Tax Advice

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 20×2 were $12 million dollars, up from $150,000 in 20×1. 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.
Estate Taxes
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 20×2 were $12 million dollars, up from $150,000 in 20×1. 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.
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.

Key Players
Jackson Lee
Construction Supervisor for ABI, Inc.
I don’t want to pay estate taxes on my father’s estate after he dies, so I would like my dad to give me $3 million right now to start a company that makes custom cabinets. This is my life-long dream.

Alex Lee
Owner of ABI, Inc.
I’m concerned about giving my son $3 million since Jackson has felony drug charges pending against him.

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