Question

J. Wellington Farquhar IV gave gifts to the following recipients this year:

A vacation home in the Hamptons to his wife, Becky, valued at $3,800,000.

An Asten-Marten automobile, worth $175,000 to his daughter, Amber, as a law school graduation present.

$160,000 cash to his son, J. Wellington V, for his birthday.

A Central Park West condominium, worth $2,600,000, to his daughter, Muffy, as a wedding present.

$35,000 to each of his 13 nieces and nephews.

$520,000 to his brother, Aloysius.

$410,000 to his sister-in-law, Mabel.

$775,000 to the American Red Cross, a qualified charitable organization. (Note: Charitable Contributions are fully deductible net of the annual exclusion.)

$271,000 to Hunter College, his alma mater.(Note: Charitable Contributions are fully deductible net of the annual exclusion.)

In addition, he had previously given taxable gifts in previous years amounting to $495,770, in which he had previously paid $138,026 in gift taxes, and claimed previous unified credits amounting to $52,410.

Required: Calculate the following:

1) J Wellington’s net taxable gifts this year

2) His tax base

3) The tax liability on his tax base

4) The tax liability on his prior gifts at current rates

5) His current year’s tax liability

6) His remaining unified credit, if any

This is to be submitted in class on Thursday.

Answer 1

Part 1: J Wellington's net taxable gifts this year can be calculated as follows:

Particulars	Gift Amount	Exclusion	Net Taxable Gift
Becky (wife)	3800000	3800000	0
Amber (daughter)	175000	15000	160000
J. Wellington V.(son)	160000	15000	145000
Muffy (daughter)	2600000	15000	2585000
13 nieces and nephews	455000	195000	260000
Aloysius (brother)	520000	15000	505000
Mabel (sister in law)	410000	15000	395000
American Red Cross	775000	775000	0
Hunter College	271000	271000	0
Total	9166000	5116000	4050000

Part 2: Tax base = $4050000 + $495770 (current year gifts and previous year gifts) = $4545770

Part 3: Tax liability on tax base: $1764108

Part 4: Tax liability on prior gifts at current rates: $154361

Part 5: Current yars's tax liability: $1764108+154361 = $1918469

Part 6: Total gift tax credit = $4417800

(-) Current year liability = $1918469

Remaining unified credit = $2499331