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Example 5
This is an example that is more typical of a real computation in audit situations. There are some simplifications, but this is a realistic computation. There is more than one problem, but each problem by its self if fairly simple. Our general facts are as follows:
The information necessary to compute the marital and charitable deductions are:
Information necessary to compute federal credit for tax on prior transfers:
Information necessary to compute the federal interest liability:
Information necessary to compute the state tax liability:
Information necessary to compute the state interest liability:
As the computations get more complex, the amount of data that must be entered grows quite a bit. When making entries it is easy to leave out an item or enter one in the wrong place. For this reason you need to check your output closely to be sure the computation does what you want it to. Step 1Click on the File menu and select the New option. The New dialog box has a list box showing that it can create either a Case File or an Interest Table. If Case File is not selected, select it by clicking on it with your mouse. When Case File is selected, click on the OK button and a new case file will be created. Step 2If you cannot see all the information displayed in the document view window, you should maximize the window by clicking on the Maximize button. It is one of the buttons on the right of the title bar. If you can see the full width of the information displayed, you do not need to maximize this window. Step 3Enter the basic information. Click on the General button on the Case Bar to the left of the DeskTop. This will bring up the General Tab Sheet with the General Tab Page selected. Enter the date of death as "11/5/89". Then hit Tab to move to the Decedent's Name edit box and enter "Samuel L. Sampler". Hit Tab to move the the memorandum edit box and enter "Fifth sample computation". Hit Tab to move to the gross estate edit box and enter "3,465,125.50". Hit Tab to move to the JK+L before interrelated items edit box and enter "123,750.00". Hit Tab to move to the adjusted taxable gifts edit box and enter "245,000.00". Hit Tab to move to the Aggregate Gift Tax paid and enter "21,546.00". Hit Tab twice to move down to Excess Retirement Accumulations and ender $125,000.00. At this point hit Enter to leave this dialog box and return to the main output screen. At this point you have entered the general information as listed above. If AutoCompute was not turned on you will have to click on the Compute button on the Case Bar to the left of the DeskTop to complete the computation. At this point change the case view to the Standard View. There are two ways to do this. The fastest is to click on the Standard View button on the Tool Bar. The other way is to go to the View menu and select Standard Case View. The output screen now has more data on it. Some of the lines show zero amounts. You will probably have to scroll up and down to see all of the output data. Step 4The next thing to to is to name and save this file. You can get to the Save As Dialog box three different ways. Click the Save Button on the Tool Bar, From the File menu select Save, or from the File menu select Save As. Save the file under the name "Sample5" by entering that name in the File name edit box and hitting return. Notice that the name on the title bar has changed to "Sample5" showing that the new name was accepted. Step 5, Next we will enter the necessary information for the marital and charitable deductions. Click on the Deduct button on the Case Bar to the left of the DeskTop. this will bring up the Deductions Tab Sheet with the Marital Tab Page already selected. Enter the Specific Bequests to the Surviving Spouse as "125,000.00". Then hit Tab to move the Bequests from Residue edit box and enter "25" to represent 25% of residue. Next click on the Charity Tab to go to the Charity Tab Page. Enter the Specific Bequests to the Charity as "5,000.00". Then hit Tab to move the Bequests from Residue edit box and enter "10" to represent 10% of residue. Next click on the Residue Tab to go to the Residue Tab Page. In the edit box for total specific bequests before residue enter "7500,000". Hit Enter to accept all data entered so far. When you look at the output screen you will notice that while all the data is not entered yet, the computation is looking more like a complete computation. Among other things, the residue was not reduced by state death taxes because they were not computed. Step 6The next step is to add the information necessary to compute the federal credit for tax on prior transfers. Click on the Credits button on the Case Bar to the left of the DeskTop. When the Credit Tab Sheet appears, clock on the Credit for Prior Transfer Tab. This move us to the Credit for Prior Transfers Tab Page. Select the Add Transferor button. In the dialog box that appears, I enter the name of the transferor, "Uncle Joe". Hit Tab to move to the edit box for the amount of the transfers. Here enter 750,000. Hit Tab to move to the first limitation edit box and enter 75,000. Hit Tab to move the the edit box for the percent of credit allowable and enter "60". Hit Enter to accept this information. This will return me to the State Input Screen. Here I click on the OK button and return to the output screen. Step 7Next we will tell Inter-Est to compute the federal interest and use it as a Schedule J deduction in the computation. Click on the Fed Int button on the Case Bar to the left of the DeskTop. This will place us in the Federal Interest Input dialog box. Select "Compute Interest" and "Use all accrued interest". We will now enter the payment with the return and a computation date. Click on the Period Data button. This will bring you to the Interest Period Data dialog box. Double Click on the 8/5/90 period line in the list box. This will bring you to the Interest Period Data dialog box for the due date. Hit Tab once to move to the Tax Payment edit box and enter "750,000". Hit Enter to accept this entry and return to the Interest Period Data dialog box. Double click on the second interest period line in the list box and this will bring you to the Interest Period Data dialog box for the computation date. We will compute interest to 2/21/95 so for the period date enter "2 21 93". Hit Enter to accept this entry and return to the Interest Period Data dialog box. Click on the Close button to return to the Federal Interest Input dialog box. Click on OK to accept the changes made to this point. At this point there will be a computation of the federal interest deduction and a deduction for federal interest. The only thing left is the computation of the state tax and interest. Step 8Now we will tell Inter-Est to compute the state death taxes. Click on the States button on the Case Bar to the left of the DeskTop. When the State Input Screen appears, click on the Add State button. In the State Description & Method dialog box that appears, I enter the name of the state, "New York". The method of tax computation is set at "State Death Tax Credit, All". Change the method of computation to the New York Method. Then click on the State Tax button to go to the Main New York input screen. Tab down to the adjustments to gross estate edit box and enter "18,750.00". Then hit Enter to return to the State Description & Method dialog box. Click on the State Interest button to go the the State Interest dialog box. This is similar to the Federal Interest Input dialog box. Select "Compute Interest" and "Use all accrued interest". There is one additional step that you must do here. Because Inter-Est did not supply a default interest table for the state, you must select an interest table to be used. Click on the Change Interest Table button. Select the Texas1 Interest Table by typing the name in the File name edit box and hitting Enter or double clicking on the NewYork icon. When you return to the State Interest dialog box, the name of this interest table should be displayed to the right of the Change Interest Table button. We will now enter the payment with the return and a computation date. Click on the Period Data button. This will bring you to the Interest Period Data dialog box. Double Click on the 8/5/90 period line in the list box. This will bring you to the Interest Period Data dialog box for the due date. Hit Tab once to move to the Tax Payment edit box and enter "185,000". Hit Enter to accept this entry and return to the Interest Period Data dialog box. Double click on the second interest period line in the list box and this will bring you to the Interest Period Data dialog box for the computation date. We will compute interest to 2/21/93 so for the period date enter "2 21 93". Hit Enter to accept this entry and return to the Interest Period Data dialog box. Click on the Close button to return to the State Interest dialog box. Click on OK to accept the changes made to this point. In the State Description & Method dialog box click the OK button. This will return me to the State Input Screen. Here I click on the Close button and return to the output screen. Step 9We have finished this computation. It is time to save the final version. Click the Save Button on the Tool Bar or from the File menu select Save. As you gave the file a name in step 4 you do not need to do that again. Check your answer against the program output shown below.
Program OutputEstate of: Samuel L Sampler, DD: 11 5 1989
Memorandum: Example 5 - Typical Computation
File Name: D:\TEST\EST3\Sample5.ET3, (Standard Output)
Inter-Est Version 3.00, Release 00
Date and time of run: Tuesday, December 26, 1995, 08:17 AM
Excess Retirement Accumulations - 4980A(d) 125,000.00
RESIDUE SECTION
Gross Estate 3,465,125.50
Specific Beq. (ex. MD & CD) before Residue <750,000.00>
Pre-residuary to Marital <125,000.00>
Pre-residuary to Charitable <5,000.00>
1041 Expenses Charged to Residue 0.00
Sch. JK&L not Charged to Residue 0.00
Sch. JK&L (before interrelated) <123,750.00>
Additional Est. Tax <18,750.00>
Estate Tax <834,103.86>
State Tax for New York out of Residue
Computed State Tax <224,579.15>
Net Residue 1,383,942.49
MARITAL DEDUCTION SECTION
Specific Bequests to Spouse 125,000.00
Percentage of Residue to Spouse 25.0000000 %
Spousal Bequest from Residue 345,985.62
Total Bequests to Spouse 470,985.62
CHARITABLE DEDUCTION SECTION
Specific Bequests to Charity 5,000.00
Percent of Residue to Charity 10.0000000 %
Charitable Bequests from Residue 138,394.25
Charitable Deduction 143,394.25
MAIN PRINTOUT SECTION
Gross Estate 3,465,125.50
Sch. JK&L (before interrelated) 123,750.00
Int, Federal 27,505.12
Int, New York 9,247.59
Additional Est. Tax 18,750.00
Debts & Expenses 179,252.71
Marital Deduction 470,985.62
Charitable Deduction 143,394.25
Total Deductions 793,632.58
Taxable Estate 2,671,492.92
Adjusted Taxable Gifts 245,000.00
Total Amount Drawing Tax 2,916,492.92
Tentative Tax 1,246,541.25
Aggregate Gift Tax Paid 21,546.00
Tax before Unified Credit 1,224,995.25
Unified Credit from Table 192,800.00
Adjustment to Unified Credit 0.00
Net Unified Credit 192,800.00
Tax before SDTC 1,032,195.25
State Death Tax Credit 153,091.38
Net Tax after State Death Tax Credit 879,103.87
Gift Tax Credit 0.00
Foreign Death Tax Credit (Statutory) 0.00
Prior Transfer Credit 45,000.00
Foreign Death Tax Credit (Treaty) 0.00
Total Credits 45,000.00
Estate Tax 834,103.86
Generation Skipping Transfer Tax 0.00
Increased Estate Tax 18,750.00
Total Federal Tax 852,853.86
CREDIT FOR TAX ON PRIOR TRANSFERS - FORM 3229
Line 21, Tax before TPT 879,103.87
Line 22, Total Gross Estate 3,465,125.50
Line 23, Net Value, All Transfers 750,000.00
Line 24, Reduced Gross Estate 2,715,125.50
Line 25, Debts & Deductions 179,252.71
Line 27, M.D. for 2nd Limitation 470,985.62
Line 28, Charitable Deduction 143,394.25
Line 29, C.D. Proportion 32,729.72
Line 30, C.D. for 2nd Limitation 110,664.53
Line 31, Deductions as Adjusted 760,902.86
Line 32(a), Taxable for 2nd Limitation 1,954,222.64
Line 32(b), Adj. Taxable Gifts 245,000.00
Line 32(c), Total Reduced Taxable Estate 2,199,222.64
Line 33(a), Tentative Tax 878,419.09
Line 33(a)(i), Post 1976 G.T. Paid 21,546.00
Line 33(a)(ii), Unified Credit 192,800.00
Line 33(a)(iii), S.D.T. Credit 96,304.03
Line 33(a)(iv), Gift Tax Credit 0.00
Line 33(a)(v), F.D. Tax Credit 0.00
Line 33(b), Tax on Red. Tax. Estate 567,769.06
Line 40, Second Limitation 311,334.81
Name of Transferor: Uncle Joe
Line 7, Net Transfer 750,000.00
Line 20, First Limitation 75,000.00
Line 35, Second Limitation 311,334.81
Line 37, Controling Limitation 75,000.00
Line 38, Percent Allowable 60.0000000 %
Line 39, Credit Allowable 45,000.00
FEDERAL INTEREST OPTION SELECTED
Interest Table File: D:\TEST\EST3\Federal.IT4
Interest Table Description: Federal (RProc 95-17)(6/95)
Special Interest Rate Used: 4.0000000 %
INTEREST FACTORS USED
Regular Special Refund
Pd # 1 c 26.7419429 % 10.7286281 % 23.5541794 %
PART 1
Date Tax Pmt. Int. Pmt.
Due Date 8 5 1990 750,000.00 0.00 P
Pd # 1 2 21 1993 -------------- --------------
P = Period entry for Interest on Penalty Computation
PART 2
Starting Tax Interest Applied
Balance Paid Balance To Balance
Due Date 852,853.86 750,000.00 0.00 750,000.00
Pd # 1 102,853.86 0.00 27,505.12 0.00
PART 3
Interest Total Amount Interest
Drawing Int. Drawing Int. Factor Interest
Pd # 1 0.00 102,853.86 26.7419429 % 27,505.12
Total Interest Deduction 27,505.12
STATE TAX COMPUTATION SECTION - New York
State Tax Computation based upon New York Law
Federal Gross Estate 3,465,125.50 Adjustment to Gross Estate 18,750.00 Limited Power of Appointment 0.00 Computed State Gross 3,483,875.50
Federal Debts & Expenses 179,252.71
Additional Fed. Estate Tax <18,750.00>
State Debts & Expenses 160,502.72
Federal Marital Deduction 470,985.62
Limited Power of App. in M.D. 0.00
State Marital Deduction 470,985.62
Federal Charitable Deduction 143,394.25 Limited Power of App. in C.D. 0.00 State Charitable Deduction 143,394.25
State Total Deductions 774,882.59
Computed State Net 2,708,992.91 Adjusted Taxable Gifts 0.00 Total 2,708,992.91 Tentative Tax 225,079.15 Aggregate Gift Tax Paid 0.00 Tax before Credits 225,079.15 Unified Credit 500.00 Total Credits 500.00 Basic State Net Estate Tax 224,579.15 State Pick-Up Tax 0.00 Total Tax for State 224,579.15
STATE INTEREST OPTION SELECTED
Interest Table File: D:\TEST\EST3\NewYork.IT4
Interest Table Description: New York (6-95)
Special Interest Rate Used: 4.0000000 %
INTEREST FACTORS USED
Regular Special Refund
Pd # 1 c 23.3648114 % 10.7286281 % 23.3648114 %
PART 1
Date Tax Pmt. Int. Pmt.
Due Date 8 5 1990 185,000.00 0.00 P
Pd # 1 2 21 1993 -------------- --------------
P = Period entry for Interest on Penalty Computation
PART 2
Starting Tax Interest Applied
Balance Paid Balance To Balance
Due Date 224,579.15 185,000.00 0.00 185,000.00
Pd # 1 39,579.15 0.00 9,247.59 0.00
PART 3
Interest Total Amount Interest
Drawing Int. Drawing Int. Factor Interest
Pd # 1 0.00 39,579.15 23.3648114 % 9,247.59
Total Interest Deduction 9,247.59
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