1.Kevin sells his business to his youngest son, Ernie, as a "bargain sale." The FMV of the business is $1 million, but Ernie purchased it for only $500,000. Kevin's cost basis in the business is $400,000. Which of the following are TRUE?
I. This transaction will be considered as part gift and part sale.
II. Kevin has a taxable gain of $100,000.
III. Kevin has given a $500,000 taxable gift.
IV. Kevin has effectively removed the business from his estate.
A) I and IV only
B) II and III only
C) I, II and IV only
D) I, II, III and IV
2. Which of the following business transfer techniques involves the sale of a business between family members where the seller agrees to rent the property back from the new owner to continue the business operations?
A) Private annuity
B) Sale leaseback
C) Business buy-sell agreement
D) Grantor retained annuity trust
3. Which of the following best describes the significant difference between a private annuity and a self-canceling installment note (SCIN)?
A) Unsecured promise versus secured promise
B) Not canceled at death versus canceled at death
C) Payments from buyer to seller versus no payments
D) Asset included in estate versus asset removed from estate
4. Which of the following is/are attractive benefits to a business owner to encourage setting up a buy-sell agreement?
(1) Business liquidity at death
(2) Business removed from estate at agreement signing
(3) Probate avoidance
(4) Business owners can decide whom they wish to continue the business
(5) Heirs will have several available buyers for the business at owner's death
A) 1 and 3 only
B) 1, 3 and 4 only
C) 2, 3 and 5 only
D) 1, 2 and 4 only
5. Intra-family loans are an effective tool to aid in the transfer of business interests between family members for all of the following reasons EXCEPT:
A) Loans can be given at low rates equivalent to federal rates.
B) Younger family members can get loans that they may not normally qualify for.
C) Interest does not have to paid to the senior family member holding the loan.
D) Business interest is removed from the estate of the owner.
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