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Exam 20: Income Taxation of Trusts and Estates

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Question 61

Multiple Choice

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The Williamson Estate generated distributable net income (DNI) this year of $120,000, one-third of which was tax-exempt interest, and the balance of which was long-term capital gain. Muffy Williamson, the sole income beneficiary of the estate, received a distribution of the entire $150,000 accounting income of the entity. How is this distribution accounted for by Muffy?

A) $150,000 ordinary income.
B) $120,000 ordinary income.
C) $80,000 long-term capital gain, $40,000 exempt interest.
D) $100,000 long-term capital gain, $50,000 exempt interest.

E) C) and D)
F) A) and D)

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Question 62

True/False

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

A) True
B) False

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Question 63

Multiple Choice

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Which of the following is the annual maximum amount to be included as gross income by all of the income beneficiaries of the trust or estate?

By____________________ various items to entity accounting income, the will or trust determines the size of the distribution to the income 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?

When a fiduciary distributes to a beneficiary a non-cash asset, how is the realized gain or loss treated?

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

Identify the parties that are present when an estate is created, and their key duties. Then do the same for a trust.

Generally, an estate's taxable income is computed in a manner similar to that used for a(n) ____________________.

A fiduciary's ____________________ deductions are assigned corresponding to the disposition of entity accounting income for the year.

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?

Three weeks after Tina died, her brother Tony properly received Tina's last paycheck from her employer. The gross amount of the check was $4,000, and a $700 deduction for state income taxes was subtracted in computing the net amount of the payment. Which of the following statements is true?

Income is taxed to the creator of a(n) ____________________ trust, instead of to the entity.

An estate has $100,000 DNI, composed of $50,000 dividends, $20,000 taxable interest, $10,000 passive income, and $20,000 tax-exempt interest. The trust's two noncharitable income beneficiaries, Shanna and Tom, receive distributions of $75,000 each. How much of each class of income is deemed to have been distributed to Shanna? To Tom? Use the following template to structure your answer.

When the Holloway Trust terminated this year, it held a $1 million NOL carryforward. How is the loss carryforward treated? Does it expire with the trust or can another taxpayer use it? Be specific.

A complex trust pays tax on the income that it retains and adds to corpus.

The Raven Trust was terminated this year and David, the beneficiary of the corpus, received all of the trust assets. The trust had a $10,000 net operating loss; this was the only tax year in which the trust operated a business. The entity has one income beneficiary, Flo. As a result of these transactions:

A gift to charity from its 2011 income is deductible on an estate's Form 1041 if it is made by the end of the ____________________ tax year.

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.

Is a trust subject to the alternative minimum tax? Or does the trust "pass through" AMT items to its grantor and beneficiaries?