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Exam 20: Income Taxation of Trusts and Estates

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Question 71

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The Yellow Trust incurred $10,000 of portfolio income. Its corporate trustee paid fiduciary fees of $1,000 therefrom. Yellow's accounting income is distributed as follows. ∙ $5,000 to income beneficiary Larry ∙ $4,000 to pay part of the high school tuition bills for Carrie, the daughter of Yellow's grantor Marcia How much gross income does Marcia include with respect to these trust activities?

A) $0
B) $4,000
C) $9,000
D) $10,000

E) A) and C)
F) A) and B)

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Question 72

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The interest income of a trust usually is allocable to ____________________ (income, remainder) beneficiaries.

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Question 73

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The Willis Trust instrument provides that Tamara, the sole income beneficiary, is to receive $40,000 annually. If trust accounting income is not sufficient to pay this amount, the Willis trustee is empowered to invade corpus to the extent necessary. During the current year, the trust reports distributable net income (DNI) of $100,000, including $30,000 of net tax-exempt interest. In accordance with the trust instrument, $40,000 is paid to Tamara. What is Tamara's gross income from the Willis Trust for the current year?

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

An example of income in respect of a decedent is the taxpayer's last paycheck, uncollected at death.

The DaSinzi Estate has two equal income beneficiaries (Rollo and Luisa) and one remainder beneficiary (Coco). The estate operates a business and generates cost recovery deductions. Which taxpayer(s), if any, can deduct these items, e.g., the deceased, the estate, Rollo, Luisa, or Coco?

Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements. How does one know whether a trust is "simple" or "complex?" When is this determination made?

Dexter established a divorce trust to benefit his ex-wife Jena. The accounting income of the trust is distributed to Jena, in satisfaction of the year's alimony obligation. Under Subchapter J rules, ____________________, (Dexter, Jena) and not the trust, is taxed on the amount of the distribution.

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 (DNI) includes $9,000 for the interest income.

The unextended due date for a calendar-year trust to file its Form 1041 is March 15.

The Doyle Trust reports distributable net income for the year of $100,000 and no income from tax-exempt sources. Under the terms of the trust instrument, the trustee must distribute $20,000 to Roger and $20,000 to Sally. After paying these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the trustee distributes an additional $25,000 to Roger and $50,000 to Sally. How much gross income from the trust must Roger recognize?

Your client Ming is a complex trust that operates exclusively in the U.S. Make a list of five or more tax planning opportunities that you might suggest to Ming.

Under the Federal income tax rules for trusts and estates, a(n) ____________________ generally must use a calendar tax year, but a(n) ____________________ can select any tax year-end.

The distributable net income (DNI) of a fiduciary taxpayer:

The Julius Trust made a gift to the United Charity on August 1, Year Two, from its Year One business profits. The trust's charitable contribution deduction can be claimed in either Year One or Year Two.

Consider the term distributable net 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?

When a trust operates a trade or business, it can claim a deduction for wages paid to employees.

Every simple trust is allowed a $____________________ personal exemption.

A decedent's income in respect of a decedent is subject to the Federal income tax, but it is excluded from the estate tax.

For each of the following independent statements, choose the best answer. -The entity can choose between the cash and accrual methods of reporting its income and deductions.