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gift tax

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This problem is about the gift tax. An important provision is that each person can give $12,000 per year per donee free of gift tax. (It was $10,000 for years before 2002.) Mark & his wife owned all of the units (like shares of stock) in a limited liability company (LLC). Mark is the LLC manager (like president & CEO of a corporation), & the operating agreement (like bylaws of a corporation) allows the manger to determine distributions to the owners if there is LLC income, but losses are anticipated for several years. Also, the LLC members (owners) cannot sell their units or withdraw from the LLC without the managers permission. The manager can be replaced or the operating agreement changed only if 80% of the voting units agree.

Mark & his wife gave hundreds of units to their several children & children's spouses over 4 years, retaining for themselves a little less than 50% ownership. They claim the annual gift exclusion for all of these gifts. Is the annual exclusion allowed for these gifts? Why or why not? What is the court's reasoning? Explain.


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Problem and Facts
In a limited liability company, all the shares were owned by one Mark & his wife. This company had tree farming properties and the company was not expected to earn profits for several years. Every year Mark & his wife gifted units (shares) to each of their eight children and their spouses. They did this over a period of 4 years to the extent that they held less than 50% of the shares of the company.
The company had been formed with the intention to provide long term income to the holders of the units (shares). It had been anticipated that for several years this company would not make any profits and would not distribute any income.
For each of the 4 years, Mark & his wife claimed exemption on gift tax that allowed up to $10,000 exemption on gift tax. The company was governed by an Operating Agreement that vested far reaching ...

Solution Summary

This explanation provides you a comprehensive argument relating to gift tax