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Exam 20: Income Taxation of Trusts and Estates

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Question 21

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The deduction for the Sharma Trust's $100,000 gift to charity is ____________________ when one-third of Sharma's accounting income for the tax year constitutes exempt interest income.

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Question 22

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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?

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.

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

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Question 23

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

Reyes contributed assets to a trust, designating daughter Maria as the income beneficiary, and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee paid $5,000 of this amount as premiums for a life insurance policy on Anita, Reyes' wife. Reyes pays Federal income tax on $5,000 for the year.

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?

The grantor of a trust generally designates both ____________________ and ____________________ beneficiaries under the controlling agreement.

An estate ____________________ (can/cannot) be liable for a Federal alternative minimum tax.

Reyes contributed assets to a trust, designating daughter Maria as the income beneficiary, and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee accumulated $5,000 of this amount and added it to trust corpus. Reyes pays Federal income tax on $5,000 for the year.

In the year in which an estate terminates, its beneficiaries receive and can use as their own any unexpired NOL carryforwards, proportionate to the value of the corpus assets that they received.

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?

Kip and his wife Biddie file calendar-year Form 1040 joint returns. Kip died this year on April 16. The Form 1040 is filed as a joint return, signed by Biddie and by Kip's executor.

The Chen Trust is required to distribute its accounting income every year, one-half to Missy Chen, and one-half to the local church's homeless shelter. What is the Chen Trust's personal exemption?

The entity's AMT preferences and adjustments pass through to the income beneficiaries.

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.

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

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?

The Prakash Trust is required to pay its entire annual accounting income to beneficiaries Sam and Janet. The trust's personal exemption is:

Reyes contributed assets to a trust, designating daughter Maria as the income beneficiary, and grandson Julio as the remainder beneficiary. This year, fiduciary accounting income was $50,000. The trustee paid $5,000 of this amount as Julio's high school tuition. Reyes pays Federal income tax on $5,000 for the year.

The Stratford Estate incurs a $25,000 legal fee in disposing of the real property of the decedent. The executor can decide to claim a $5,000 deduction against the Federal estate tax, and a $20,000 deduction on the estate's income tax return.

Winston is classified as a grantor trust, because Harry, the donor, can revoke the trust. Consequently, Winston need not file an annual Form 1041, and Harry reports the trust items on his own Form 1040.