Advance Federal Taxes and management Decision

Scenario

Scenario Summary

You are a practicing CPA at Gibbons, Johnson, & Tannun LLP. You recently received a new medium-sized client, ABI Inc., a construction company that builds and renovates office buildings. Since the tornado went through your town, ABI Inc., has had more projects than it can handle. ABI’s gross revenues for 20x2 were $12 million dollars, up from $150,000 in 20x1. Alex expects the revenues to grow by 30% for the next three years because cleanup of the devastating tornado will take that long. You prepared ABI’s taxes in March of this year and Alex Lee, owner of ABI Inc., has contacted you again for your advice. Jackson Lee, Alex’s oldest son, would like money to start a business and has said that this is a good avenue to avoid paying estate taxes after his father’s death. Alex’s wife died last year and he has not given any money to his children in the past.

Your Assignment

Alex Lee has contacted you for your advice regarding estate planning. His business has increased significantly this year, as has his personal wealth, and his three children (and eight grandchildren) all are asking him for money. Alex is looking for your guidance.

KEY PLAYERS

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Estate Taxes

Scenario

Role

Players

Deliverable

Scenario

You are a practicing CPA at Gibbons, Johnson & Tannun, LLP. You recently received a new medium-sized client, ABI, Inc., a construction company that builds and renovates office buildings. Since the tornado went through your town, ABI, Inc., has had more projects than they can handle. ABI's gross revenues for 20x2 were $12 million dollars, up from $150,000 in 20x1. Alex expects the revenues to grow by 30% for the next three years because cleanup of the devastating tornado will take that long. You prepared ABI's taxes in March of this year and Alex Lee, owner of ABI, Inc., has contacted you again for your advice. Jackson Lee, Alex's oldest son, would like money to start a business and has said that this is a good avenue to avoid paying estate taxes after his father's death. Alex's wife died last year and he has not given any money to his children in the past.

Role

Alex Lee has contacted you for your advice regarding estate planning. His business has increased significantly this year, as has his personal wealth and his 3 children (and 8 grandchildren) all are asking him for money. Alex is looking for your guidance.

Players

Jackson Lee

Construction Supervisor for ABI, Inc.

Alex Lee

Owner of ABI, Inc.

Deliverable

Given the scenario, your role and the information provided by the key players involved, it is time for you to make a decision.

YOU DECIDE

Activity or Assignment

 

 

In a 1,000- to 1,500-word memo to Alex Lee, explain the following in terms he will understand:

· Explain the elements of the estate tax formula.

· Describe the interplay between gift and estate taxes.

· Describe strategies to minimize estate taxes.

· Explain the generation-skipping transfer tax and its relationship to gift and estate taxes.

Give Alex advice on whether he should give his son, Jackson, money to start a business.