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Exam 28: Income Taxation of Trusts and Estates

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Question 71

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The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson,the deceased.How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

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Income in respect of a decedent (IRD) ex...

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Question 72

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The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income includes $10,000 for the interest income.

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B) False

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Question 73

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The present value of a trust's Federal income tax liability is reduced when:

Ellie Inc.,a calendar-year C corporation,wants to make a gift to a charity that is deductible on its year 1 Form 1120.The gift must be made by Ellie:

The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income includes $10,000 of net tax-exempt income.

The Whitmer Trust operates a manufacturing business.When Whitmer incurs a net operating loss,the current-year deduction passes through to the income beneficiaries.

Beneficiary information concerning a trust's income and distributions are conveyed on Schedule ____________________ of the Form 1041.

This year,the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI) .Nano distributed $60,000 cash to Horatio,its sole income beneficiary.Nano is a simple trust.Nano's distribution deduction is:

For each of the following independent statements, choose the best answer. a.Tax attribute of complex trusts only b.Tax attribute of estates only c.Tax attribute of estates and complex trusts d.Tax attribute of neither estates nor complex trusts -The entity's management generally is directed by the controlling document as to the date of the entity's termination.

Counsell is a simple trust that correctly uses the calendar year for tax purposes.Its income beneficiaries (Kathie,Lynn,Mark,and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each.For the current calendar year,the trust incurs ordinary business income of $40,000,a long-term capital gain of $20,000 (allocable to income),and a trustee commission expense of $4,000 (allocable to corpus).Use the format of Exhibit 20.5 in the text to address the following items. a.How much income is each beneficiary entitled to receive? b.What is the trust's DNI? c.What is the trust's taxable income? d.How much is taxed to each of the beneficiaries?

The trustee of the Epsilon Trust distributed an asset to Telly,a qualifying income beneficiary.The asset's basis to the trust was $10,000,and its fair market value on the distribution date was $25,000.Which of the following statements is true?

An estate's remainder beneficiary generally must wait until the entity is terminated by the executor to receive any distributions.

The Suarez Trust generated distributable net income (DNI) this year of $150,000,two-thirds of which was portfolio income,and the balance of which was exempt interest.Under the terms of the trust,Clara Suarez is to receive an annual income distribution of $30,000.At the discretion of the trustee,additional distributions can be made to Clara or to Clark Suarez III.This year,the trustee's distributions to Clara totaled $60,000.Clark received $90,000.How much of the trust's DNI is assigned to Clara?

List and discuss the three major functions of distributable net income (DNI) as that amount is used under Federal income tax law.

Which of the following taxpayers can be subject to an entity-level Federal income tax?

Consider the term fiduciary accounting income as it is used with respect to the Federal income taxation of trusts and estates.How is this amount computed? Where is it used in computing the parties' taxable incomes?

The Drabb Trust owns a plot of business-related land,basis of $50,000,fair market value of $35,000.Drabb is subject to a 35% marginal income tax rate.Its sole beneficiary,Eddie,is subject to a 15% marginal income tax rate.Drabb's current-year distributable net income is $95,000.What is the most preferable action for the trustee of Drabb to take,considering only the related tax consequences?

During the current year,the Santo Trust received $30,000 of taxable interest income,paid trustee's commissions of $3,000,and had no other income or expenses.The Santo trust instrument requires that $20,000 be paid annually to Marilyn,and $40,000 be paid annually to Domingo.How much gross income must Marilyn and Domingo recognize?

You are responsible for the Federal income tax filings of the Tyrone Trust.Summarize the relevant due dates and filing requirements for Tyrone.

A ____________________ (first,second,third) -tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary.