Question

1. Jim gave Betsy, his daughter, $1,200,000 on 1/1/20XX, which she used as a cash contribution to become a member of BJS, LLC. Calculate the gift tax, if any that Jim would need to pay for the current tax year.

2. Alternatively, assume a note was signed by Betsy stating that the $1,200,000 given to her by her father would be returned to him in 5 years. Calculate the gift tax, if any, in this case along with the interest element that Jim will have to include in his income for the current tax year.

Answer 1

1. As per IRS(Internal Revenue Service) there is Life time Gift tax exclusion for parents giving to children.

In the given case the amount of $1.2million is below the Life time Gift Tax exclusion limit. Jim may opt for this and get relief from tax amount.

(OR)

As per IRS there is Annual Exemption limit of $15,000. So he may pay tax on balance $11,85,000 by filing FORM 709. rates varing between 18% and 40%

2. If Besty is goint to return the Amount in 5 years, there is no concept of gift tax except if the amount is given for interest free. If the loan is given for interest free then the interest amount can be treated as Gift and tax can be imposed on it as gift tax if the interest fall above $15,000.If the interest falls under $15,000 per annum there will be no gift tax.

If the amount is lent for Interest , then Jim should show the interest as his income from finance and return the file

If the amount was not returned by Besty in 5 years , then it would be treated as Gift and all implication in point number (1) will apply