Tax-Planning Client Letter on Irrevocable Trusts, Gift Tax, and Estate Tax
Suppose you are a CPA, and your client has requested advice regarding establishing an irrevocable trust for his two (2) grandchildren. He wants the income from the trust paid to the children for 20 years and the principal distributed to the children at the end of 20 years.
Use the Internet and Strayer databases to research the rules regarding irrevocable trusts, gift tax, and estate tax. Be sure to use the six (6) step tax research process in Chapter 1 and demonstrated in Appendix A of your textbook as a guide for your written response.
Write a one to two (1-2) page letter in which you:
1.Analyze the effect of an irrevocable trust on the gift tax and future estate taxes.
2.Suggest other significant alternatives that the client could use both to reduce estate tax and to maximize potential advantages of the payment of gift taxes on transfers of property.
3.Use the six (6) step tax research process, located in Chapter 1 and demonstrated in Appendix A of the textbook, to record your research for communications to the client.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
Include a cover page containing the title of the assignment, the students name, the professors name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
Prepare client, internal, and administrative documents that appropriately convey the results of tax research and planning.
Create an approach to tax research that results in credible and current resources.
Analyze tax issues regarding the gift tax and the estate tax.
Analyze tax issues regarding trusts and estates.
Use technology and information resources to research issues in organizational tax research and planning.
Write clearly and concisely about organizational tax research and planning using proper writing mechanics.
HERE IS EXAMPLE FOR THE MEMEORANDEM PLEASE USE THIS
Memorandum
Determine Facts
The CPA is hired by the client to provide advice concerning income tax, based on the guidelines provided by the IRS. The advice is based on the NPA that illustrates three issues; unreasonable compensation received by the business owner, rental loss treatment, and the stock redemptions.
Issues
The client receives salary which is excess, and extremely above the average salary received by fellow business people. The high salary of $10 million has the effect of minimizing tax dollars. The rental loss realized by the clients is not factored in tax calculations. This is because the client did not get passive incomes. Stock redemption aims at preventing dividend treatment, and thus attractive.
Applicable Authorities
The authority involved in the income tax issues is the IRS. The organization is responsible for administration of the income tax from individual and business concerns. The federal congress is the authority responsible for formulating the legislations that guide income tax administration.
Evaluate Authorities
The IRS is the most effective authority. This is because, despite the income tax challenges and inconsistencies, the organization has adequately achieved it tax collection challenges. The tax administration authority has also strived to minimize the tax collection loopholes, through minimizing cases of unreasonable compensation.
Analyze Facts
The money allocated for unreasonable compensation should be reduced. This will enable the business to use the excess amount for important activities, like improving the marketing programs. The stock redemption which is dome through stock sale is very appropriate because it in tax free. The client should illustrate passive income if he desires to subtract the rental losses.
Conclusion and Recommendations
It is important for the client to adhere to the tax advice that the CPA issued. Effective adherence will ensure the business interest is catered for, through allocating only reasonable payment to the shareholder. The IRS also ensures maximum tax dollars, by making sure that business owners only get compensation that they are appropriately entitled to.
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