Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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
-A decedent created the entity.

Accepted Answer

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

Question 3

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?

Accepted Answer

A)  Entity taxable income. 
B)  Entity adjusted gross income. 
C)  Distributable net income. 
D)  Fiduciary accounting income. 
A)  Entity taxable income. 
B)  Entity adjusted gross income. 
C)  Distributable net income. 
D)  Fiduciary accounting income.

Question 4

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 5

The Willis Trust instrument provides that Tamara, the sole income beneficiary, is to receive $40,000 annually. If trust accounting income is not sufficient to pay this amount, the Willis trustee is empowered to invade corpus to the extent necessary. During the current year, the trust reports distributable net income (DNI) of $100,000, including $30,000 of net tax-exempt interest. In accordance with the trust instrument, $40,000 is paid to Tamara. What is Tamara's gross income from the Willis Trust for the current year?

Accepted Answer

A)  $100,000 
B)  $70,000 
C)  $40,000 
D)  $28,000 
A)  $100,000 
B)  $70,000 
C)  $40,000 
D)  $28,000

Question 6

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 must file an income tax return if its gross income for the year is $600 or more.

Accepted Answer

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

Question 7

The Uldis Trust has distributable net income (DNI) 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 Roger recognize?

Accepted Answer

A)  $10,000 
B)  $50,000 
C)  $75,000 
D)  $85,000 
A)  $10,000 
B)  $50,000 
C)  $75,000 
D)  $85,000

Question 8

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

Accepted Answer

A)  Modify the language of the trust instrument so as to lower the entity's Federal income tax. 
B)  Make decisions as to how to invest the trust corpus portfolio. 
C)  Allocate items between income and corpus using Subchapter J rules. 
D)  All of the above. 
A)  Modify the language of the trust instrument so as to lower the entity's Federal income tax. 
B)  Make decisions as to how to invest the trust corpus portfolio. 
C)  Allocate items between income and corpus using Subchapter J rules. 
D)  All of the above.

Question 9

Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S. state and local bonds.

Accepted Answer

A) True 
 B)False

Question 10

The Drabb Trust owns a plot of business-related land, basis of $50,000, fair market value of $35,000. Drabb is subject to a 35% marginal income tax rate. Its sole beneficiary, Eddie, is subject to a 12% 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)  Distribute the land to Eddie and make a § 643(e) election. 
B)  Distribute the land to Eddie and make no § 643(e) election. 
C)  Sell the land to a third party. 
D)  Neither sell nor distribute the land. 
A)  Distribute the land to Eddie and make a § 643(e) election. 
B)  Distribute the land to Eddie and make no § 643(e) election. 
C)  Sell the land to a third party. 
D)  Neither sell nor distribute the land.

Question 11

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 includes $10,000 of net tax-exempt income.

Accepted Answer

A) True 
 B)False

Question 12

An example of income in respect of a decedent is the taxpayer's last paycheck, uncollected at death.

Accepted Answer

A) True 
 B)False

Question 13

A complex trust pays tax on the income that it accumulates (i.e., that it does not distribute).

Accepted Answer

A) True 
 B)False

Question 14

List and discuss the three major functions of distributable net income (DNI) as that amount is used under Federal income tax law.

Accepted Answer

DNI determines the maximum amount that

Question 15

One-fourth of the Cruger Estate's distributable net income consists of net long-term capital gains. Thus, when income beneficiary Susie receives a $40,000 income distribution from the estate, $10,000 of it qualifies for the favorable Federal income tax rate.

Accepted Answer

A) True 
 B)False

Question 16

The Ellie Trust, a calendar-year entity, wants to make a gift to a charity that is deductible on its year 1 Form 1041. The gift must be made by Ellie:

Accepted Answer

A)  During year 1. 
B)  During year 1 or 2. 
C)  On or before April 15, year 2. 
D)  On or before September 30, year 2. 
A)  During year 1. 
B)  During year 1 or 2. 
C)  On or before April 15, year 2. 
D)  On or before September 30, year 2.

Question 17

A Form 1041 must be filed by a trust that has ________________$ or more gross income for the tax year.

Accepted Answer

The answer of A Form 1041 must be filed by...

Question 18

The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson, the deceased. How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

Accepted Answer

Income in respect of a decedent (IRD) ex

Question 19

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 a 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 a substantial economic effect.

Question 20

The Code defines a "simple trust" as which of the following?

Accepted Answer

A)  One which is allowed to file Form 1041-EZ. 
B)  One which has only one income beneficiary. 
C)  One whose grantor was an individual who still is alive. 
D)  One which must distribute its accounting income every year. 
A)  One which is allowed to file Form 1041-EZ. 
B)  One which has only one income beneficiary. 
C)  One whose grantor was an individual who still is alive. 
D)  One which must distribute its accounting income every year.

Exam 28: Income Taxation of Trusts and Estates

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

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 -A decedent created the entity.

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?

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 is a typical duty of a trustee?

Estates and trusts can claim Federal income tax deductions for costs incurred in maintaining investments in U.S. state and local bonds.

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 includes $10,000 of net tax-exempt income.

An example of income in respect of a decedent is the taxpayer's last paycheck, uncollected at death.

A complex trust pays tax on the income that it accumulates (i.e., that it does not distribute).

List and discuss the three major functions of distributable net income (DNI) as that amount is used under Federal income tax law.

One-fourth of the Cruger Estate's distributable net income consists of net long-term capital gains. Thus, when income beneficiary Susie receives a $40,000 income distribution from the estate, $10,000 of it qualifies for the favorable Federal income tax rate.

The Ellie Trust, a calendar-year entity, wants to make a gift to a charity that is deductible on its year 1 Form 1041. The gift must be made by Ellie:

A Form 1041 must be filed by a trust that has ________________$ or more gross income for the tax year.

The Gibson Estate is responsible for collecting outstanding income amounts and paying the remaining obligations of Juanita Gibson, the deceased. How does Federal income tax law treat these items? Hint: Define and use the term income in respect of a decedent in your answer.

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

The Code defines a "simple trust" as which of the following?

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

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