Question 1

Corpus, principal, and assets of the trust are synonyms.

Accepted Answer

A) True 
 B)False  True

Question 2

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.

Accepted Answer

A) True 
 B)False  True

Question 3

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.

Accepted Answer

A) True 
 B)False  False

Question 4

Beneficiary information concerning a trust's income and distributions are conveyed on Schedule____________________ of the Form 1041.

Accepted Answer

The answer of Beneficiary information concerning a trust's income and...

Question 5

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:

Accepted Answer

A)  $60,000. 
B)  $50,000. 
C)  $40,000. 
D)  $0. 
A)  $60,000. 
B)  $50,000. 
C)  $40,000. 
D)  $0.

Question 6

List at least three non-tax reasons that you might suggest to your client Connie that she should consider shifting some income and assets to a trust.

Accepted Answer

Trusts often are used to shift managemen

Question 7

A fiduciary's distribution deduction shifts the tax burden for the distributed amount of current-year income from the entity to the beneficiary.

Accepted Answer

A) True 
 B)False

Question 8

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.
   
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?

Accepted Answer

The answer of The trustee of the Miguel Trust can...

Question 9

The present value of a trust's Federal income tax liability is reduced when:

Accepted Answer

A)  The entity is classified as a simple trust. 
B)  The trust invests in high-yield stocks. 
C)  The trust invests in growth stocks. 
D)  The trust collects income in respect of a decedent. 
A)  The entity is classified as a simple trust. 
B)  The trust invests in high-yield stocks. 
C)  The trust invests in growth stocks. 
D)  The trust collects income in respect of a decedent.

Question 10

For each of the following independent statements, choose the best answer.
a. Tax attribute of complex trusts only 
b. Tax attribute of estates only
c. Tax attribute of estates and complex trusts
d. Tax attribute of neither estates nor complex trusts
-The entity can choose between the cash and accrual methods of reporting its income and deductions.

Accepted Answer

The answer of For each of the following independent statements,...

Question 11

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?

Accepted Answer

A)  Assuming that the trustee made an election under § 643(e), the trust is allowed a $10,000 distribution deduction for this transaction. 
B)  Assuming that the trustee made an election under § 643(e), Telly recognizes $10,000 gross income on the distribution. 
C)  Lacking any election by the trustee, the trust recognizes $15,000 gross income on the distribution. 
D)  Lacking any election by the trustee, Telly's basis in the asset is $10,000. 
E)  Lacking any election by the trustee, Telly's basis in the asset is stepped up to $25,000. 
A)  Assuming that the trustee made an election under § 643(e), the trust is allowed a $10,000 distribution deduction for this transaction. 
B)  Assuming that the trustee made an election under § 643(e), Telly recognizes $10,000 gross income on the distribution. 
C)  Lacking any election by the trustee, the trust recognizes $15,000 gross income on the distribution. 
D)  Lacking any election by the trustee, Telly's basis in the asset is $10,000. 
E)  Lacking any election by the trustee, Telly's basis in the asset is stepped up to $25,000.

Question 12

A trust holds assets that will generate net investment income (NII) and trigger the additional Medicare taxes. The trustee should:

Accepted Answer

A)  Distribute all of the NII to trust beneficiaries. 
B)  Retain all of the NII every tax year. 
C)  Increase the turnover rate of the investments that the entity holds. 
D)  Sell the NII assets and invest in high-yield bonds instead. 
A)  Distribute all of the NII to trust beneficiaries. 
B)  Retain all of the NII every tax year. 
C)  Increase the turnover rate of the investments that the entity holds. 
D)  Sell the NII assets and invest in high-yield bonds instead.

Question 13

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

Accepted Answer

An estate of a decedent is created eithe

Question 14

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.

Accepted Answer

The Raja Trust's cost recovery deduction

Question 15

A ________________ (first, second, third) -tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary.

Accepted Answer

The answer of A ________________ (first, second, third) -tier distribution...

Question 16

For each of the following items, insert the best term or phrase. An answer choice may be used more than once, but only one choice is the best for each descriptive phrase.
a. Complex 
b. Decedent 
c. Executor 
d. Grantor
e. Administrator 
f. Reversionary 
g. Simple
h. Sprinkling 
i. Trustee
-A synonym for executor.

Accepted Answer

The answer of For each of the following items, insert...

Question 17

Three weeks after Abed died, his brother Tony properly received Abed's last paycheck from his employer. The gross amount of the check was $4,000, and a $300 deduction for state income taxes was subtracted in computing the net amount of the payment. Which of the following statements is true?

Accepted Answer

A)  The $300 is deductible on neither Tony's income tax return nor on Abed's estate tax return. 
B)  The $300 is deductible both on Tony's income tax return and on Abed's estate tax return. 
C)  The $300 is deductible only in computing Abed's taxable estate. 
D)  The $300 is deductible only on the income tax return of Abed's estate. 
A)  The $300 is deductible on neither Tony's income tax return nor on Abed's estate tax return. 
B)  The $300 is deductible both on Tony's income tax return and on Abed's estate tax return. 
C)  The $300 is deductible only in computing Abed's taxable estate. 
D)  The $300 is deductible only on the income tax return of Abed's estate.

Question 18

The Uldis 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 $75,000 to Roger and $75,000 to Sally. After paying these amounts, the trustee is empowered to make additional distributions at its discretion. Exercising this authority, the Uldis trustee distributes an additional $10,000 to Roger and $30,000 to Sally. How much gross income from the trust must Sally recognize?

Accepted Answer

A)  $30,000 
B)  $50,000 
C)  $100,000 
D)  $105,000 
A)  $30,000 
B)  $50,000 
C)  $100,000 
D)  $105,000

Question 19

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 $30,000. Harry's AGI can increase by as much as $40,000.

Accepted Answer

A) True 
 B)False

Question 20

The Griffin Trust makes a gift of long-term capital gain property to a qualifying charity. Griffin's entity-level deduction cannot exceed 30% of distributable net income.

Accepted Answer

A) True 
 B)False

Exam 28: Income Taxation of Trusts and Estates

Corpus, principal, and assets of the trust are synonyms.

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.

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.

Beneficiary information concerning a trust's income and distributions are conveyed on Schedule____________________ of the Form 1041.

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:

List at least three non-tax reasons that you might suggest to your client Connie that she should consider shifting some income and assets to a trust.

A fiduciary's distribution deduction shifts the tax burden for the distributed amount of current-year income from the entity to the beneficiary.

The present value of a trust's Federal income tax liability is reduced when:

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?

A trust holds assets that will generate net investment income (NII) and trigger the additional Medicare taxes. The trustee should:

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

A ________________ (first, second, third) -tier distribution is one that the trust agreement requires to be made by the trustee to the income beneficiary.

Three weeks after Abed died, his brother Tony properly received Abed's last paycheck from his employer. The gross amount of the check was $4,000, and a $300 deduction for state income taxes was subtracted in computing the net amount of the payment. Which of the following statements is true?

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 $30,000. Harry's AGI can increase by as much as $40,000.

The Griffin Trust makes a gift of long-term capital gain property to a qualifying charity. Griffin's entity-level deduction cannot exceed 30% of distributable net income.

An Introduction to Taxation and Understanding the Federal Tax Law

Working with the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: In General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Filters