- In 2025, a U.S. citizen gives $200,000 outright to the donor's spouse, who is a lawful permanent resident of the United States and not a U.S. citizen. The donor makes no other gifts during 2025. Which of the following is correct regarding the gift for federal gift tax purposes?
Answer: The gift is a taxable gift of $10,000 and Form 709 must be filed, because the annual exclusion for gifts to a non-citizen spouse is $190,000 for 2025.
IRC § 2523(a) allows an unlimited marital deduction only for gifts to a spouse who is a U.S. citizen. IRC § 2523(i)(2) instead provides a $190,000 annual exclusion for 2025 for gifts to a spouse who is not a U.S. citizen. The $200,000 gift therefore results in a taxable gift of $10,000, and IRC § 6019 requires a donor who makes taxable gifts to file Form 709. Choice A misstates the rule by ignoring the $190,000 exclusion and taxing the entire transfer. Choice C misstates the rule by extending the unlimited marital deduction to a non-citizen spouse. Choice D uses the $19,000 general annual exclusion that applies to other donees - the wrong threshold.
- What is the amount of the donor's taxable gift for federal gift tax purposes?
Answer: $60,000
IRC § 2523(i) denies the unlimited gift tax marital deduction for a transfer to a spouse who is not a U.S. citizen. Instead, IRC § 2523(i)(2) allows a special $190,000 annual exclusion for 2025 for such gifts. Because the gift is an outright cash gift, it is a present interest. The special exclusion is in lieu of the regular $19,000 annual exclusion under IRC § 2503(b), so the taxable gift is $250,000 - $190,000 = $60,000. Choice A ($0) would be correct only if the unlimited marital deduction applied, which § 2523(i) denies for a noncitizen spouse. Choice B ($41,000) incorrectly adds the regular $19,000 annual exclusion to the $190,000 special exclusion. Choice D ($231,000) applies only the regular $19,000 annual exclusion and ignores the special noncitizen-spouse exclusion.
- Which of the following is correct regarding the gift and generation-skipping transfer (GST) treatment of this 2025 transfer?
Answer: For gift tax purposes, $81,000 is taxable. The predeceased-parent rule makes the granddaughter a non-skip person, so no direct skip occurs.
Governing authority: IRC § 2503(b); IRC § 2651(e); IRC § 2613; IRC § 2632(b). Choice C is correct. The outright cash gift is a present interest, so the $19,000 annual exclusion applies: $100,000 − $19,000 = $81,000 taxable gift. Under IRC § 2651(e), a grandchild whose parent—a lineal descendant of the transferor—died before the transfer is treated as being in the parent's generation. Because the granddaughter's father died in 2019, she is treated as a child of the grandmother, not as a skip person under IRC § 2613. Therefore, the transfer is not a direct skip, and the IRC § 2632(b) automatic allocation rule for direct skips does not apply. Form 709 is required because the taxable gift exceeds the annual exclusion, but no gift tax is due because the gift is within the $13,990,000 basic exclusion, and no GST tax applies to this transfer. Choice B is incorrect because it applies the automatic allocation rule without applying the deceased-parent exception; that treatment would be correct only if the parent were alive. Choice A is incorrect because an outright cash gift is a present interest, not a future interest, so the annual exclusion applies. Choice D is incorrect because the deceased-parent rule is not limited to transfers at death; it applies to lifetime transfers, and here the granddaughter is not a skip person, so the transfer is not a direct skip.
- In 2025, a single individual contributes $90,000 to a qualified tuition program (a 529 plan) established for the benefit of the individual's grandchild. The individual makes no other gifts to the grandchild in 2025. Which of the following is correct regarding the contribution for federal gift tax purposes?
Answer: The individual may elect to treat the contribution as made over five years, so that $18,000 is treated as a gift in each year, and if the individual dies within the five-year period, the unused portion is included in the gross estate.
Under IRC § 529(c)(2)(A), a contribution to a qualified tuition program is a completed gift of a present interest, and under IRC § 529(c)(2)(B) the donor may elect to treat the contribution as made ratably over five years for amounts up to five times the annual exclusion (5 x $19,000 = $95,000 for 2025). A $90,000 contribution is within that limit, so with the election $18,000 is treated as a gift each year and no taxable gift arises. IRC § 529(c)(4)(C) provides that if the donor dies within the five-year period, the portion of the contribution not yet taken into account is included in the donor's gross estate. Choice A misstates IRC § 2503(e): the unlimited education exclusion applies only to tuition paid directly to an educational organization, not to 529 plan contributions. Choice B drops the death-inclusion rule. Choice D misstates the election limit ($95,000, not $50,000) and therefore treats $71,000 as a taxable gift.
- Which of the following is correct regarding the 2025 gift tax treatment of the contribution?
Answer: The contribution is a completed gift of a present interest and, with the five-year election, is treated as a $16,000 gift in each of 2025 through 2029, so no taxable gift results for 2025.
Choice A is correct. IRC § 529(c)(2)(A) treats a contribution to a qualified tuition program as a completed gift of a present interest to the designated beneficiary. Under § 529(c)(2)(B), the $80,000 contribution may be spread over the five-year period beginning in 2025, which is $16,000 per year, below the $19,000 annual exclusion. Because the client made the election, there is no taxable gift for 2025. Choice B misreads § 529(c)(2)(A), which expressly treats the contribution as a present interest despite deferred receipt of the funds. Choice C confuses the account owner's power to change the beneficiary or withdraw funds with an incomplete gift; § 529(c)(2)(A) makes the contribution a completed gift for gift tax purposes. Choice D ignores the effect of the § 529(c)(2)(B) election and computes the $61,000 excess that would be a taxable gift without it; because the election was made, that result is not correct.
- Which of the following is correct?
Answer: If the election is made, each spouse is treated as making a $19,000 gift to the son; the election must be signified on a timely filed Form 709, so a return must be filed even though there are no taxable gifts.
IRC § 2513(a) permits a married couple to treat a gift made by one spouse as made one-half by each spouse. The $38,000 gift is therefore treated as a $19,000 gift from each spouse, and each is within the $19,000 annual exclusion, so there are no taxable gifts. However, the gift-splitting election is signified on Form 709, so a timely filed Form 709 is required even when the split amounts produce no taxable gifts. Thus, Choice D is correct. Choice A is incorrect because, although the split gifts are excluded, the election cannot be made without filing Form 709; Choice C is incorrect because the consenting spouse need not have personally transferred property; Choice B is incorrect because the consenting spouse may use the annual exclusion for the half deemed made by her.
- In 2022, a woman created an irrevocable trust for the benefit of her daughter and her granddaughter and funded the trust with $400,000. She filed a timely Form 709 for the 2022 transfer and elected out of the automatic allocation of GST exemption with respect to the trust, allocating no GST exemption to it. In 2025, when the trust's assets are worth $800,000, she files a Form 709 making a late allocation of $300,000 of GST exemption to the trust. No taxable distribution or termination has occurred. Which of the following is correct regarding the trust's inclusion ratio after the allocation?
Answer: The inclusion ratio is 0.625, because the late allocation is effective when filed and is measured against the trust's $800,000 value on that date.
Under Treas. Reg. § 26.2632-1(b), an allocation of GST exemption to a trust made after the due date of the return for the year of the transfer is effective as of the date the Form 709 is filed, and the trust is valued as of that effective date. Under IRC § 2642(a), the applicable fraction is the allocated exemption divided by the trust's value on that date: $300,000 / $800,000 = 0.375, and the inclusion ratio is 1 - 0.375 = 0.625. The 2022 transfer was an indirect skip, and because the woman elected out of the automatic allocation on a timely filed return, no exemption was deemed allocated to the trust. Choice A uses the 2022 value of $400,000, which is proper only for a timely allocation made by the due date of the return. Choice B mistakes the applicable fraction (0.375) for the inclusion ratio. Choice D misstates the rule: GST exemption may be allocated to a trust that is not currently a skip person; that allocation is what produces a low inclusion ratio when the non-skip person's interest ends.
- Which of the following is correct regarding the transfer for gift and generation-skipping transfer tax purposes?
Answer: The transfer is a direct skip. The $19,000 annual exclusion applies for gift tax, leaving an $81,000 taxable gift; the same portion is not subject to GST, and the unused GST exemption is automatically allocated to the remaining transfer.
IRC §§ 2612(c)(1), 2642(c)(1) and (3), and 2632(b)(1). Because the grandson's parent is alive, the grandson is a skip person, and an outright gift to him is a direct skip. For gift tax, the $19,000 annual exclusion applies, leaving a taxable gift of $100,000 − $19,000 = $81,000. For GST tax, the portion of an outright direct skip that is a nontaxable gift because of the annual exclusion has an inclusion ratio of zero, so the first $19,000 is not subject to GST tax. Unused GST exemption is allocated automatically to a lifetime direct skip unless the transferor elects out, so the remaining $81,000 is sheltered by her GST exemption. Choice C is correct. Choice A is wrong because IRC § 2642(c) gives an outright direct skip to an individual the benefit of the annual exclusion for GST purposes, and the donor need not allocate exemption because allocation to a direct skip is automatic. Choice B is wrong because a direct skip includes an outright lifetime gift to a skip person; the GST tax is not limited to transfers in trust or at death. Choice D is wrong because an outright gift of cash is a present interest, whether or not the grandchild's parent is alive, so both the annual exclusion and the GST exemption apply.
- What is the correct treatment of these transfers for federal gift tax purposes?
Answer: The $24,000 hospital payment is excluded from taxable gifts, and the cash gift exceeds the $19,000 annual exclusion by $1,000, so a Form 709 reporting a $1,000 taxable gift is required.
Choice B is correct. Under IRC § 2503(e)(1), a transfer made directly to a person who provides medical care for another individual is not treated as a transfer by gift; IRC § 2503(e)(2)(B) incorporates the § 213(d) definition of medical care. The $24,000 hospital payment is therefore excluded and does not consume the annual exclusion. The $20,000 cash gift is a present-interest gift, so under IRC § 2503(b) the first $19,000 is excluded for 2025 and the remaining $1,000 is a taxable gift. Because the cash gifts to the father exceeded the $19,000 annual exclusion, IRC § 6019 requires Form 709, even though the unified credit would offset any gift tax. Choice A ignores the $1,000 taxable excess; Choice C incorrectly treats the excluded medical payment as a gift and computes a $25,000 taxable gift; Choice D reverses the treatment of the two transfers.
- Which of the following is correct regarding the generation-skipping transfer tax on this transfer?
Answer: The transfer is not a direct skip because C has an income interest; a taxable termination occurs at C's death, and because no exemption was allocated, the inclusion ratio is one.
IRC § 2612(c) defines a direct skip, and IRC § 2612(a) defines a taxable termination. The trust is not a direct skip at the decedent's death because C, a non-skip person, holds an income interest in the trust. When C's income interest ends and the principal is distributable to the grandchildren, who are skip persons, a taxable termination occurs. Because the estate allocated no GST exemption to the trust, its inclusion ratio is 1 under IRC § 2642(a), and the termination is subject to GST tax. Choice A is wrong because a non-skip person's income interest prevents the trust from being a direct skip. Choice C is wrong because the distribution occurs on the termination of C's interest, making it a taxable termination rather than a taxable distribution. Choice D is wrong because inclusion in the gross estate and payment of estate tax do not exempt the transfer from the separate GST tax.
- Which of the following is correct regarding the election to split Martin's 2025 gift?
Answer: Martin and Elena must each file a separate Form 709 for 2025, even though only Martin made a gift.
IRC § 2513 and the Form 709 instructions govern gift splitting. Under § 2513(a), a gift by one spouse to a third person may be treated as made one-half by each spouse if both spouses consent and each was a U.S. citizen or resident at the time of the gift. Splitting Martin's $60,000 gift makes each spouse the donor of $30,000 to the son, which exceeds the $19,000 annual exclusion for 2025, so the Form 709 instructions require each spouse to file a separate Form 709. Choice A is correct. Choice B misstates the timing: under § 2513(b)(2), the consent may be signified on a late return only if neither spouse has filed a return for the year by April 15 of the following year, and never after a notice of deficiency has been sent to either spouse. Choice C misstates the eligibility rule: each spouse must be a U.S. citizen or resident, so Elena's residence is enough. Choice D applies the one-return exception where it does not fit: only the donor files, with the consent shown on that return, when the split gifts to each donee total no more than twice the annual exclusion ($38,000) and are all present interests, and Martin's $60,000 gift exceeds that amount.
- For a lifetime transfer made in 2025, which of the following is correct regarding whether a transfer to a grandchild is a direct skip for generation-skipping transfer (GST) tax purposes?
Answer: A transfer to a grandchild is not a direct skip if the grandchild's parent, who is a lineal descendant of the transferor, is dead at the time of the transfer.
IRC § 2612(c)(1) defines a direct skip as a transfer to a skip person, and a grandchild is ordinarily a skip person because the grandchild is assigned to a generation two levels below the transferor. IRC § 2651(e) provides the predeceased-parent rule: if the grandchild's parent who is a lineal descendant of the transferor is dead at the time of the transfer, the grandchild is treated as one generation below the transferor, so the transfer is not a direct skip. Choice A states the general rule but drops the predeceased-parent exception. Choice C misstates the rule by making direct-skip status depend on the amount transferred; a gift within the annual exclusion to a skip person is still a direct skip, though it is a non-taxable gift with an inclusion ratio of zero. Choice D misstates the rule by limiting direct skips to outright transfers; a transfer to a trust can be a direct skip when the trust is a skip person.
- What is the correct federal gift tax treatment of the transfer?
Answer: The first $190,000 is excluded from taxable gifts, and the remaining $10,000 is a taxable gift for which a Form 709 must be filed; no gift tax is due because of the basic exclusion amount.
IRC § 2523(i); Rev. Proc. 2024-40. The gift tax marital deduction is not allowed for a transfer to a spouse who is not a U.S. citizen. In its place, an annual exclusion of $190,000 for 2025 applies to present-interest gifts to a noncitizen spouse that would have qualified for the marital deduction if the spouse were a citizen. The $200,000 cash gift is a present interest, so $190,000 is excluded and $200,000 − $190,000 = $10,000 is a taxable gift. Form 709 must be filed because the gift exceeds the exclusion, but no gift tax is due because the $10,000 taxable gift is absorbed by the 2025 basic exclusion amount of $13,990,000. Choice B is correct. Choice A is wrong because IRC § 2523(i) denies the unlimited marital deduction when the donee spouse is not a U.S. citizen, so the gift is not fully deductible and a return is required. Choice C is wrong because, although the marital deduction is denied, the special $190,000 annual exclusion still applies, so only $10,000 is a taxable gift. Choice D is wrong because neither of the rules it uses applies: the regular $19,000 exclusion is replaced by the $190,000 exclusion for gifts to a noncitizen spouse, and no marital deduction is available for any part of the gift.
- What amount of the transfer is subject to GST tax as a direct skip after applying the GST annual exclusion?
Answer: $12,000
IRC § 2513(a) treats each spouse as making one-half of the gift, and IRC § 2652(a)(2) applies that split for GST purposes. Harris and Wren are therefore each the transferor of a $25,000 direct skip to Maya, their granddaughter, a skip person. Under IRC § 2503(b), the annual exclusion for 2025 is $19,000 per donee per donor. For a direct skip, the portion that is a nontaxable gift by reason of the annual exclusion has a zero inclusion ratio under IRC § 2642(c). Each spouse's $19,000 annual exclusion leaves $6,000 of that spouse's deemed half, so the total subject to GST tax is $12,000. Choice A ($6,000) counts only Harris's deemed half and ignores Wren's status as a transferor for GST purposes. Choice C ($31,000) applies only one $19,000 annual exclusion instead of the two available once gift splitting is elected; Harris and Wren are each transferors of a $25,000 direct skip and each has an annual exclusion. Choice D ($50,000) applies gift splitting but ignores both spouses' annual exclusions.
- Which of the following is correct regarding the transfer for federal gift tax purposes?
Answer: It is a completed gift of a future interest. No annual exclusion is allowed, so the taxable gift is $50,000, a Form 709 is required, and no gift tax is due because of the basic exclusion amount.
Choice A is correct. IRC § 2503(b) allows the annual exclusion only for gifts of present interests, and Treas. Reg. § 25.2503-3 defines a future interest as one whose use, possession, or enjoyment begins in the future. The son has no present right to income or principal, so the entire $50,000 is a taxable gift. The transfer is completed when the trust is irrevocably funded; delayed enjoyment does not make it incomplete. Form 709 is required for the future-interest gift, but no gift tax is due because the 2025 basic exclusion amount is $13,990,000 and the client has no prior taxable gifts. Choice B treats a vested remainder as a present interest; Choice C incorrectly treats the gift as incomplete; Choice D applies the annual exclusion to a future interest.
