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Exam 28: Income Taxation of Trusts and Estates

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Question 61

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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?

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Distributable net income for any taxable...

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Question 62

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

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Question 63

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Like a corporation, the fiduciary reports and pays its own Federal income tax liability.

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

Under the Federal income tax rules for fiduciary entities, a(n) ____________________ generally must use a calendar tax year, but a(n) ____________________can select any tax year-end.

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

The Suarez Trust generated distributable net income (DNI) this year of $150,000, one-third of which was portfolio income, and the balance of which was exempt interest.Under the terms of the trust, Clara Suarez is to receive an annual income distribution of $30,000.At the discretion of the trustee, additional distributions can be made to Clara or to Clark Suarez III.This year, the trustee's distributions to Clara totaled $90,000.Clark also received $90,000.How much of the trust's DNI is assigned to Clara?

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 corpus), 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.

The Gibson Estate is responsible for the income in respect of a decedent (IRD) of Juanita Gibson, the deceased. Define the term IRD and describe its treatment for Federal tax purposes

The trust instrument indicates whether cost recovery is ____________________ to fiduciary accounting income, thereby reducing the amount of the distribution to the income beneficiary.

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?

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.

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:

An estate's income beneficiary generally must wait until the entity is terminated by the executor to receive any distribution of income.

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.

The Raja Trust operates a welding business.Its current-year cost recovery deductions properly amount to $75,000.Raja's accounting income was $100,000, of which $40,000 was distributed to first-tier beneficiary Chuck, $25,000 was distributed to second-tier beneficiary Ruby, and $35,000 was accumulated by the trustee.Ruby also received a $25,000 discretionary corpus distribution.Raja's DNI was $80,000.Identify the treatment of Raja's cost recovery deductions.

If provided for in the controlling agreement, a trust might terminate when the income beneficiary reaches age 35.

The Yan Estate is your client, as are many of the decedent's family members. Determine the tax effects of the indicated losses for the Yan Estate for both tax years.The estate holds a variety of investment assets, which it received from the decedent, Mrs.Yan.The estate's sole income and remainder beneficiary is Yan, Jr.

The Gomez Trust is required to distribute $80,000 annually, split equally between its two income beneficiaries, Lara 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 $60,000.Byron receives an additional $30,000 discretionary corpus distribution.

The exempt interest income of a trust usually is allocable to ____________________ beneficiaries.