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Exam 28: Income Taxation of Trusts and Estates

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Question 41

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Trusts can select any fiscal Federal income tax year.

A) True
B) False

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Question 42

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There are several business tax credits that the Yeoman Trust has generated for this tax year. Which taxpayer(s), if any, can use these credits in computing a Federal income tax liability? Explain.

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A simple trust does not claim any tax cr...

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Question 43

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The Circle Trust has some exempt interest income for the year. How does this investment income affect Circle's deduction of its fiduciary fees? Charitable contributions?

Explain how the Federal income tax law applies to a fiduciary entity like a trust. Is the tax structure similar to that of an individual? A partnership?

Sixty percent of the income received by the Atom Trust this year constituted municipal bond interest.Atom's trustee also made a $100,000 gift to the United Fund, a qualifying charity.The charitable deduction associated with this gift is limited to $60,000.

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

In computing the Federal taxable income of a trust, a modified ____________________ approach is used. or

Beginning with its ____________________ tax year, an estate must remit quarterly Federal estimated income tax payments. or

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?

One-fourth of the Cruger Estate's distributable net income consists of net long-term capital gains.Thus, when income beneficiary Susie receives a $40,000 income distribution from the estate, $10,000 of it qualifies for the 15% tax rate.

A trust might be used by one running for a political office.

A realized loss is recognized by a trust when it distributes a non-cash asset.

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 has 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 Figure 28.3 in the text to address the following items.

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 $50,000.

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 Exeter for the current year?

The Whitmer Trust operates a manufacturing business and distributes the profits to its income beneficiaries. Whitmer passes through to the income beneficiaries the data needed to compute their domestic production activities deduction.

Which of the following is a typical duty of an executor?

A gift to charity from its 2012 income is deductible on an estate's Form 1041 if it is made by the end of the ____________________ tax year.

The Bard Estate incurs a $25,000 fee in disposing of the real property of the decedent. The deduction is claimed against the Federal estate tax, unless by election it is claimed on the estate's income tax return.

Tax planning usually dictates that high-income and -wealth individuals be specified as first-tier beneficiaries of a trust arrangement.