Question 1

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?

Accepted Answer

A complex trust uses a Form 1041 to report its income, but it also uses a Schedule K-1 to pass through income, loss, and credit amounts to its beneficiaries. Partnerships and S corporations both use a Form 1065 to report their income, but they also use Schedules K and K-1 to pass through income, loss, and credit amounts to their owners or shareholders. Therefore, all of these taxpayers use Schedules K and K-1 to pass through income, loss, and credit amounts to their owners or beneficiaries.

Question 2

The Prakash Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

Accepted Answer

The answer of The Prakash Trust is required to pay...

Question 3

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?

Accepted Answer

The answer of Three weeks after Abed died,his brother Tony...

Question 4

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?

Accepted Answer

The answer of The trustee of the Epsilon Trust distributed...

Question 5

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

Accepted Answer

All of the given choices are typical duties of a trustee. Trustees are responsible for filing the tax returns, managing the investments of the trust, and distributing the income to the beneficiaries as per the trust instrument.

Question 6

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?

Accepted Answer

The question does not provide any information about the Chen Trust's taxable income or tax rate, so it cannot be determined whether or not there will be any taxes owed. However, the personal exemption is a deduction that reduces taxable income, and it is usually set by the IRS. As such, it is not affected by the Chen Trust's particular circumstances. In 2021, the personal exemption is $0, so the correct answer is C.

Question 7

Income beneficiary Turk received $30,000 from the Urgent Trust.Trust accounting income for the year was $100,000.The trust generated $20,000 in cost recovery deductions.How much can Turk deduct with respect to the cost recovery deductions that Urgent generated?

Accepted Answer

Cost recovery deductions are deducted from trust accounting income to arrive at distributable income. Distributable income is then allocated to income beneficiaries like Turk. In this case, cost recovery deductions were $20,000, so distributable income would be $80,000 ($100,000 - $20,000). Turk received $30,000 of that distributable income, so he can only deduct a portion of the cost recovery deductions that corresponds to his share of distributable income. That portion is 30,000/80,000, or 0.375. Multiplying this percentage by the cost recovery deductions gives us $7,500. However, since the maximum amount Turk can deduct is limited to the amount he received from the trust, the answer is $6,000 (Choice B).

Question 8

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

Accepted Answer

The answer of The Code defines a "simple trust" as...

Question 9

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

Accepted Answer

The answer of Which of the following taxpayers can be...

Question 10

Tax planning usually dictates that high-income and high-wealth individuals be specified as second-tier beneficiaries of a trust arrangement.

Accepted Answer

This is because first-tier beneficiaries are usually the spouse and children, and naming them as primary beneficiaries can provide certain tax benefits. Designating high-income and high-wealth individuals as second-tier beneficiaries can help minimize potential tax liabilities.

Question 11

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:

Accepted Answer

The estate's personal exemption is $600, which can be divided equally between the two beneficiaries. However, since the estate has made no income distributions during the current tax year, no portion of the personal exemption will be allocated to either beneficiary. Therefore, the full personal exemption of $600 can be claimed on the estate's tax return.

Question 12

The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate.Generally,an administrative expense should be claimed on the estate's income tax return.

Accepted Answer

Administrative expenses incurred in administering the estate can be claimed as deductions on the estate's income tax return. However, they will not reduce the estate tax liability, which is subject to a separate set of rules and rates. The given scenario only mentions the estate tax rate and the income tax rate, and thus it is safe to assume that administrative expenses can be claimed on the estate's income tax return.

Question 13

Three months after Brianna Timkin died,her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago.Which of the following statements is true?

Accepted Answer

The $40,000 is included in Brianna's gross estate because she completed the sale of the land before her death but the final installment was received after her death. As a result, it is subject to tax on her estate's income tax return.

Question 14

The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?

Accepted Answer

Subchapter J of the Internal Revenue Code deals with the taxation of trusts and estates, outlining how these entities are taxed on income.

Question 15

Which of the following is a typical duty of an executor of an estate?

Accepted Answer

All of the above are typical duties of an executor of an estate. They are responsible for paying for funeral expenses, paying off the decedent's financial liabilities, managing the decedent's assets until they are distributed, and distributing the net assets of the probate estate to the beneficiaries according to the decedent's will or state law.

Question 16

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

Accepted Answer

A trustee is responsible for managing and investing the assets held in a trust, which includes making decisions about how to invest the trust assets to generate income for the beneficiaries. While a trustee may need to understand tax rules and make decisions about how to allocate income and corpus, modifying the trust instrument specifically to lower taxes is not a typical duty of a trustee.

Question 17

The Rodriguez Trust generated $300,000 in alternative minimum taxable income (AMTI) this year.Concerning the AMTI,the trust is subject to a marginal Federal income tax rate of:

Accepted Answer

For trusts, the alternative minimum tax (AMT) rate is 28% for income over the threshold amount. Since the AMTI is $300,000, it falls into the 28% rate bracket for trusts.

Question 18

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

Accepted Answer

The answer of The Prakash Trust is required to pay...

Question 19

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

Accepted Answer

Administrative expenses incurred that are directly related to managing the estate's tax-exempt investments, such as municipal bonds, can be claimed on the estate's Form 706. This includes expenses such as fees paid to attorneys or accountants to advise on tax-exempt investments or expenses related to safety and custody of the securities.

Question 20

When a trust distributes an in-kind asset with a realized loss,most likely this loss cannot be immediately deducted by the first-tier beneficiary.

Accepted Answer

When a trust distributes an in-kind asset with a realized loss, the first-tier beneficiary cannot immediately deduct the loss. The loss can only be deducted by the beneficiary when they sell the asset and realize the loss at that point.

Quiz 28: Income Taxation of Trusts and Estates

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 Prakash Trust is required to pay its entire annual accounting income to the Daytona Museum,a qualifying charity.The trust's personal exemption is:

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?

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?

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

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?

Income beneficiary Turk received $30,000 from the Urgent Trust.Trust accounting income for the year was $100,000.The trust generated $20,000 in cost recovery deductions.How much can Turk deduct with respect to the cost recovery deductions that Urgent generated?

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

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

Tax planning usually dictates that high-income and high-wealth individuals be specified as second-tier beneficiaries of a trust arrangement.

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:

The Philmore Estate is subject to a 40% Federal estate tax rate and a 45% Federal and state income tax rate.Generally,an administrative expense should be claimed on the estate's income tax return.

Three months after Brianna Timkin died,her executor received the final $40,000 installment from a sale of land that Brianna completed several years ago.Which of the following statements is true?

The tax rules regarding the income taxation of trusts and estates are included in which Subchapter of the Internal Revenue Code?

Which of the following is a typical duty of an executor of an estate?

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

The Rodriguez Trust generated $300,000 in alternative minimum taxable income (AMTI) this year.Concerning the AMTI,the trust is subject to a marginal Federal income tax rate of:

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

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

When a trust distributes an in-kind asset with a realized loss,most likely this loss cannot be immediately deducted by the first-tier beneficiary.