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Exam 28: Income Taxation of Trusts and Estates

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Question 21

True/False

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

A) True
B) False

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Question 22

Multiple Choice

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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:

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

E) A) and D)
F) A) and C)

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Question 23

Multiple Choice

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Ellie Inc., a calendar-year C corporation, wants to make a gift to a charity that is deductible on its year 1 Form 1120. The gift must be made by Ellie:

Generally, capital gains are allocated to fiduciary income, because they arise from current-year transactions as directed by the trustee.

Generally, an administrative expense attributable to municipal bond interest should be claimed on the estate's Form 706.

A complex trust is automatically exempt from the Federal AMT.

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 -Undistributed income is subject to the additional tax on net investment income.

The Federal income taxation of a trust or estate can be described as a "modified pass-through" system. Compare fiduciary income tax rules to those that apply to LLCs and to individuals.

Counsell is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Kathie, Lynn, Mark, and Norelle) are entitled to the trust's annual accounting income in shares of one-fourth each. For the current calendar year, the trust incurs ordinary business income of $40,000, a long-term capital gain of $20,000 (allocable to corpus), and a trustee commission expense of $4,000 (allocable to corpus). Use the format of Exhibit 20.5 in the text to address the following items. a. How much income is each beneficiary entitled to receive? b. What is the trust's DNI? c. What is the trust's taxable income? d. How much is taxed to each of the beneficiaries?

Olsen has been determined to be a grantor trust by the IRS. What are the tax consequences of this tax status? What are the tax return filing requirements for Olsen and for Peggy, the donor of the trust's assets?

This year, the Huang Trust is a complex trust. This year, it distributed all of its accounting income and $5,000 from corpus, to its sole income beneficiary Kun. Huang's taxable income for the year is:

Which of the following taxpayers can be subject to an entity-level Federal income tax?

The rental income of a trust usually is allocable to ________________ (income, remainder) beneficiaries.

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 -The person who transfers assets to a trust.

Which of the following taxpayers use a Schedule K and K-1 to pass through income, loss, and credit amounts to the owners or beneficiaries?

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 -The fiduciary in charge of a trust.

The Prakash Estate has equal income beneficiaries Sam and Janet. As allowed by the terms of the will, the estate makes no income distributions during the current tax year. The estate's personal exemption is:

Usually, a beneficiary takes a carryover basis when a trust distributes a non-cash asset.

The Suarez Trust generated distributable net income (DNI) this year of $150,000, two-thirds 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 $60,000. Clark received $90,000. How much of the trust's DNI is assigned to Clara?

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 trust that can accumulate, rather than distribute, its accounting income.