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Exam 20: Income Taxation of Trusts and Estates

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Question 21

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Income in respect of a decedent can be subject to both income and estate tax at the Federal level.

A) True
B) False

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Question 22

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The Roz 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 $80,000 to Roger and $80,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the trustee distributes an additional $20,000 to Roger and $20,000 to Sally.How much gross income from the trust must Roger recognize?

A) $100,000.
B) $80,000.
C) $50,000.
D) $20,000.

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

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Question 23

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What is meant by the term "distributable net income?" What is its significance in connection with the income taxation of estates,trusts and their beneficiaries?

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.

With respect to a trust,the terms creator,donor,and grantor are synonyms.

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.

When the Holloway Trust terminated this year,it held a $1 million NOL carryforward.How is the loss carryforward treated? Does it expire with the trust or can another taxpayer use it? Be specific.

The Edgerton Estate generated distributable net income (DNI) this year of $100,000,one-fourth of which was tax-exempt interest,and the balance of which was long-term capital gain.Kyle Edgerton,the sole income beneficiary of the Estate,received a distribution of the entire $125,000 accounting income of the entity.How does Kyle report the distribution?

Which,if any,of the following statements relates to the tax treatment of both estates and trusts?

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 $40,000.

The first step in computing an estate's taxable income is the determination of its distributable net income for the year.

The distributable net income (DNI) of a fiduciary taxpayer:

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

An estate claims an ordinary business deduction for wages paid to employees.

Distribution of an appreciated asset triggers immediate gain recognition to the trust.

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?

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?

The unextended due date for a calendar-year trust to file its Form 1041 is March 15.

A trust passes through to its income beneficiaries the data needed to compute the domestic production activities deduction.

The grantor set up a trust,income to a daughter,remainder to a grandson.To the extent that trust income is used to satisfy the grantor's legal obligation to pay for his daughter's high school education,Subchapter J rules are ignored,and the income is taxed to the grantor.