Question

Cleveland Brown gave gifts to the following recipients this year:

A diamond ring to his wife, Donna, valued at $380,041, for their anniversary.

A 2018 Buick Encore, worth $37,630 to his step-daughter, Roberta as a birthday present.

$65,000 cash to his son, Cleveland, Jr., for his birthday.

$47,000 cash to his step-son, Rollo, for his college graduation.

$15,000 each to his closest friends: Tim, Arianna, Lester, Kendra, Holt, Terry, Lloyd, and Lydia.

$145,000 each to his parents, Levar and Cookie.

$77,100 to Long Island University, 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 $690,057, in which he had previously paid $177,610 in gift taxes, and claimed previous unified credits amounting to $113,054.

Required: Calculate the following:

1) Cleveland’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

Answer 1

Current Year
Diamond Ring to Wife	380041	Tax free	Exempted
Buick Encore to step daughter	37630	-15000	22630
Cash to Son	65000	-15000	50000
Cash to Step Son	47000	-15000	32000
Cash to frnds(15000*8)	120000	-120000	0
Cash to Parents(145000*2)	290000	-30000	260000
Long Island University	77100	Exempted	Exempted
	1016771		364630
Previous Year
Previous year gifts	690057
Gift Tax paid	117610
Credits claimed	113054
The gift to spouse is tax free assuming she is citizen of US and cash paid to Long Island University is donation which is exempted and not to be considered as gifts.
The net taxable gifts this year
	Gift	Exemption	Net taxable gifts
Buick Encore to step daughter	37630	-15000	22630
Cash to Son	65000	-15000	50000
Cash to Step Son	47000	-15000	32000
Cash to frnds(15000*8)	120000	-120000	0
Cash to Parents(145000*2)	290000	-30000	260000
	559630
Total Net taxable gifts			364630
Less : Unified credits			-113054
Total gifts liable to tax			251576
Since the lifetime exemption that is unified credits is utilise the gift tax would be taxed at 40%
Current Tax liability 251576*40%	100630.4
Tax liability at 40% for previous gifts 690057*40%	276022.8
Since the whole of unified credit is utilised the balance would be Nil