Question 1

What is a simple trust? A complex trust?

Accepted Answer

Under the rules of Subchapter J,a simple trust (1)must distribute it entire accounting income every year,(2)have no charitable beneficiaries,and (3)distribute no corpus.
A complex trust is one that is not a simple trust.The classification as simple or complex is made every year.

Question 2

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

Accepted Answer

A) Determine the date on which trust terminates. 
B) Modify the language of the trust instrument so as to lower the entity's Federal income tax. 
C) Pay the estate taxes of the grantor. 
D) Allocate items between income and corpus using Subchapter J rules. 
E) All of the above. 
A) Determine the date on which trust terminates. 
B) Modify the language of the trust instrument so as to lower the entity's Federal income tax. 
C) Pay the estate taxes of the grantor. 
D) Allocate items between income and corpus using Subchapter J rules. 
E) All of the above. A

Question 3

The entity is an information-reporting,not a tax-paying,taxpayer.

Accepted Answer

D

Question 4

Bob is one of the income beneficiaries of the LeMans Estate,which is subject to a 45% marginal Federal estate tax rate,a 30% 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 Violet LeMans (cash basis)at her death.Compute Bob's § 691(c)deduction for the current year,given the following financial data.

Accepted Answer

Net IRD = Income receivable (IRD)$120,00

Question 5

When DNI includes exempt interest income,the beneficiary includes less than the full amount of DNI in current-year gross income.

Accepted Answer

A) True 
 B)False

Question 6

The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is accumulated for a later distribution to the grandson,Subchapter J rules are ignored,and the income is taxed to the grantor.

Accepted Answer

A) True 
 B)False

Question 7

One-third of the Hermann Estate's distributable net income consists of qualifying dividends.Thus,when income beneficiary Susie receives a $30,000 income distribution from the estate,$10,000 of it qualifies for the 15% tax rate.

Accepted Answer

A) True 
 B)False

Question 8

The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

Accepted Answer

A) $600. 
B) $300. 
C) $100. 
D) $0. 
A) $600. 
B) $300. 
C) $100. 
D) $0.

Question 9

The Roz Trust has 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 $30,000 to Roger and $30,000 to Sally.After payment of these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $40,000 to Roger and $40,000 to Sally.How much income from the trust must Sally recognize?

Accepted Answer

A) $90,000. 
B) $60,000. 
C) $50,000. 
D) $40,000. 
A) $90,000. 
B) $60,000. 
C) $50,000. 
D) $40,000.

Question 10

The entity can choose between the cash and accrual methods of reporting its income and deductions.

Accepted Answer

The answer of The entity can choose between the cash...

Question 11

The Drabb Trust owns a plot of business-related land,basis of $50,000,fair market value of $38,000.Drabb is subject to a 28% marginal income tax rate.Its sole beneficiary,Eddie,is subject to a 15% marginal income tax rate.Drabb's current-year distributable net income is $95,000.What is the most preferable action for the trustee of Drabb to take,considering only the related tax consequences?

Accepted Answer

A) Sell the land to a third party. 
B) Distribute the land to Eddie and make no § 643(e) election. 
C) Distribute the land to Eddie and make a § 643(e) election. 
D) Neither sell nor distribute the land. 
A) Sell the land to a third party. 
B) Distribute the land to Eddie and make no § 643(e) election. 
C) Distribute the land to Eddie and make a § 643(e) election. 
D) Neither sell nor distribute the land.

Question 12

Jose is subject to the top marginal Federal income tax rates.Carlita is considering establishing a trust in which Jose would be an income beneficiary. Considering only income tax consequences,Jose should be designated as:

Accepted Answer

A) A first-tier beneficiary. 
B) A second-tier beneficiary. 
C) Only a remainder beneficiary. 
D) Both a first- and a second-tier beneficiary. 
A) A first-tier beneficiary. 
B) A second-tier beneficiary. 
C) Only a remainder beneficiary. 
D) Both a first- and a second-tier beneficiary.

Question 13

An estate claims an ordinary deduction for cost of sales.

Accepted Answer

A) True 
 B)False

Question 14

With respect to a timely filed Form 1041 for a trust based in Delaware,the IRS will accept:

Accepted Answer

A) Only paper returns. 
B) Only e-filed returns. 
C) Returns either on paper or in electronic form. 
D) Returns only at its Ogden, Utah office. 
A) Only paper returns. 
B) Only e-filed returns. 
C) Returns either on paper or in electronic form. 
D) Returns only at its Ogden, Utah office.

Question 15

Entity accounting income is determined by the SEC.

Accepted Answer

The answer of Entity accounting income is determined by the...

Question 16

A trust is required to distribute $60,000 annually,split equally between its two income beneficiaries,Amber 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 $20,000.Byron receives a $25,000 discretionary corpus distribution.
a.How much of the $30,000 distributed to Amber is included in her gross income?
b.How much of the $55,000 distributed to Byron is included in his gross income?
c.How much of these distributions are first-tier or second-tier?

Accepted Answer

a.$10,000,one-half of DNI.
b.$10,000.
c.

Question 17

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.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) Special allocations are not allowed under Subchapter J. 
B) Special allocations are allowed, but only in the trust's termination year. 
C) Special allocations are allowed, but only for portfolio income items. 
D) Special allocations of income types are allowed, assuming that they carry substantial economic effect. 
A) Special allocations are not allowed under Subchapter J. 
B) Special allocations are allowed, but only in the trust's termination year. 
C) Special allocations are allowed, but only for portfolio income items. 
D) Special allocations of income types are allowed, assuming that they carry substantial economic effect.

Question 19

The fiduciary entity pays tax on the income that it distributes to beneficiaries.

Accepted Answer

A) True 
 B)False

Question 20

When a trust incurs a net operating loss,the current-year deduction passes through to the income beneficiaries.

Accepted Answer

A) True 
 B)False

What is a simple trust? A complex trust?

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

The entity is an information-reporting,not a tax-paying,taxpayer.

When DNI includes exempt interest income,the beneficiary includes less than the full amount of DNI in current-year gross income.

The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is accumulated for a later distribution to the grandson,Subchapter J rules are ignored,and the income is taxed to the grantor.

One-third of the Hermann Estate's distributable net income consists of qualifying dividends.Thus,when income beneficiary Susie receives a $30,000 income distribution from the estate,$10,000 of it qualifies for the 15% tax rate.

The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

The entity can choose between the cash and accrual methods of reporting its income and deductions.

Jose is subject to the top marginal Federal income tax rates.Carlita is considering establishing a trust in which Jose would be an income beneficiary. Considering only income tax consequences,Jose should be designated as:

An estate claims an ordinary deduction for cost of sales.

With respect to a timely filed Form 1041 for a trust based in Delaware,the IRS will accept:

Entity accounting income is determined by the SEC.

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.

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

The fiduciary entity pays tax on the income that it distributes to beneficiaries.

When a trust incurs a net operating loss,the current-year deduction passes through to the income beneficiaries.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, operation, and Basis

Partnerships: Distributions, transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Filters

Exam 19: Income Taxation of Trusts and Estates

What is a simple trust? A complex trust?

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

The entity is an information-reporting,not a tax-paying,taxpayer.

When DNI includes exempt interest income,the beneficiary includes less than the full amount of DNI in current-year gross income.

The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is accumulated for a later distribution to the grandson,Subchapter J rules are ignored,and the income is taxed to the grantor.

One-third of the Hermann Estate's distributable net income consists of qualifying dividends.Thus,when income beneficiary Susie receives a $30,000 income distribution from the estate,$10,000 of it qualifies for the 15% tax rate.

The Jain Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

The entity can choose between the cash and accrual methods of reporting its income and deductions.

Jose is subject to the top marginal Federal income tax rates.Carlita is considering establishing a trust in which Jose would be an income beneficiary. Considering only income tax consequences,Jose should be designated as:

An estate claims an ordinary deduction for cost of sales.

With respect to a timely filed Form 1041 for a trust based in Delaware,the IRS will accept:

Entity accounting income is determined by the SEC.

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.

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

The fiduciary entity pays tax on the income that it distributes to beneficiaries.

When a trust incurs a net operating loss,the current-year deduction passes through to the income beneficiaries.

Understanding and Working With the Federal Tax Law

Corporations: Introduction and Operating Rules

Corporations: Special Situations

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, operation, and Basis

Partnerships: Distributions, transfer of Interests, and Terminations

S Corporations

Comparative Forms of Doing Business

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Filters