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Exam 20: Income Taxation of Trusts and Estates

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Question 1

True/False

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The Malik Estate operates a manufacturing business. Malik made no income distributions this year. It can claim the full deduction for the MACRS depreciation of the assets of the business.

A) True
B) False

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Question 2

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The grantor of a trust generally designates both ____________________ and ____________________ beneficiaries under the controlling agreement.

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income, remainder remainder, income

Question 3

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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.

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 taxpayers) e.g., the deceased, the estate, Rollo, Luisa, or Coco) if any, can deduct these items?

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 trustee of the Miguel Trust can distribute any amount of accounting income and corpus to the trust's income beneficiaries, Paula and George. This year, the trust incurred the following: Tax able interest income $\$ 40,000$ $\begin{array}{lc}\text { Tax-exempt interest income } & 20,000 \\\text { Long-term capital gains-allocable to corpus } & 10,000 \\\text { Fiduciary's fees-allocable to corpus } & 6,000\end{array}$ The trustee distributed $40,000 to Paula and $40,000 to George. a. What is Miguel's trust accounting income? b. What is Miguel's DNI? c. What is Miguel's taxable income? d. How much gross income is recognized by each of the beneficiaries?

The Whitmer Trust operates a manufacturing business and distributes the profits to its income beneficiaries. Whitmer also passes through to the income beneficiaries the data needed to compute their deduction for qualified business income.

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 increases by $40,000.

Generally, an administrative expense attributable to municipal bond interest should be claimed on the estate's Form 706.

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

Reyes contributed assets to a trust and designated daughter Maria as the income beneficiary and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee accumulated $5,000 of this amount and added it to trust corpus. Reyes pays Federal income tax on $5,000 for the year.

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

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 beneficial Federal income tax rate on long-term capital gains.

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 Cai Trust is a calendar year taxpayer. Its Form 1041 is due on which date in the following year?

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?

For each of the following independent statements, choose the best answer. -The entity was created by either a decedent or a living person.

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?

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

Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S. state and local bonds.