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Exam 20: Income Taxation of Trusts and Estates

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Question 71

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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 72

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Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements. How does one know whether a trust is "simple" or "complex?" When is this determination made?

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Under the rules of Subchapter J, a simpl...

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Question 73

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Generally, an administrative expense should be claimed on the decedent's estate tax return, because it is subject to a higher marginal tax bracket than is the estate's taxable income.

The Crown Trust distributed one-half of its accounting income to Lee this year. Lee also is allocated one-half of Crown's credit for building low-income housing.

The first step in computing an estate's taxable income is the determination of its gross income for the year.

Bob is one of the income beneficiaries of the LaQuanda Estate, which is subject to a 45% marginal Federal estate tax rate, a 35% 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 Lulu LaQuanda (cash basis) at her death. Compute Bob's § 691(c) deduction for the current year, given the following data.

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 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 Clark?

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

The Exeter Trust instrument provides that Tamara, the sole income beneficiary, is to receive $30,000 annually. If trust accounting income is not sufficient to pay this amount, the Exeter trustee is empowered to invade corpus to the extent necessary. During the current year, the trust has distributable net income (DNI) of $100,000, including $20,000 of tax-exempt interest. In accordance with the trust instrument, $30,000 is paid to Tamara. What is Tamara's gross income from Exeter for the current year?

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?

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 is computed net of the full $3,000 deduction for the fees.

Under the general rules of Subchapter J, whoever receives the ____________________ income of a trust or estate is the one who pays tax on it.

Trusts usually are required to use a calendar tax year

How is entity accounting income computed? What role does it play in Subchapter J?

This year, the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI) . Nano distributed $60,000 cash to Horatio, its sole income beneficiary. Nano is a simple trust. Nano's distribution deduction is:

Generally, capital gains are allocated to fiduciary income, because they relate to investment assets.

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

The deduction for the Goodman Trust's $100,000 gift to charity is ____________________ when one-fourth of Goodman's accounting income for the tax year is exempt interest income.

The Zhang Trust incurred the following items during the year. What is Zhang's deduction for the tax preparation fees?