Question 1

Panther Trust has net accounting income and distributable net income of $100,000, $75,000 from taxable sources and $25,000 from tax- exempt sources. During the year, the trust makes a mandatory distribution to Julius and Steve of $50,000 each. The distribution deduction is

Accepted Answer

A)  $50,000. 
B)  $75,000. 
C)  $25,000. 
D)  $100,000.

Question 2

An inter vivos trust may be created by all of the following except

Accepted Answer

A)  a trustor. 
B)  a grantor. 
C)  a transferor. 
D)  an executor.

Question 3

A trust receives no standard deduction when computing taxable income.

Accepted Answer

A) True 
 B)False

Question 4

The distribution deduction for a complex trust is the lesser of the amount distributed or distributable net income, reduced by net tax- exempt income.

Accepted Answer

A) True 
 B)False

Question 5

A trust has net accounting income of $30,000, but distributable net income (DNI) of only $25,000 because certain expenses are charged to principal. The trust is required to distribute $10,000 to Alice and it makes a discretionary distribution of $20,000 to Ben. The trust has no tax- exempt income. The amount that Ben reports as gross income is

Accepted Answer

A)  $20,000. 
B)  $15,000. 
C)  $16,667. 
D)  none of the above

Question 6

A trust has net accounting income and distributable net income (DNI) of $60,000, all from taxable sources. The trustee is required to distribute $40,000 of current income to Harry. In addition, the trustee makes a discretionary distribution to Harry of $10,000 and a discretionary distribution to Susan of $30,000. $20,000 of the $40,000 total discretionary distributions is from corpus. Gross income reportable by Harry is

Accepted Answer

A)  $30,000. 
B)  $45,000. 
C)  $37,500. 
D)  $50,000.

Question 7

This year, the Huang Trust received $20,000 of dividends and $30,000 of tax- free interest. It distributes all of its receipts to its beneficiary. How should the beneficiary treat the distribution?

Accepted Answer

The answer of This year, the Huang Trust received $20,000...

Question 8

A trust has net accounting income of $15,000. In addition, the trust has a $10,000 capital gain, which is not included in net accounting income. The trust is required to distribute the trust income to the beneficiary. The beneficiary will receive

Accepted Answer

A)  $25,000. 
B)  $15,000. 
C)  $24,700. 
D)  $10,000.

Question 9

Identify which of the following statements is true.

Accepted Answer

A)  Bequests of specific sums of money when distributed out of an estate result in the recognition of gross income by the beneficiary receiving the bequest. 
B)  Tier- 2 beneficiaries potentially can receive more favorable tax treatment than tier- 1 beneficiaries. 
C)  An individual cannot be both a tier- 1 and tier- 2 beneficiary in the same year. 
D)  All of the above are false.

Question 10

Explain to a client the significance of the income and principal categorization scheme used for fiduciary accounting purposes.

Accepted Answer

The answer of Explain to a client the significance of...

Question 11

A trust has distributable net income (DNI) of $50,000, including $30,000 tax- exempt interest income and $20,000 taxable interest income. The trust instrument requires that all income be distributed at least annually, 30% to Jane and 70% to Joe. What is the amount and character of the income that Jane receives?

Accepted Answer

The answer of A trust has distributable net income (DNI)...

Question 12

A trust must distribute all of its income annually. Capital gains are allocated to principal. The trust has dividend income of $12,000, capital gains of $6,000, and no expenses. Calculate the trust's taxable income.

Accepted Answer

The answer of A trust must distribute all of its...

Question 13

Describe the tier system for trust beneficiaries.

Accepted Answer

The answer of Describe the tier system for trust beneficiaries....

Question 14

Identify which of the following statements is true.

Accepted Answer

A)  Income received by a trust beneficiary has the same character it had at the trust level. 
B)  The personal exemption available to a trust is adjusted annually based on changes in the consumer price index. 
C)  Distributable net income (DNI) excludes tax- exempt income. 
D)  All of the above are false.

Question 15

Income in respect of a decedent (IRD) includes interest earned by a cash- basis taxpayer but not received by the taxpayer before death.

Accepted Answer

A) True 
 B)False

Question 16

Identify which of the following statements is false.

Accepted Answer

A)  Trust tax preparation fees are miscellaneous itemized deductions and subject to the 2% nondeductible floor. 
B)  A trust receives no standard deduction when computing taxable income. 
C)  There is no limit on a fiduciary's charitable contribution deduction if such a contribution is authorized in the trust instrument. 
D)  All of the above are false.

Question 17

Identify which of the following statements is true.

Accepted Answer

A)  Distributable net income (DNI) is not reduced by the charitable contribution deduction when calculating the deductible discretionary distributions for a complex trust. 
B)  In a complex trust, distributable net income (DNI) does not act as a ceiling on the amount of the distribution deduction. 
C)  In a complex trust, distributable net income (DNI) is not reduced by the charitable contribution deduction when comparing DNI with the mandatory distributions in order to determine the amount of the distribution deduction. 
D)  All of the above are false.

Question 18

Beneficiaries of a trust may receive

Accepted Answer

A)  a remainder interest only. 
B)  an income interest only. 
C)  both an income and a remainder interest. 
D)  Any of the above is correct.

Question 19

Which of the following statements regarding the taxation of a trust is incorrect?

Accepted Answer

A)  Trusts are generally not taxed at favorable rates for income shifting. 
B)  A trust's long- term capital gains are taxed at a top rate of 15%. 
C)  Trusts are not subject to double taxation. 
D)  An irrevocable trust's income is taxed to the grantor.

Question 20

A trust document does not define income and principal. The state in which the trust is operated has adopted the Uniform Act. The trust reports the following: $\begin{array}{lr}
\text { Dividends } & \$ 2,500 \
\text { Capital gain } & 1,500 \
\text { Tax return preparation fee } & 200 \
\text { Trustee fees, all charged to income } & 100
\end{array}$ What is the amount of trust's net accounting income?

Accepted Answer

The answer of A trust document does not define income...

Exam 14: Income Taxation of Trusts and Estates

Panther Trust has net accounting income and distributable net income of $100,000, $75,000 from taxable sources and $25,000 from tax- exempt sources. During the year, the trust makes a mandatory distribution to Julius and Steve of $50,000 each. The distribution deduction is

An inter vivos trust may be created by all of the following except

A trust receives no standard deduction when computing taxable income.

The distribution deduction for a complex trust is the lesser of the amount distributed or distributable net income, reduced by net tax- exempt income.

This year, the Huang Trust received $20,000 of dividends and $30,000 of tax- free interest. It distributes all of its receipts to its beneficiary. How should the beneficiary treat the distribution?

A trust has net accounting income of $15,000. In addition, the trust has a $10,000 capital gain, which is not included in net accounting income. The trust is required to distribute the trust income to the beneficiary. The beneficiary will receive

Identify which of the following statements is true.

Explain to a client the significance of the income and principal categorization scheme used for fiduciary accounting purposes.

A trust must distribute all of its income annually. Capital gains are allocated to principal. The trust has dividend income of $12,000, capital gains of $6,000, and no expenses. Calculate the trust's taxable income.

Describe the tier system for trust beneficiaries.

Identify which of the following statements is true.

Income in respect of a decedent (IRD) includes interest earned by a cash- basis taxpayer but not received by the taxpayer before death.

Identify which of the following statements is false.

Identify which of the following statements is true.

Beneficiaries of a trust may receive

Which of the following statements regarding the taxation of a trust is incorrect?