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Exam 19: Income Taxation of Trusts and Estates

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Question 1

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The entity is an information-reporting,not a tax-paying,taxpayer.

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D

Question 2

Multiple Choice

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Jose is subject to the top marginal Federal income tax rates.Carlita is considering establishing a trust in which Jose would be an income beneficiary. Considering only income tax consequences,Jose should be designated as:

A) A first-tier beneficiary.
B) A second-tier beneficiary.
C) Only a remainder beneficiary.
D) Both a first- and a second-tier beneficiary.

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

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Question 3

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The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is accumulated for a later distribution to the grandson,Subchapter J rules are ignored,and the income is taxed to the grantor.

The Drabb Trust owns a plot of business-related land,basis of $50,000,fair market value of $38,000.Drabb is subject to a 28% 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?

An estate claims an ordinary deduction for cost of sales.

The Roz Trust has 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 $30,000 to Roger and $30,000 to Sally.After payment of these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $40,000 to Roger and $40,000 to Sally.How much income from the trust must Sally recognize?

Bob is one of the income beneficiaries of the LeMans Estate,which is subject to a 45% marginal Federal estate tax rate,a 30% marginal Federal income tax rate,and a 5% marginal state income tax rate.This year,Bob received all of the sales commissions that were earned and payable to Violet LeMans (cash basis)at her death.Compute Bob's § 691(c)deduction for the current year,given the following financial data.

The entity can choose between the cash and accrual methods of reporting its income and deductions.

Which of the following is a typical duty of a trustee?

When a trust incurs a net operating loss,the current-year deduction passes through to the income beneficiaries.

The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

Which of the following restrictions applies concerning distributions to trust beneficiaries?

Harry,the sole income beneficiary,received a $40,000 distribution from the Lucy Trust,in a year when the trust's distributable net income was $50,000.Harry's AGI can increase by as much as $40,000.

One-third of the Hermann Estate's distributable net income consists of qualifying dividends.Thus,when income beneficiary Susie receives a $30,000 income distribution from the estate,$10,000 of it qualifies for the 15% tax rate.

A trust is required to distribute $60,000 annually,split equally between its two income beneficiaries,Amber and Byron.If trust income is not sufficient to pay these amounts,the trustee can invade corpus to the extent necessary.During the current year,the trust has DNI of $20,000.Byron receives a $25,000 discretionary corpus distribution. a.How much of the $30,000 distributed to Amber is included in her gross income? b.How much of the $55,000 distributed to Byron is included in his gross income? c.How much of these distributions are first-tier or second-tier?

Entity accounting income is determined by the SEC.

What is a simple trust? A complex trust?

When DNI includes exempt interest income,the beneficiary includes less than the full amount of DNI in current-year gross income.

With respect to a timely filed Form 1041 for a trust based in Delaware,the IRS will accept:

The fiduciary entity pays tax on the income that it distributes to beneficiaries.