable....................... 8,250.00
Gross estate...................................... $658,250.00
Minus: Debts and expenses............. $ 60,000.00
Nonprobate items...................... 75,000.00
Bequests.............................. 130,000.00
State death tax....................... 12,000.00
Federal estate tax from
Previous trial........................ 33,397.24 310,397.24
Net residue....................................... $347,852.76
Times: Factor for charity......................... x .2
Trial charitable deduction........................ $ 69,570.55
4)Computation of trial federal estate tax
Gross estate...................................... $658,250.00
Minus: Debts and expenses.............. $60,000.00
Trial charitable deduction............. 69,570.55 129,570.55
Trial taxable interests........................... $528,679.45
Times: Marginal rate from Table A, Column 4....... x .37
Product........................................... $195,611.40
Minus: Subtractive term from Table A,
Column 5.......................................... 29,200.00
Trial estate tax.................................. $166,411.40
Minus: Unified credit............................. 121,800.00
Trial estate tax after unified credit............. $ 44,611.40
Minus: State death tax credit--
Trial taxable estate.................. $528,679.45
Minus: $60,000........................ 60,000.00
Trial adjusted taxable
estate................................ $468,679.45
Times: Marginal rate from
Table C, Column 4..................... x .04
Product............................... $ 18,747.18
Minus: Subtractive term
from Table C, Column 5................ 7,600.00
Trial state death tax credit...................... 11,147.18
Trial net federal estate tax...................... $ 33,464.22
5)Trial analysis of bond redemption
Trial net federal estate tax...................... $33,464.22
Minus: Interest on bonds from prior trial......... 215.22
Balance........................................... $33,249.00
Redemption limit.................................. $33,000.00
6)Interest on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Interest rate............................. x.00652173912
Interest on bonds................................. $ 215.22
Trial 5
1)Trial analysis of bond redemption
Net federal estate tax from prior trial........... $33,464.22
Minus: Interest on bonds from prior trial......... 215.22
Balance........................................... $33,249.00
Redemption limit (Rounded to next lowest $500).... $33,000.00
2)Premium on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Premium rate............................... x .25
Premium........................................... $ 8,250.00
3) Trial distribution of estate
Gross estate (including bonds at market rate)..... $650,000.00
Premium on bonds redeemable....................... 8,250.00
Gross estate...................................... $658,250.00
Minus: Debts and expenses............. $ 60,000.00
Nonprobate items...................... 75,000.00
Bequests.............................. 130,000.00
State death tax....................... 12,000.00
Federal estate tax from
previous trial........................ 33,464.22 310,464.22
Net residue....................................... $347,785.78
Times: Factor for charity......................... x .2
Trial charitable deduction........................ $ 69,557.16
4)Computation of trial federal estate tax
Gross estate...................................... $658,250.00
Minus: Debts and expenses.............. $60,000.00
Trial charitable deduction............. 69,557.16 129,557.16
Trial taxable interests........................... $528,692.84
Times: Marginal rate from Table A, Column 4....... x .37
Product........................................... $195,616.35
Minus: Subtractive term from Table A,
Column 5.......................................... 29,200.00
Trial estate tax.................................. $166,416.35
Minus: United credit.............................. 121,800.00
Trial estate tax after unified credit............. $ 44,616.35
Minus: State death tax credit--
Trial taxable estate.................. $528,692.84
Minus: $60,000........................ 60,000.00
Trial adjusted taxable
estate.............................. $468,692.84
Times: Marginal rate from
Table C, Column 4................... x .04
Product............................. $ 18,747.71
Minus: Subtractive term
from Table C, Column 5.............. 7,600.00
Trial state death tax credit...................... 11,147.71
Trial net federal estate tax...................... $ 33,468.64
5)Trial analysis of bond redemption
Trial net federal estate tax...................... $33,468.64
Minus: Interest on bonds from prior trial......... 215.22
Balance........................................... $33,253.42
Redemption limit.................................. $33,000.00
6)Interest on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Interest rate............................. x.00652173912
Interest on bonds................................. $ 215.22
Trial 6
1)Trial analysis of bond redemption
Net federal estate tax from prior trial........... $33,468.64
Minus: Interest on bonds from prior trial......... 215.22
Balance........................................... $33,253.42
Redemption limit (Rounded to next lowest $500).... $33,000.00
2)Premium on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Premium rate............................... x .25
Premium........................................... $ 8,250.00
3)Trial distribution of estate
Gross estate (Including bonds at market rate)..... $650,000.00
Premium on bonds redeemable....................... 8,250.00
Gross estate...................................... $658,250.00
Minus: Debts and expenses............. $ 60,000.00
Nonprobate items...................... 75,000.00
Bequests.............................. 130,000.00
State death tax....................... 12,000.00
Federal estate tax from
previous trial........................ 33,468.64 310,468.64
Net residue....................................... $347,781.36
Times: Factor for charity......................... x .2
Trial charitable deduction........................ $ 69,556.27
4)Computation of trial federal estate tax
Gross estate...................................... $658,250.00
Minus: Debts and expenses............. $ 60,000.00
Trial charitable deduction............ 69,556.27 129,556.27
Trial taxable interests........................... $528,693.73
Times: Marginal rate from Table A, Column 4....... x .37
Product........................................... $195,616.68
Minus: Subtractive term from Table A,
Column 5.......................................... 29,200.00
Trial estate tax.................................. $166,416.68
Minus: Unified credit............................. 121,800.00
Trial estate tax after unified credit............. $ 44,616.68
Minus: State death tax credit--
Trial taxable estate.................. $528,693.73
Minus: $60,000........................ 60,000.00
Trial adjusted taxable
estate................................ $468,693.73
Times: Marginal rate from
Table C, Column 4..................... x .04
Product............................... $ 18,747.75
Minus: Subtractive term
from Table C, Column 5................ 7,600.00
Trial state death tax credit...................... 11,147.75
Trial net federal estate tax...................... $ 33,468.93
5)Trial analysis of bond redemption
Trial net federal estate tax...................... $33,468.93
Minus: Interest on bonds from prior trial......... 215.22
Balance........................................... $33,253.71
Redemption limit.................................. $33,000.00
6)Interest on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Interest rate............................ X.00652173912
Interest on bonds................................. $ 215.22
Trial 7
1)Trial analysis of bond redemption
Net federal estate tax from prior trial........... $33,468.93
Minus: Interest on bonds from prior trial......... 215.22
Balance........................................... $33,253.71
Redemption limit (Rounded to next lowest $500).... $33,000.00
2)Premium on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Premium rate............................... X .25
Premium........................................... $ 8,250.00
3)Trial distribution of estate
Gross estate (Including bonds at market rate)..... $650,000.00
Premium on bonds redeemable....................... 8,250.00
Gross estate...................................... $658,250.00
Minus: Debts and expenses............. $ 60,000.00
Nonprobate items...................... 75,000.00
Bequests.............................. 130,000.00
State death tax....................... 12,000.00
Federal estate tax from
previous trial........................ 33,468.93 310,468.93
Net residue....................................... $347,781.07
Times: Factor for charity......................... X .2
Trial charitable deduction........................ $ 69,556.21
4)Computation of trial federal tax
Gross estate...................................... $658,250.00
Minus: Debts and expenses............. $ 60,000.00
Trial charitable deduction............ 69,556.21 129,556.21
Trial taxable interests........................... $528,693.79
Times: Marginal rate from Table A, Column 4....... X .37
Product........................................... $195,616.70
Minus: Subtractive term from Table 4,
Column 5.......................................... 29,200.00
Trial estate tax.................................. $166,416.70
Minus: Unified credit............................. 121,800.00
Trial estate tax after unified credit............. $ 44,616.70
Minus: State death tax credit-
Trial taxable estate.................. $528,693.79
Minus: $60,000........................ 60,000.00
Trial adjusted taxable
estate................................ $468,693.79
Times: Marginal rate from
Table C, Column 4..................... X .04
Product............................... $ 18,747.75
Minus: Subtractive term
from Table C, Column 5................ 7,600.00
Trial state death tax credit...................... 11,147.75
Trial net federal estate tax...................... $ 33,468.95
5)Trial analysis of bond redemption
Trial net federal estate tax...................... $33,468.95
Minus: Interest on bonds from prior trial......... 215.22
Balance........................................... $33,253.73
Redemption limit.................................. $33,000.00
6)Interest on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Interest rate............................ x.00652173912
Interest on bonds................................. $ 215.22
Trial 8 (Final computation)
1)Trial analysis of bond redemption
Net federal estate tax from prior trial........... $33,468.95
Minus: Interest on bonds from prior trial......... 215.22
Balance........................................... $33,253.73
Redemption limit (Rounded to next lowest $500).... $33,000.00
2)Premium on bonds redeemable
Bonds redeemable.................................. $33,000.00
Times: Premium rate............................... X .25
Premium........................................... $ 8,250.00
3)Trial distribution of estate
Gross estate (Including bonds at market rate)..... $650,000.00
Premium on bonds redeemable....................... 8,250.00
Gross estate...................................... $658,250.00
Minus: Debts and expenses............. $ 60,000.00
Nonprobate items...................... 75,000.00
Bequests.............................. 130,000.00
State death tax....................... 12,000.00
Federal estate tax from
previous trial........................ 33,468.95 310,468.95
Net residue....................................... $347,781.05
Times: Factor for charity......................... X .2
Trial charitable deduction........................ $ 69,556.21
4)Computation of trial federal estate tax
Gross estate...................................... $658,250.00
Minus: Debts and expenses............. $ 60,000.00
Trial charitable deduction............ 69 556.21 129,556.21
Trial taxable interests........................... $528,693.79
Times: Marginal rate from Table A, Column 4....... X .37
Product........................................... $195,616.70
Minus: Subtractive term from Table A,
Column 5.......................................... 29,200.00
Trial estate tax.................................. $166,416.70
Minus: Unified credit............................. 121,800.00
Trial estate tax after unified credit............. $ 44,616.70
Minus: State death tax credit--
Trial taxable estate.................. $528,693.59
Minus: $60 000........................ 60,000.00
Trial adjusted taxable
estate................................ $468,693.79
Times: Marginal rate from
Table C, Column 4..................... X .04
Product............................... $ 18,747.75
Minus: Subtractive term
from Table C, Column 5................ 7,600.00
Trial state death tax credit...................... 11,147.75
Trial net federal estate tax...................... $ 33,468.95
Therefore, in Example C, the interrelated computation results in a chariable deduction of $69,556.21, a state death tax credit of $11,147.75, and a net estate tax of $33,468.95.
Example D. Algebraic Method
- State death tax is constant.
- Taxable interests include adjusted taxable gifts.
In 1985 an individual died leaving a gross estate valued at $640,000. Debts and expenses of the estate were $40,000, and noncharitable bequests totaled $60,000. One-half of the estate residue passed to a charity. The state death tax was $30,000, and all death taxes were paid as a general charge against the residue.
In July 1977 the decedent made a gift of a future interest valued at $175,000. The gross gift tax was $46,800, and the decedent applied $30,000 of the unified credit against the gift tax. The amount of gift tax paid was $16,800.
This example uses the conventional method.
1)Distribution of estate
Gross estate...................................... $640,000.00
Minus: Debts and
expenses.............................. $ 40,000.00
Bequests.............................. 60,000.00
State death tax....................... 30,000.00
Federal estate tax F 130,000.00+F
Net residue....................................... $510,000.00-F
Times: Factor for charity......................... X .5
Charitable deduction in terms of F................ $255,000.00-.5F
2)Computation of federal estate tax
Gross estate...................................... $640,000.00
Minus: Debts and
expenses........................ $ 40,000.00
Charitable
deduction....................... 255,000.00-.5F 295,000.00-.5F
Taxable estate.................................... $345,000.00+.5F
Plus: Adjusted taxable gifts...................... 175,000.00
Taxable interests................................. $520,000.00+.5F
Minus: Bracket from Table A, Column 1............. 500,000.00
Excess............................................ $ 20,000.00+.5F
Times: Marginal rate from Table A,
Column 4.......................................... x .37
Product........................................... $ 7,400.00+.185F
Plus: Tax on bracket from Table A,
Column 3.......................................... 155,800.00
Tentative tax..................................... $163,200.00+.185F
Minus: Gift taxes paid for gifts after
12/31/76.......................................... 16,800.00
Estate tax........................................ $146,400.00+.185F
Minus: Unified credit............................. 121,800.00
Estate tax after unified credit................... $ 24,600.00+.185F
Minus: State death tax credit--
Taxable estate................... $345,000.00+.5F
Minus: $60,000................... 60,000.00
Adjusted taxable
estate........................... $285,000.00+.5F
Minus: Bracket
from Table C,
Column 1......................... 240,000.00
Excess........................... $ 45,000.00+.5F
Times: Marginal
rate from
Table C,
Column 4......................... X .032
Product.......................... $ 1,440.00+.016F
Plus: Tax on
bracket from
Table C,
Column 3......................... 3,600.00
State death tax credit............................ 5,040.00+.016F
Net federal estate tax............................ $ 19,560.00+.169F
3)Solve for F
This expression for the federal estate tax in terms of F may be
expressed as an algebraic equation:
F = $19,560.00 + .169F
Solve this equation for F to determine the federal tax.
a)Transpose to simplify:
F - .169F = $19,560.00
b)Consolidate the F terms:
.831F = $19,560.00
c)Divide both sides of the equation by the decimal
coefficient (.831):
.831F = $19,560.00
.831 .831
d)This yields the federal tax:
F = $23,537.91
Proof
1)Distribution of estate
Gross estate...................................... $640,000.00
Minus: Debts and expenses............. $ 40,000.00
Bequests.............................. 60,000.00
State death tax....................... 30,000.00
Federal estate tax.................... 23,537.91 153,537.91
Net residue....................................... $486,462.09
Times: Factor for charity......................... X .5
Charitable deduction.............................. $243,231.05
2)Computation of federal estate tax
Gross estate ..................................... $640,000.00
Minus: Debts and expenses ............ $ 40,000.00
Charitable deduction ................. 243,231.05 283,231.05
Taxable estate ................................... $356,768.95
Plus: Adjusted taxable gifts ..................... 175,000.00
Taxable interests ................................ $531,768.95
Minus: Bracket from Table A, Column 1 ............ 500,000.00
Excess ........................................... $ 31,768.95
Times: Marginal rates from Table 4, Column 4 ..... x .37
Product .......................................... $ 11,754.51
Plus: Tax on bracket from Table A, Column 3 ...... 155,800.00
Tentative tax .................................... $167,554.51
Minus: Gift taxes paid for gifts after 12/31/76... 16,800.00
Estate tax ....................................... $150,754.51
Minus: Unified credit ............................ 121,800.00
Estate tax after unified credit .................. $ 28,954.51
Minus: State death tax credit-
Taxable estate ....................... $356,768.95
Minus: $60,000 ....................... 60,000.00
Adjusted taxable estate .............. $296,768.95
Minus: Bracket from Table
C, Column 1 .......................... 240,000.00
Excess ............................... $ 56,768.95
Times: Marginal rate from
Table C, Column 4 .................... x .032
Product .............................. $ 1,816.61
Plus: Tax on bracket from
Table C, Column 3 .................... 3,600.00
State death tax credit ........................... 5,416.61
Net death tax credit ............................. $ 23,537.90
The one cent difference in the computed and proven values is due to rounding off.
Therefore, in Example D, the interrelated computation results in a charitable deduction of $243,231.05, a state death tax credit of $5,416.61, and a net estate tax of $23,537.90.
Note: There are two principal causes why the proof may not provide the same answer as the original computation:
1) Selecting an incorrect tax bracket for trial taxable interests, and
2) Making a mathematical error.
First, check whether you used the correct bracket. Compare the tax bracket used in the trial computation (figure used from Table A, Column 1) with the tax bracket used in the proof (figure used from Table A, Column 1). If these two figures are different, an incorrect bracket was selected. You must select the bracket based on an estimate of the taxable interests after taxes, and recompute the steps in the problem.
If the bracket selected was correct, it is necessary to check the entire computation for mathematical errors.
Example E. Algebraic Method
- State death tax is interrelated.
- No adjusted taxable gifts are involved.
In 1985 an individual died leaving a gross estate valued at $525,000. Debts and expenses of the estate were $40,000, and noncharitable bequests totaled $300,000. Thirty-percent of the estate residue passed to a charity, and all death taxes were paid as a general charge against the residue.
The state death tax was 7% of the taxable estate for state purposes. State law allows deductions for debts and expenses, net charitable bequests, and an exemption of $10,000.
This example uses the alternate method.
1)Distribution of estate
Gross estate ..................................... $525,000.00
Minus:
Debts and
expenses............................. $ 40,000.00
Bequests............................. 300,000.00
State death
tax ................................. S
Federal
estate
tax ................................. F 340,000.00+(F+S)
Net residue ...................................... $185,000.00-(F+S)
Times: Factor for charity ........................ x .3
Charitable deduction in terms of F
and S ............................................ $ 55,500.00-.3(F+S)
2)Computation of state death tax
Gross estate ..................................... $525,000.00
Minus:
Debts and
expenses ...................... $40,000.00
Charitable
deduction ..................... 55,500.00-.3(F+S)
Exemption ..................... 10,000.00 105,500.00-.3(F+S)
Taxable estate for state ......................... $419,500.00+.3(F+S)
Times: Tax rate .................................. x .07
State death tax in terms of F and S............... $ 29,365.00+.021(F+S)
3)Solve for S
The expression for the state death tax in terms of F and S may be
expressed as an ordinary algebraic equation:
S = $29,365.00 + .021(F+S)
Using this expression for the state death tax, derive an expression
for the state death tax that is expressed solely in terms of F;
a)Eliminate the brackets by multiplication:
S = $29,365.00 + .021F + .021S
b)Transpose to simplify the equation:
S - .021S = $29,365.00 + .021F
c)Consolidate the S term:
.979S = $29,365.00 + .021F
d)Divide both sides of the equation by the decimal coefficient (.979):
.979S = $29,365.00 + .021F
.979 .979
e)This yields a value for the state death tax expressed in terms of F:
S = $29,994.89 + .02145046F
4)Solve for charitable deduction
Using the expression for the charitable deduction derived earlier under
1)
Distribution of estate,
substitute the expression for the state
death tax, and derive a new expression for the charitable deduction
that is stated solely in terms of F.
a)Charitable deduction = $55,500.00 - .3(F+S)
b)Substitute the expression for the state death tax:
Charitable deduction = $55,500.00 - .3(F + ($29,994.89 + .02145046F))
c)Consolidate the F terms:
Charitable deduction = $55,500.00 - .3(1.02145046F + $29,994.89)
d)Eliminate the brackets by multiplication:
Charitable deduction = $55,500.00 - .30643514F - $8,998.47
e)Consolidate the equation:
Charitable deduction = $46,501.53 - .30643514F
5)Computation of federal estate tax
Gross estate ..................................... $525,000.00
Minus:
Debts and expenses ......... $40,000.00
Charitable
deduction .................. 46,501.53-.30643514F
86,501.47+.30643514F
Taxable interests ................................ $438,498.47+.30643514F
Times: Marginal rate from Table A,
Column 4 ......................................... x .34
Product .......................................... $149,089.48+.10418795F
Minus: Subtractive term from Table
A, Column 5 ...................................... 14,200.00
Estate tax ....................................... $134,889.48+.10418795F
Minus: Unified credit ............................ 121,800.00
Estate tax after unified credit .................. $ 13,089.48+.10418795F
Minus: State death tax
credit--
Taxable estate ............ $438,498.47+.30643514F
Minus: $60,000............. 60,000.00
Adjusted taxable
estate .................... $378,498.47+.30643514F
Times: Marginal
rate from
Table C,
Column 4 .................. x .032
Product ................... $ 12,111.95+.00980592F
Minus: Subtractive
term from
Table C,
Column 5 .................. 4,080.00
State death tax credit ........................... 8,031.95+.00980592F
Net federal estate tax ........................... $ 5,057.53+.09438203F
6)Solve for F
The expression for the federal estate tax in terms of F may be
expressed as an ordinary algebraic equation:
F = $5,057.53 + .09438203F
Solve this equation for F to determine the federal tax.
a)Transpose to simplify the equation:
F - .09438203F = $5,057.53
b)Consolidate the F terms:
.90561797F = $5,057.53
c)Divide both sides of the equation by the decimal coefficient (.90561797):
.90561797F = $5,057.53
.90561797 .90561797
d)This yields the federal tax:
F = $5,584.62
7)Determination of state death tax
Substitute the value for F in the expression for the state death tax,
determined earlier under 3)
Solve for S.
S = $29,994.89 + .02145046F
S = $29,994.89 + .02145046($5,584.62)
S = $29,994.89 + $119.79
S = $30,114.68
Proof
1)Distribution of estate
Gross estate...................................... $525,000.00
Minus: Debts and expenses ............ $ 40,000.00
Bequests ............................. 300,000.00
State death tax ...................... 30,114.68
Federal estate tax ................... 5,584.62 375,699.30
Net residue ...................................... $149,300.70
Times: Factor for charity ........................ x .3
Charitable deduction ............................. $ 44,790.21
2)Computation of state death tax
Gross estate...................................... $525,000.00
Minus: Debts and expenses ............ $ 40,000.00
Charitable deduction ................. 44,790.21
Exemption ............................ 10,000.00 94,790.21
Taxable estate for state ......................... $430,209.79
Times: Tax rate x .07
State death tax .................................. $ 30,114.69
3)Computation of federal estate tax
Gross estate...................................... $525,000.00
Minus: Debts and expenses............. $ 40,000.00
Charitable deduction.................. 44,790.21 84,790.21
Taxable interests................................. $440,209.79
Times: Marginal rate from Table A, Column 4....... x .34
Product........................................... $149,671.33
Minus: substractive term from table A,
Column 5.......................................... 14,200.00
Estate tax........................................ $135,471.33
Minus: Unified credit............................. 121,800.00
Estate ax after unified credit.................. $ 13,671.33
Minus: State death tax credit--
Taxable estate....................... $ 440,209.79
Minus: $60,000....................... 60,000.00
Adjusted taxable estate.............. $380,209.79
Times: Marginal rate from
Table C, Column 4.................... x .023
Product.............................. $ 12,166.71
Minus: Subtractive term
from Table C,
Column 5............................. 4,080.00
State death tax credit............................ 8,086.71
Net federal estate tax............................ $ 5,584.62
Therefore, in Example E, the interrelated computation results in a charitable deduction of $44,790.21, a state death tax credit of $8,086.71, and a net estate tax of $5,584.62.
Example F. Algebraic Method
- State tax is constant.
- Taxable interests include adjusted taxable gifts.
- Credit for tax on prior transfers is involved.
In 1985 an individual died leaving a gross estate valued at $800,000. Debts and expenses of the estate were $40,000, and noncharitable bequests totaled $50,000. Forty percent of the estate residue passed to a charity. The state death tax was $45,000, and all death taxes were paid as a general charge against the estate.
In 1978 the decedent made a gift of a future interest valued at $200,000. The gross gift tax on the gift was $54,800, and the decedent applied $34,000 of the unified credit against the gift tax. The amount of gift tax paid was $20,800.
Seven years before death, the decedent received a legacy worth $120,000. The value of the transferor's estate was $1,200,000. The net federal estate tax on the transferor's estate was $352,600.
This example uses the alternate method.
1)Distribution of estate
Gross estate...................................... $800,000.00
Minus: Debts and
expenses............................. $ 40,000.00
Bequests............................. 50,000.00
State death tax...................... 45,000.00
Federal estate tax F 135,000.00+F
Net residue....................................... $665,000.00-F
Times: Factor for charity......................... x .4
Charitable deduction.............................. $266,000.00-.4F
2)Computation of federal estate tax
Gross estate...................................... $800,000.00
Minus: Debts and
expenses.......................... $ 40,000.00
Charitable
deduction...................... 266,000.00-.4F 306,000.00-.4F
Taxable estate.................................... $494,000.00+.4F
Plus: Adjusted taxable gifts...................... 200,000.00
Taxable interests................................. $694,000.00+.4F
Times: Marginal rate from Table A,
Column 4.......................................... x .37
Product........................................... $256,780.00+.148F
Minus: Subtractive term from Table A,
Column 5....................................... 29,200.00
Tentative tax..................................... $227,580.00+.148F
Minus: Gift taxes paid for gifts after
12/31/76.......................................... 20,800.00
Estate tax........................................ $206,780.00+.148F
Minus: Unified credit............................. 121,800.00
Estate tax after unified credit................... $ 84,980.00+.148F
Minus: State death tax credit--
Taxable estate.................... $494,000.00+.4F
Minus: $60,000.................... 60,000.00
Adjusted taxable
estate............................ $434,000.00+.4F
Times: Marginal
rate from Table
C, Column 4....................... x .04
Product........................... $ 17,360.00+.016F
Minus:
Subtractive
term from Table
C, Column 5....................... 7,600.00
State death tax credit............................ 9,760.00+.016F
Net federal estate tax before credit for
tax on prior transfers............................ $ 75,220.00+.132F
3)Credit for tax on prior transfers
(Schedule Q, Form 706)
Part 1--Transferor's tax on prior transfers
1)Net value of transfers....................... $ 120,000.00
2)Value of transferor's estate................. $1,200.000.00
3)Tax on transferor's estate................... $ 352,600.00
4)Transferor's tax on prior
transfers.................................... $ 35,260.00
Part II--Transferee's tax on prior transfers
5)Transferee's actual estate tax
before allowance of credit for
prior transfer tax................................ $75,220.00+.132F
6)Transferee's reduced gross
estate--
Gross estate...................................... $800,000.00
Minus: Net value of prior
transfer.......................................... 120,000.00
Reduced gross estate.............................. $680,000.00
7)Transferee's deductions--
Charitable deduction
otherwise allowable............................... $266,000.00-.4F
Minus: Reduction for
proportionate part--
$120,000
x $266,000-.4F
42,000.00-.06315789F
$800,000-40,000
Charitable deduction allowable.................... $224,000.00-.33684211F
Plus: Debts and expenses.......................... 40,000.00
Total deductions.................................. $264,000.00-.33684211F
8)Transferee's reduced taxable
estate--
Reduced gross estate [Item 6]..................... $680,000.00
Minus: Total deductions
[Item 7].......................................... 264,000.00-.33684211F
Reduced taxable estate............................ $416,000.00+.33684211F
9)Plus: Adjusted taxable gifts................. 200,000.00
10)Taxable interests............................ $616,000.00+.33684211F
11)Tentative tax--
Times: Marginal rate from
Table A, Column 4................................. x .37
Product........................................... $227,920.00+.12463158F
Minus: Subtractive term from
Table A, Column 5................................. 29,200.00
Tentative tax..................................... $198,720.00+.12463158F
12)Minus: Gift taxes paid for gifts
after 12/31/76.................................... 20,800.00
13)Estate tax before credits.................... $177,920.00+.12463158F
14)Credits--
i)Unified credit............................... $121,800.00
ii)State death tax credit--
Reduced taxable estate............................ $416,000.00+.33684211F
Minus: $60,000.................................... 60,000.00
Adjusted taxable estate........................... $356,000.00+.33684211F
Times: Marginal rate from
Table C, Column 4................................. x .032
Product........................................... $ 11,392.00+.01077895F
Minus: Subtractive term from
Table C, Column 5................................. 4,080.00
State death tax credit............................ $ 7,312.00+.01077895F
iii)Total credits (United credit
plus state death tax credit)...................... $129,112.00+.01077895F
15)Transferee's federal estate tax
on reduced estate--
Estate tax before credits
[Item 13]......................................... $177,920.00+.12463158F
Minus: Credits [Item 14(iii)]..................... 129,112.00+.01077895F
Net federal estate tax............................ $ 48,808.00+.11385263F
16)Transferee's tax on prior
transfers--
Federal estate tax before credit
for tax on prior transfers
[Item 5].......................................... $ 75,220.00+.132F
Minus: Federal estate tax on
reduced estate [Item 15].......................... 48,808.00+.11385263F
Tax on prior transfers............................ $ 26,412.00+.01814737F
Part III--Credit allowable for tax on prior transfers
17)Maximum amount of credit..................... $ 26,412.00+.01814737F
18)Percent allowable............................ x .40
19)Credit allowable............................. $ 10,564.80+.007258948F
4)Net federal estate tax
Federal estate tax before credit for
tax on prior transfers............................ $ 75,220.00+.132F
Minus: Credit for tax on prior
transfers......................................... 10,564.80+.007258948F
Net federal estate tax............................ $ 64,655.20+.12474105F
5)Solve for F
The expression for the federal estate tax in
terms of F may be expressed as an algebraic
equation:
F = $64,655.20 + .12474105F
Solve this equation for F to determine the federal tax.
a)Transpose to simplify the equation:
F - .12474105F = $64,655.20
b)Consolidate the F terms:
.87525895F = $64,655.20
c)Divide both sides of the equation by the decimal coefficient (.87525895):
.87525895F $64,655.20
=
.87525895 .87525895
d)This yields the federal tax:
F = $73,869.80
Proof
1) Distribution of estate
Gross estate...................................... $800,000.00
Minus: Debts and expenses............ $ 40,000.00
Bequests............................. 50,000.00
State death tax...................... 45,000.00
Federal estate tax................... 73,869.80 208,869.80
Net residue....................................... $591,130.20
Times: Factor for charity......................... x .4
Charitable deduction.............................. $236,452.08
2)Computation of federal estate tax
Gross estate...................................... $800,000.00
Minus: Debts and expenses............ $ 40,000.00
Charitable deduction................. 236,452.08 276,452.08
Taxable estate.................................... $523,547.92
Plus: Adjusted taxable gifts...................... 200,000.00
Taxable interests................................. $723,547.92
Times: Marginal rate from Table A, Column 4....... X .37
Product........................................... $267,712.73
Minus: Substractive term from Table A,
Column 5.......................................... 29,200.00
Tentative tax..................................... $238,512.00
Minus: Gift taxes paid for gifts after 12/31/76... 20.800.00
Estate tax........................................ $217,712,73
Minus: Unified credit............................. 121,800.00
Estate tax after unified credit................... $ 95,912.00
Minus: State death tax credit--
Taxable estate........................ $523,547.92
Minus: $60,000........................ 60,000.00
Adjusted taxable estate............... $463,547.92
Times: Marginal rate from
Table C, Column 4..................... X .04
Product............................... $118,541.92
Minus: Substractive term
from Table C,
Column 5.............................. 7,600.00
State death tax credit............................ 10,941.92
Net federal estate tax before credit for tax on
prior transfers................................... $ 84,970.81
3)Credit for tax on prior transfers
(Schedule Q, Form 706)
Part I--Transferor's tax on prior transfers
1)Net value transfers.......................... $ 120,000.00
2)Value of transferor's estate................. $1,200,00.00
3)Tax on transferor's estate................... $ 352,600.00
4)Transferor's tax on prior transfers.......... $ 35,260.00
Part II--Transferee's tax on prior transfers
5)Transferee's actual estate tax before
allowance of credit for prior transfer tax........ $ 84,970.81
6)Transferee's reduced gross estate--
Gross estate...................................... $800,000.00
Minus: net value of prior transfer................ 120,000.00
Reduced gross estate.............................. $680,000.00
7)Transferee's deductions--
Charitable deduction otherwise allowable.......... $236,452.08
Minus: Reduction for proportionate part--
$120,000 X $236,452.08...................... 37,334.54
$800,000-40,000
Charitable deduction allowable.................... $199,117.54
Plus: Debts and expenses.......................... $ 40,000.00
Total deductions.................................. $239,117.54
8)Transferee's reduced taxable estate--
Reduced gross estate [Item 6]..................... $680,000.00
Minus: Total deductions [Item 7].................. 239,117.54
Reduced taxable estate............................ $440,882.46
9)Plus: Adjusted taxable gifts................. 200,000.00
10)Taxable interests............................ $640,882.46
11)Tentative tax--
Times: Marginal rate from Table A,
Column 4.......................................... x .37
Product........................................... $237,126.51
Minus: Subtractive term from Table A,
Column 5.......................................... 29,200.00
Tentative tax..................................... $207,926.51
12)Minus: Gift taxes paid for gifts after
12/31/76.......................................... 20,800.00
13)Estate tax before credits.................... $187,126.51
14)Credits--
i)Unified credit............................... $121,800.00
ii)State death tax credit--
Reduced taxable estate............................ $440,882.46
Minus: $60,000.................................... 60,000.00
Adjusted taxable estate........................... $380,882.46
Times: Marginal rate from Table C,
Column 4.......................................... x .032
Product........................................... $ 12,188.24
Minus: Subtractive term from Table C,
Column 5.......................................... 4,080.00
State death tax credit............................ $ 8,108.24
iii)Total credits (Unified credit plus state
death tax credit)................................. $129,908.24
15)Transferee's federal estate tax on reduced
estate--
Estate tax before credits [Item 13]............... $187,126.51
Minus: Credits [Item 14(iii)]..................... 129,908.24
Net federal estate tax............................ $ 57,218.27
16)Transferee's tax on prior transfers--
Federal estate tax before credit for tax on
prior transfers [Item 5].......................... $ 84,970.81
Minus: Federal estate tax on reduced
estate [Item 15] ................................. 57,218.27
Tax on prior transfers............................ $ 27,752.54
Part III--Credit allowable for tax on prior transfers
17)Maximum amount of credit .................... $ 27,752.54
18)Percent allowable............................ X .40
19)Credit allowable............................. $ 11,101.02
4)Net federal estate tax
Federal estate tax before credit for tax on
prior transfers................................... $ 84,970.81
Minus: Credit for tax on prior transfers.......... 11,101.02
Net federal estate tax............................ $ 73,869.79
The one cent difference in the computed and proven values is due to
rounding off.
Therefore, in Example F, the interrelated computation results in a charitable deduction of $236,452.08, a state death tax credit of $10,941.92, a credit for tax on prior transfers of $11,101.02, and a net estate tax of $73,869.79.
PART III--GIFT TAX
When a donor makes a gift to a donee subject to the condition that the donee pay the gift tax, the value of the gift is reduced by the amount of the tax paid by the donee. This situation creates an interrelated computation known as a net gift computation. The net gift computation may be solved by using the following formula:
Tentative Tax
------------------ = True Tax
1 plus Rate of Tax
The examples illustrate the use of this formula, with the algebraic method, to determine the tax in a net gift situation. No examples of the trial and substitution method are shown because that method usually requires a great number of trials to solve the problem. See the Note following
Example D in Part IIfor information on the algebraic method.
Note. A donor who makes a gift subject to the condition that the donee pay the gift tax may realize taxable income for income tax purposes. If the gift taxes paid by the donee exceed the donor's adjusted basis in the transferred property, the excess is taxable income to the donor.
State law. State gift tax law may effect your net gift computation for federal gift tax purposes. The state gift tax laws illustrated in this publication were in effect at the time this publication went to print. Be sure to check any state gift tax law that may effect your net gift computation.
Example A.
- Gift is not split with spouse.
- No state gift tax is imposed.
- No prior gifts were made by the donor.
In 1985 the donor made a gift with a fair market value of $500,000. The donee agreed to pay the gift tax on the transfer.
On the gift tax return, the donor claimed the $10,000 annual exclusion. The donor made no prior gifts, and no state gift tax was imposed on the transfer.
This example uses the conventional method for determining the gift tax.
1)Analysis of gift
Gross transfer.................................... $500,000.00
Minus: Gift tax payable by donee.................. T
Net transfer...................................... $500,000.00-T
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $490,000.00-T
2)Computation of federal gift tax
Taxable gift...................................... $490,000.00-T
Minus: Bracket from Table A, Column 1............. 250,000.00
Excess............................................ $240,000.00-T
Times: Marginal rate from Table A,
Column 4.......................................... X .34
Product........................................... $ 81,600.00-.34T
Plus: Tax on bracket from Table A,
Column 3.......................................... 70,800.00
Gross gift tax.................................... $152,400.00-.34T
Minus: Unified credit............................. 121,800.00
Gift tax.......................................... $ 30,600.00-.34T
3)Solve for T
$30,600.00 (Gift tax) $30,600.00
T = = = $22,835.82
1 + .34 (Rate of tax) 1.34
Proof
1)Analysis of gift
Gross transfer.................................... $500,000.00
Minus: Gift tax payable by donee.................. 22,835.82
Net transfer...................................... $477,164.18
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $467,164.18
2)Computation of federal gift tax
Taxable gift...................................... $467,164.18
Minus: Bracket from Table A, Column 1............. 250,000.00
Excess............................................ $217,164.18
Times: Marginal rate from Table A, Column 4....... X .34
Product........................................... $ 73,835.82
Plus: Tax on bracket from Table A, Column 3....... 70,800.00
Gross gift tax.................................... $144,635.82
Minus: Unified credit............................. 121,800.00
Gift tax.......................................... $ 22,835.82
Example B.
- Gift is split with spouse.
- No state gift tax is imposed.
- Donor's spouse has made prior taxable gifts.
In 1985 the donor made a gift with a fair market value of $1,800,000. The donee agreed to pay the gift tax on the transfer. Under section 2513 of the Internal Revenue Code, the gifts are considered as made one-half by the donor and one-half by the donor's spouse.
On the gift tax returns, each spouse claimed an annual exclusion of $10,000. The donor has made no prior gifts. However, in 1972 the donor's spouse made a taxable gift of $100,000 (after exhaustion of the $30,000 lifetime exemption).
No state gift tax was imposed on the transfer.
This example uses the alternate method for determining the gift tax.
1)Analysis of gift
Gift tax.......................................... $ 22,835.82
Gross transfer....................................$1,800,000.00
Minus: Gift tax payable by donee.................. T
Net transfer......................................$1,800,000.00-T
Minus: One-half to be reported by
spouse............................................ 900,000.00-.5T
One-half to be reported by donor.................. $ 900,000.00-.5T
2)Computation of donor's gift tax
One-half of net transfer.......................... $ 900,000.00-.5T
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $ 890,000.00-.5T
Times: Marginal rate from Table A,
Column 4.......................................... x .39
Product........................................... $ 347,100.00-.195T
Minus: Subtractive term from Table A,
Column 5.......................................... 44,200.00
Gross gift tax.................................... $ 302,900.00-.195T
Minus: Unified credit............................. 121,800.00
Gift tax.......................................... $ 181,100.00-.195T
3)Computation of spouse's gift tax
One-half of net transfer.......................... $ 900,000.00-.5T
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $ 890,000.00-.5T
Plus: Taxable gifts for prior periods............. 100,000.00
Total taxable gifts............................... $990,000.00-.5T
Times: Marginal rate from Table A,
Column 4.......................................... x .39
Product........................................... $386,100.00-.195T
Minus: Subtractive term from Table A,
Column 5.......................................... 44,200.00
Tax on total taxable gifts........................ $341,900.00-.195T
Minus: Tax on taxable gifts for prior
periods......................................... 23,800.00
Gross gift tax.................................... $318,100.00-.195T
Minus: Unified credit............................. 121,800.00
Gift tax.......................................... $196,300.00-.195T
4)Computation of total gift tax
Donor's gift tax.................................. $181,100.00-.195T
Spouse's gift tax................................. 196,300.00-.195T
Total............................................. $377,400.00-.39 T
5)Solve for T
$377,400.00 (Gift tax) $377,400.00
T = = = $271,510.79
1 + .39 (Rate of tax) 1.39
Proof
1)Analysis of gift
Gross transfer....................................$1,800,000.00
Minus: Gift tax payable by donee.................. 271,510.79
Net transfer......................................$1,528,489.21
Minus: One-half to be reported by spouse.......... 764,244.60
One-half to be reported by donor..................$ 764,244.61
2)Computation of donor's gift tax
One-half of net transfer..........................$ 764,244.61
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $754,244.61
Times: Marginal rate from Table A, Column 4....... x .39
Product........................................... $294,155.40
Minus: Subtractive term from Table A,
Column 5....................................... 44,200.00
Gross gift tax.................................... $249,955.40
Minus: Unified credit............................. 121,800.00
Gift tax.......................................... $128,155.40
3)Computation of spouse's gift tax
One-half of net transfer.......................... $ 764,244.60
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $754,244.60
Plus: Taxable gifts for prior periods............. 100,000.00
Total taxable gifts............................... $854,244.60
Times: Marginal rate from Table A, Column 4....... x .39
Product........................................... $333,155.39
Minus: Subtractive term from Table A,
Column 5....................................... 44,200.00
Tax on total taxable gifts........................ $288,955.39
Minus: Tax on taxable gifts for prior periods..... 23,800.00
Gross gift tax.................................... $265,155.39
Minus: Unified credit............................. 121,800.00
Gift tax......................................... $143,355.39
4)Total gift tax
Donor's gift tax.................................. $128,155.40
Spouse's gift tax................................. 143,355.39
Total............................................. $271,510.79
Example C.
- Gift is split with spouse.
- New York gift tax is imposed.
- No prior gifts were made by the donor or the donor's spouse.
In 1985 the donor made a gift with a fair market value of $1,100,000. The donee agreed to pay the gift tax on the transfer. Under section 2513 of the Internal Revenue Code, the gift is considered as made one-half by the donor and one-half by the donor's spouse.
ON the federal gift tax returns, each spouse claimed the $10,000 annual exclusion. Neither the donor nor the donor's spouse have made any prior gifts.
The donor was a resident of New York, and the gift was subject to the New York gift tax.
This example uses the alternate method for determining the gift tax.
1)Analysis of gift
Gross transfer....................................$1,100,000.00
Minus: Federal gift tax payable by
donee............................................. T
State gift tax payable by donee................... S
Net transfer......................................$1,100,000.00-(T+S)
Minus: One-half to be reported by
spouse............................................ 550,000.00-.5(T+S)
One-half to be reported by donor.................. $ 550,000.00-.5(T+S)
2)Computation of donor's gift tax
a)Federal gift tax
One-half of net transfer.......................... $550,000.00-.5(T+S)
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $540,000.00-.5(T+S)
Times: Marginal rate from Table A,
Column 4.......................................... x .34
Product........................................... $183,600.00-.17(T+S)
Minus: Subtractive term from Table
A, Column 5....................................... 14,200.00
Gross gift tax.................................... $169,400.00-.17(T+S)
Minus: Unified credit............................. 121,800.00
Federal gift tax.................................. $ 47,600.00-.17(T+S)
b)New York gift tax
One-half of net transfer.......................... $550,000.00-.5(T+S)
Minus: Annual exclusion (New York
Gift Tax Law)..................................... 10,000.00
Taxable gift...................................... $540,000.00-.5(T+S)
Minus: Bracket (from rate schedule
of New York Gift Tax Law)......................... 300,000.00
Excess............................................ $240,000.00-.5(T+S)
Times: Marginal rate.............................. x .05
Product........................................... $ 12,000.00-.025(T+S)
Plus: Tax on bracket.............................. 10,000.00
Gross New York gift tax........................... $ 22,000.00-.025(T+S)
Minus: Credit allowed (New York Gift
Tax Law).......................................... 500.00
New York gift tax................................. $ 21,500.00-.025(T+S)
3)Computation of spouse's gift tax
Federal, same as donor's.......................... $ 47,600.00-.17(T+S)
New York, same as donor's......................... $ 21,500.00-.025(T+S)
4)Computation of total taxes
Donor's federal gift tax.......................... $ 47,600.00-.17 (T+S)
Donor's New York gift tax......................... 21,500.00-.025(T+S)
Spouse's federal gift tax......................... 47,600.00-.17 (T+S)
Spouse's New York gift tax........................ 21,500.00-.025(T+S)
Total............................................. $138,200.00-.39 (T+S)
5)Solve for (T + S)
$ 138,200.00 (Gift tax) $138,200.00
(T + S) = = = $99,424.46
1 + .39 (Rate of tax) 1.39
Note:
The selection of the application marginal rate must be based upon the actual taxable interests. When determining the applicable tax bracket, the effect of the taxes must be considered. In this case, the taxable interests are decreased by .5(T+S). Normally, for the federal gift tax, the bracket $500,000 to $750,000 would be used for $540,000, however, if the estimate amount for .5(T+S) is subtracted the taxable interests are lowered to the next bracket. The same method is applied to the state gift tax computation.
Proof
1)Analysis of gift
Gross transfer....................................$1,100,000.00
Minus: Federal gift tax plus state gift tax
payable by donee.................................. 99,424.46
Net transfer......................................$1,000,575.54
Minus: One-half to be reported by spouse.......... 500,287.77
One-half to be reported by donor.................. $ 500,287.77
2)Computation of donor's gift tax
a)Federal gift tax
One-half of net transfer.......................... $ 500,287.77
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $ 490,287.77
Times: Marginal rate from Table A, Column 4....... x .34
Product........................................... $ 166,697.84
Minus: Subtractive term from Table A, Column
5................................................. 14,200.00
Gross gift tax.................................... $152,497.84
Minus: Unified credit............................. 121,800.00
Federal gift tax.................................. $ 30,697.84
b)New york gift tax
One-half of net transfer.......................... $500,287.77
Minus: Annual exclusion (New York Gift Tax
Law).............................................. 10,000.00
Taxable gift...................................... $490,287.77
Minus: Bracket (from rate schedule of New
York Gift Tax Law)................................ 300,000.00
Excess............................................ $190,287.77
Times: Marginal rate.............................. x .05
Product........................................... $ 9,514.39
Plus: Tax on bracket.............................. 10,000.00
Gross New York gift tax........................... $ 19,514.39
Minus: Credit allowed (New York Gift Tax Law)..... 500.00
New York gift tax................................. $ 19,014.39
3)Computation of spouse's gift tax
Federal, same as donor's.......................... $ 30,697.84
New York, same as donor's ........................ $ 19,014.39
4)Computation of total taxes
Donor's federal gift tax.......................... $ 30,697.84
Donor's New York gift tax......................... 19,014.39
Spouse's federal gift tax......................... 30,697.84
Spouse's New York gift tax........................ 19,014.39
Total............................................. $ 99,424.46
Example D.
- Gift is not split with spouse.
- New York gift tax is imposed.
- Donor has made prior taxable gifts.
In 1985 a donor made a gift with a fair market value of $790,000 to a son. The son agreed to pay the gift tax on the transfer.
On the federal gift tax return, the donor claimed the annual exclusion of $10,000. In 1978 the donor made a gift of a future interest with a fair market value of $150,000. The donor applied $34,000 of the unified credit against the gift tax on the gift. Thus, the unified credit available for 1985 was $87,800 ($121,800 - $34,000).
The donor was a resident of New York, and the gift was subject to the New York gift tax.
This example uses the alternate method for computing the gift tax.
1)Analysis of gift
Gross transfer.................................... $790,000.00
Minus: Federal gift tax payable by
donee.......................................... T
State gift tax payable by donee................ S
Net transfer...................................... $790,000.00-(T+S)
2)Computation of federal gift tax
Net transfer...................................... $790,000.00-(T+S)
Minus: Annual exclusion........................... 10,000.00
Taxable gift...................................... $780,000.00-(T+S)
Plus: Taxable gifts for prior periods ........... 150,000.00
Total taxable gifts............................... $930,000.00-(T+S)
Times: Marginal rate from Table A,
Column 4........................................ X .39
Product........................................... $362,700.00-.39(T+S)
Minus: Subtractive term from Table
A, Column 5..................................... 44,200.00
Tax on total taxable gifts........................ $318,500.00-.39(T+S)
Minus: Tax on taxable gifts for prior
periods........................................ 38,800.00
Gross gift tax.................................... $279,700.00-.39(T+S)
Minus: Unified credit............................ 87,800.00
Federal gift tax.................................. $191,900.00-.39(T+S)
3)Computation of New York gift tax
Net transfer...................................... $790,000.00-(T+S)
Minus: Annual exclusion (New York
Gift Tax Law).................................. 10,000.00
Taxable gift...................................... $780,000.00-(T+S)
Plus: Taxable gifts for prior periods ........... 150,000.00
Total taxable gifts............................... $930,000.00-(T+S)
Minus: Bracket (from rate schedule
of New York Gift Tax Law)....................... 700,000.00
Excess............................................ $230,000.00-(T+S)
Times: Marginal rate............................. X .07
Product........................................... $ 16,100.00-.07(T+S)
Plus: Tax on bracket............................. 32,000.00
Tax on total taxable gifts........................ $ 48,100.00-.07(T+S)
Minus: Tax on taxable gifts for prior
periods......................................... 4,000.00
Gross New York gift tax........................... $ 44,100.00-.07(T+S)
Minus: Credit allowed (New York Gift
Tax Law)........................................ 500.00
New York gift tax................................. $ 43,600.00-.07(T+S)
4)
Computation of total gift taxes
Federal gift tax.................................. $ 191,900.00-.39(T+S)
New York gift tax................................. 43,600.00-.07(T+S)
Total............................................. $ 235,500.00-.46(T+S)
5)Solve for (T+S)
$235,500.00 (Gift tax) $235,500.00
(T+S) = = = $161,301.37
1 + .46 (Rate of tax) 1.46
Proof
1)Analysis of gift
Gross transfer................................... $790,000.00
Minus: Federal gift tax
plus
state gift tax
payable by donee............................... 161,301.37
Net transfer..................................... $628,698.63
2)Computation of federal gift tax
Net transfer..................................... $628,698.63
Minus: Annual exclusion......................... 10,000.00
Taxable gift..................................... $618,698.63
Plus: Taxable gifts for prior periods........... 150,000.00
Total taxable gifts.............................. $768.698.63
Times: Marginal rate from Table A, Column 4 .... X .39
Product.......................................... $299,792.47
Minus: Substractive term from Table A,
Column 5....................................... 44,200.00
Tax on total taxable gifts....................... $255,592.47
Minus: Tax on taxable gifts for prior periods... 38,800.00
Gross gift tax................................... $216,792.47
Minus: Unified credit........................... 87,800.00
Federal gift tax................................. $128,992.47
3)Computation of New York gift tax
Net transfer..................................... $628,698.63
Minus: Annual exclusion (New York Gift Tax
Law)........................................... 10,000.00
Taxable gift..................................... $618,698.63
Plus: Taxable gifts for prior periods........... 150,000.00
Total taxable gifts.............................. $768,698.63
Minus: Bracket (from rate schedule of New
York Gift Tax Law)............................. 700,000.00
Excess........................................... $ 68,698.63
Times: Marginal rate............................ X .07
Product.......................................... $ 4,808.90
Plus: Tax on bracket............................ 32,000.00
Tax on total taxable gifts....................... $ 36,808.90
Minus: Tax on gifts from prior periods.......... 4,000.00
Gross New York gift tax.......................... $ 32,808.90
Minus: Credit allowed (New York Gift Tax Law)... 500.00
New York gift tax................................ $ 32,308.90
4)Computation of total gift taxes
Federal gift tax................................. $128,992.47
New York gift tax................................ 32,308.90
Total............................................ $161,301.37
Example E.
- Gift is split with spouse.
- North Carolina gift tax is imposed.
- Donor has made prior taxable gifts.
In 1985 the donor made a gift to a niece with a fair market value of $1,450,000. The niece agreed to pay the gift tax on the transfer. Under section 2513 of the Internal Revenue Code, the gift was considered as made one-half by the donor and one-half by the donor's spouse.
On the federal gift tax returns, each spouse claimed the annual exclusion of $10,000. In 1975 the donor made a gift of a future interest having a fair market value of $125,000 (after exhaustion of the $30,000 lifetime exemption) to a nephew.
The donor was a resident of North Carolina and the gift was subject to the North Carolina gift tax. The spouses consent to apply both the donor's annual exclusion ($10,000) and the spouse's annual exclusion ($10,000) to the gift as allowed by state law.
This example uses the alternate method for computing the gift tax.
1)Analysis of gift
Gross transfer................................. $1,450,000.00
Minus: Federal gift tax payable by
donee........................................ T
State gift tax payable by donee.............. S
Net transfer................................... $1,450,000.00- (T+S)
Minus: One-half to be reported by
spouse....................................... 725,000.00-.5(T+S)
One-half to be reported by donor............... $ 725,000.00-.5(T+S)
2)Computation of donor's gift taxes
a) Federal gift tax
One-half of net transfer....................... $725,000.00-.5(T+S)
Minus: Annual exclusion....................... 10,000.00
Taxable gift................................... $715,000.00-.5(T+S)
Plus: Taxable gifts for prior periods......... 125,000.00
Total taxable gifts............................ $840,000.00-.5(T+S)
Times: Marginal rate from Table A,
Column 4..................................... X .37
Product........................................ $310,800.00-.185(T+S)
Minus: Subtractive term from Table
A, Column 5.................................. 29,200.00
Tax on total taxable gifts..................... $281,600.00-.185(T+S)
Minus: Tax on taxable gifts for prior
periods...................................... 31,300.00
Gross gift tax................................. $250,300.00-.185(T+S)
Minus: Unified credit......................... 121,800.00
Federal gift tax............................... $128,500.00-.185(T+S)
b) North Carolina gift tax
Net transfer...................................$1,450,000.00-(T+S)
Minus: Exclusion (North Carolina
Gift Tax Law)................................ 20,000.00
Taxable gift...................................$1,430,000.00-(T+S)
Minus: Bracket (from rate schedule,
section 105-188 of North Carolina
Gift Tax Law)................................ 1,000,000.00
Excess.........................................$ 430,000.00-(T+S)
Times: Marginal rate.......................... X .13
Product........................................ $ 55,900.00-.13(T+S)
Plus: Tax on bracket.......................... 109,600.00
North Carolina gift tax........................ $ 165,500.00-.13(T+S)
3)Computation of spouse's federal gift tax
One-half of net transfer....................... $ 725,000.00-.5(T+S)
Minus: Annual exclusion....................... 10,000.00
Taxable gift................................... $ 715,000.00-.5(T+S)
Times: Marginal rate from Table A,
Column 4..................................... X .37
Product........................................ $ 264,550.00-.185(T+S)
Minus: Subtractive term from Table
A, Column 5.................................. 29,200.00
Gross gift tax................................. $ 235,350.00-.185(T+S)
Minus: Unified credit......................... 121,800.00
Federal gift tax............................... $ 113,550.00-.185(T+S)
4)Computation of total gift taxes
Donor's federal gift tax....................... $ 128,500.00-.185(T+S)
Donor's North Carolina gift tax................ 165,500.00-.13 (T+S)
Spouse's federal gift tax...................... 113,550.00-.185(T+S)
Total.......................................... $ 407,550.00-.5(T+S)
5)Solve for (T+S)
$407,550.00 (Gift tax) $407,550.00
(T+S) = = = $271,700.00
1 + .5 (Rate of tax) 1.5
Proof
1)Analysis of gift
Gross transfer...................................$1,450,000.00
Minus: Federal gift tax
plus
state gift tax
payable by donee............................... 271,700.00
Net transfer.....................................$1,178,300.00
Minus: One-half to be reported by spouse........ 589,150.00
One-half to be reported by donor.................$ 589,150.00
2)Computation of donor's gift taxes
a) Federal gift tax
One-half of net transfer......................... $589,150.00
Minus: Annual exclusion......................... 10,000.00
Taxable gift..................................... $579,150.00
Plus: Taxable gifts for prior periods........... 125,000.00
Total taxable gifts.............................. $704,150.00
Times: Marginal rate from Table A, Column 4..... X .37
Product.......................................... $260,535.50
Minus: Subtractive term from Table A,
Column 5...................................... 29.200.00
Tax on total taxable gifts....................... $231,335.50
Minus: Tax on taxable gifts for prior periods... 31,300.00
Gross gift tax................................... $200,035.50
Minus: Unified credit........................... 121,800.00
Federal gift tax................................. $ 78,235.50
b)North Carolina gift tax
Net transfer.....................................$1,178,300.00
Minus: Exclusion (North Carolina Gift Tax Law).. 20,000.00
Taxable gift.....................................$1,158,300.00
Minus: Bracket (from rate schedule, section
105-188 of North Carolina Gift Tax Law)........ 1,000,000.00
Excess...........................................$ 158,300.00
Times: Marginal rate............................ X .13
Product..........................................$ 20,579.00
Plus: Tax on bracket............................ 109,600.00
North Carolina gift tax..........................$ 130,179.00
3)Computation of spouse's federal gift tax
One-half of net transfer....................... $589,150.00
Minus: Annual exclusion........................ 10,000.00
Taxable gift................................... $579,150.00
Times: Marginal rate from Table A, Column 4.... X .37
Product........................................ $214,285.50
Minus: Subtractive term from Table A,
Column 5....................................... 29,200.00
Gross gift tax................................. $185,085.50
Minus: Unified credit.......................... 121,800.00
Federal gift tax............................... $ 63,285.50
4)Computation of total gift taxes
Donor's federal gift tax....................... $ 78,235.50
Donor's North Carolina gift tax................ 130,179.00
Spouse's federal gift tax...................... 63,285.50
Total.......................................... $271,700.00
PART IV--REQUEST FOR RULING, COMPUTATION, OR ACTUARIAL FACTOR
If a ruling, computation, or actuarial factor is necessary to complete a tax return, you may request assistance by writing to the Internal Revenue Service, Associate Chief Counsel (Technical), CC:IND:S:3:3, Room 6545, 1111 Constitution Avenue N.W., Washington, DC 20224.
The National Office issues rulings on transactions affecting the estate tax of a decedent before the estate tax return is filed. A ruling may be issued after a return is filed, if the request for a ruling was made before the return was filed. Attach a copy of the ruling request to the estate tax return. The National Office will not rule on matters relating to the application of the estate tax to property or the estate of a living person.
In gift tax matters, the National Office issues rulings on prospective transactions and completed transactions before the return is filed for those transactions.
Information for Request
You should submit a request for a ruling in duplicate if more than one issue is presented in the request, or if a closing agreement is requested on the issue presented. Each request must include the following items:
1) The names, addresses, and taxpayer identifying numbers of all interested parties.
2) A carefully detailed description of the transaction.
3) The location of the district office that has or will have jurisdiction over the return.
4) True copies of all contracts, wills, deeds, agreements, instruments, and other documents involved in the transaction. (Original documents should not be submitted because they become part of the Service file and will not be returned.)
5) If you furnish material facts to the Service by telephone or orally at a conference, you must promptly confirm them by letter to the Service, along with a declaration in the form described later in this section. This confirmation must be furnished within 21 calendar days to be considered part of your request.
6) A statement whether, to the best of your knowledge, the identical issue is in a return of the taxpayer, or of a related taxpayer (within the meaning of section 267 of the Code), and if so, whether the issue:
a) Is under examination by a District Director,
b) Has been examined and the statutory period of limitation on assessment or refund of tax has not expired or a closing agreement has not been entered into by a District Director,
c) Is under consideration by an Appeals office in connection with a return of the taxpayer for an earlier period, or that issue has been considered by an Appeals office and the statutory period of limitation has not expired or a closing agreement has not been entered into by an Appeals office, or
d) is pending in litigation in a case involving the taxpayer or a related taxpayer.
7) A statement whether, to the best of your knowledge, the identical or similar issue has been submitted to the Service, but withdrawn before a ruling was issued, or has been ruled on by the Service to the taxpayer and, if so, when and with what results. (If after the request is filed but before the ruling is issued you are aware that an examination of the issue has been started by the District Director, you must notify the National Office of such action. If you file the return before receiving the ruling from the National Office, you must attach a copy of the request to the return.)
8) If you assert a particular determination, you must furnish an explanation of the grounds for your assertion, together with a statement of relevant authorities in support of your views. Even though you are not urging a particular determination of a proposed or prospective transaction, you must state your views as to the tax results of the proposed action and the relevant authorities to support such views.
9) You are encouraged to inform the Service of, and discuss the implication of, any legislation, tax treaties, court decisions, regulations, revenue rulings, or revenue procedures that you determine are contrary to the position that you advance. If you determine that there are no contrary authorities, you should make a statement to this effect in your ruling request. This information may help the Service to make a determination and avoid delays in issuing a ruling.
10) If your request involves an actuarial factor, you must furnish the dates of birth of all involved parties along with a narrative statement of any contingencies that are not adequately described in the instrument(s) submitted under item (4).
11) If you are requesting the computation of the tax due involving an interrelated computation, you must furnish enough supporting data to enable the Service to make the computation. For most estates, copies of the will and relevant trust instruments, a schedule of assets and deductions, and a tentative computation of state taxes should accompany the request.
12) A copy ot the request and of supporting documents on which are indicated, in brackets, those portions you suggest be deleted from the text of rulings, which are open to public inspection. In lieu of those copies, a statement may be submitted indicating that no information other than names, addresses, and taxpayer identifying numbers need be deleted.
13) A statement, made in a separate document, in support of the deletions suggested, indicating the statutory basis under section 6110(c) of the Internal Revenue Code that applies to each bracketed portion. See Section 6110(c) of the Code.
14) The request must be signed by the taxpayer or the taxpayer's authorized representative. Form 2848, Power of Attorney and Declaration of Representative, and Form 2848-D, Tax Information Authorization and Declaration of Representative, may be used for a ruling r request.
15) A declaration signed by the person or persons on whose behalf the request for a ruling is made, in the following form: "Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of the requested ruling are true, correct, and complete." NOTE. For more information about the procedures to be followed to promote efficient handling of your request, you should refer to Revenue Procedure 85-1.
Section 6110(c) of the Code
Section 6110(c) of the Code follows:
(c) Exemptions From Disclosure.--Before making any written determination or background file document open or available to public inspection under subsection (a), the Secretary shall delete--
(1) the names, addresses, and other identifying details of the person to whom the written determination pertains and of any other person, other than a person with respect to whom a notation is made under subsection (d)(1), identified in the written determination or any background file document;
(2) Information specifically authorized under criteria established by an Executive order to be kept secret in the interest of national defense or foreign policy, and which is in fact properly classified pursuant to such Executive order;
(3) information specifically exempted from disclosure by any statute (other than this title) which is applicable to the Internal Revenue Service;
(4) trade secrets and commercial or financial information obtained from a person and privileged or confidential;
(5) information the disclosure of which would constitute a clearly unwarranted invasion of personal privacy;
(6) information contained in or related to examination, operating, or condition reports prepared by, or on behalf of, or for use of an agency responsible for the regulation or supervision of financial institutions; and
(7) geological and geophysical information and data, including maps, concerning wells.
The Secretary shall determine the appropriate extent of such deletions and, except in the case of intentional or willful disregard of this subsection, shall not be required to make such deletions (nor be liable for failure to make deletions) unless the Secretary has agreed to such deletions or has been ordered by a court (in a proceeding under subsection (f)(3)) to make such deletions.
- Institutional AuthorsInternal Revenue Service
- Jurisdictions
- LanguageEnglish
