Final Project -

In this assignment you will demonstrate your mastery of the following course outcomes: 

• Assess the potential gift or estate tax liability in relation to the annual exclusion, gift tax deductions, marital deduction, and unified credit, as provided for by the Internal Revenue Code, while meeting the client's desired economic outcomes.
• Analyze various forms of property for potential estate and gift tax consequences of these forms of ownership, as provided for by the Internal Revenue Code, Treasury Regulations, and case law, and their impact on the client's economic outcomes.
• Evaluate the risk of noncompliance with AICPA, IRS Circular 230, and the penalty provisions of the Internal Revenue Code in light of possible stakeholder misconduct, using moral reasoning to advise the client.
• Recommend strategies that reflect versatility of thought, for achieving favorable estate and gift tax consequences of wealth transfers, by reducing tax liability in order to meet the client's desired economic outcomes.
• Evaluate the influence of an estate and gift tax planning strategy on the effectiveness of the overall tax strategy, including income tax, and it's potential to result in ethically sound outcomes and optimum desired results for the client.

Prompt

You are an associate in a boutique tax consulting firm that specializes in the real estate industry. You have been assigned to work with a client who needs advice on the tax implications of his business holdings, which include Skyscrapers, a commercial real estate firm organized as a sole proprietorship with a fair market value of $1 billion. He is considering transferring partial ownership of the Skyscrapers to both of his children and selling a 10% interest to an unrelated third party.

Your manager has asked that you prepare a memorandum informing management of the estate and gift tax consequences of these potential transactions in addition to a cost-benefit analysis. Be sure to cite appropriate case law, statutes, and regulations in your memorandum.

Specifically, the following critical elements must be addressed:

I. Introduction

A. Create an estate planning strategy, showing versatility of thought, that will minimize estate and gift tax liability over the course of the client's life span, potentially another 30 years. Assure that as little future tax liability as possible accrues to his children.

B. Utilize family limited partnerships and intentionally defective grantor trusts to accomplish long-term minimization of the client's tax liability. Consider the mechanics of these estate planning vehicles and the appropriate authority to cite.

II. Life Insurance, Annuity, and Charitable Giving Strategies 

A. Evaluate life insurance products, annuities, and charitable giving for possible estate tax advantages in the taxable estate or in the children's estate, while finding use of the cash flow from the sale and the real estate business. Consider charitable remainder annuities or other advanced estate planning vehicles involving life insurance, annuities, and charitable giving.

B. Recommend an ethical compliance strategy based on the client's comments about a valuation discount on the family limited partnership that is consistent with Internal Revenue Service (IRS) Circular 230 and the American Institute of Certified Public Accountants (AICPA) Code of Conduct.

Consider the client's cash constraints, economic impact over time, IRS Circular 230, and the AICPA Code of Conduct.

C. Develop an additional ethical compliance strategy that addresses the client's estate tax and the interest and penalty that will accrue if he does not make timely payments of tax. Acknowledge appropriate tax case law and statutes. Consider quantifying penalties and interest.

III. Tables and Calculations: Excel Documentation

A. Assess the amount of the client's cash that will be consumed by the proposed strategy over the next 24 months in order to the pay gift tax. Consider how the strategy maximizes the amount of transferred wealth to the client's children.

B. Analyze the personal income tax consequences and value over the next 24 months as a result of the overall proposed tax strategy. Given the income tax consequences, conclude whether or not the strategy is worthwhile and is ethically sound. Consider justifying the strategy in comparison to an alternative transaction.