Deck 20: Income Taxation of Trusts and Estates

Question 1

An example of income in respect of a decedent is the taxpayer's last paycheck,uncollected at death.

Answer 1

True

Question 2

A trust might be used by one running for a political office.

Answer 2

True

Question 3

When a trust operates a trade or business,it can claim a deduction for wages paid to employees.

Answer 3

True

Question 4

A realized loss is recognized by a trust when it distributes a non-cash asset.

Question 5

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

Question 6

A complex trust automatically is exempt from the Federal AMT.

Question 7

The decedent's estate must terminate within four years of the date of death.

Question 8

Trusts can select any fiscal Federal income tax year.

Question 9

Tax planning motivations usually are secondary to other objectives in deciding whether to create a trust.

Question 10

Like a corporation,the fiduciary reports and pays its own Federal income tax liability.

Question 11

A decedent's income in respect of a decedent is subject to the Federal income tax,but it is excluded from the estate tax.

Question 12

An estate's income beneficiary generally must wait until the entity is terminated by the executor to receive any distribution of income.

Question 13

If provided for in the controlling agreement,a trust might terminate when the income beneficiary reaches age 35.

Question 14

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

Question 15

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

Question 16

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

Question 17

The Bard Estate incurs a $25,000 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.

Question 18

The Bard Estate incurs a $25,000 fee in disposing of the real property of the decedent.The deduction is claimed against the Federal estate tax,unless by election it is claimed on the estate's income tax return.

Question 19

Corpus,principal,and assets of the trust are synonyms.

Question 20

A complex trust pays tax on the income that it retains and adds to corpus.

Question 21

Judy can claim one-third of the Sweet Estate's cost recovery deductions,because she received one-third of the fiduciary's distributable net income (DNI).

Question 22

The Whitmer Trust operates a manufacturing business and distributes the profits to its income beneficiaries.Whitmer passes through to the income beneficiaries the data needed to compute their domestic production activities deduction.

Question 23

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 $60,000.

Question 24

An estate operates a manufacturing business.It can claim a domestic production activities deduction (DPAD).

Question 25

One-fourth of the Cruger Estate's distributable net income consists of net long-term capital gains.Thus,when income beneficiary Susie receives a $40,000 income distribution from the estate,$10,000 of it qualifies for the 15% tax rate.

Question 26

The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income includes $10,000 for the interest income.

Question 27

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 $50,000.

Question 28

"First-tier distributions" allowed by the will or trust document are made at the discretion of the executor or trustee.

Question 29

The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income (DNI)includes $9,000 for the interest income.

Question 30

The Griffin Trust makes a gift to a qualifying charity.Griffin's entity-level deduction is allowed only to the extent of 50% of distributable net income.

Question 31

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

Question 32

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.

Question 33

The Crown Trust distributed one-half of its accounting income to Lee this year.Lee also is allocated one-half of Crown's credit for building low-income housing.

Question 34

The Gable Trust reports $20,000 business income and $10,000 exempt interest income,and it paid a $3,000 fiduciary fee.Gable's distributable net income includes $10,000 of net tax-exempt income.

Question 35

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 $30,000.Harry's AGI can increase by as much as $40,000.

Question 36

When DNI includes exempt interest income,the beneficiary includes less than the full amount of DNI in current-year gross income.

Question 37

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

Question 38

A fiduciary's distribution deduction shifts the tax burden for current-year income from the entity to the beneficiary.

Question 39

In computing distributable net income (DNI)for a trust,one removes any corpus net capital gain or loss.

Question 40

The Julius Trust made a gift to the United Charity on April 1,Year Two,from its Year One business profits.The trust's charitable contribution deduction can be claimed in either Year One or Year Two.

Question 41

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

A)Complex trust.
B)Partnership.
C)Limited liability company.
D)All of the above taxpayers are passthrough entities,and they never are subject to an entity-level Federal income tax.

Question 42

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

A)One which is allowed to file Form 1041-EZ.
B)One which has only one income beneficiary.
C)One which must distribute its accounting income every year.
D)One whose grantor was a living individual.

Question 43

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?

A)Complex trust.
B)Partnership.
C)S corporation.
D)All of the above taxpayers use Schedules K and K-1.

Question 44

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?

A)$600.
B)$300.
C)$100.
D)$0.

Question 45

Generally,an administrative expense should be claimed on the decedent's estate tax return,because it is subject to a higher marginal tax bracket than is the estate's taxable income.

Question 46

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.

Question 47

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.

Question 48

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.

Question 49

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.

Question 50

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

A)S.
B)K.
C)
C)J.
D)

Question 51

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

A)Modify the language of the trust instrument so as to lower the entity's Federal income tax.
B)Make decisions as to how to invest the trust corpus portfolio.
C)Allocate items between income and corpus using Subchapter J rules.
D)All of the above.

Question 52

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

Question 53

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

A)$0.
B)$100.
C)$300.
D)$600.

Question 54

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

Question 55

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.

Question 56

When a trust distributes an in-kind asset with a realized loss,most likely this loss should be allocated to and immediately deducted by the first-tier beneficiaries.

Question 57

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

Question 58

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

A)Pay funeral expenses.
B)Pay off the decedent's financial liabilities.
C)Distribute the net assets of the probate estate.
D)Manage the decedent's assets until they are liquidated or distributed.
E)All of the above

Question 59

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

A)$0.
B)$100.
C)$300.
D)$600.

Question 60

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

A)File the entity's state and Federal income tax returns.
B)Invest the assets that comprise the corpus of the entity.
C)Distribute entity accounting income to the beneficiaries in accordance with the provisions of the trust instrument.
D)All of the above.

Question 61

The Ulrich 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 $60,000 to Roger and $60,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the Ulrich trustee distributes an additional $20,000 to Roger and $20,000 to Sally.How much gross income from the trust must Sally recognize?

A)$80,000.
B)$60,000.
C)$50,000.
D)$20,000.

Question 62

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?

A)The $40,000 is both included in Brianna's gross estate,and subject to tax on her estate's income tax return.
B)The $40,000 is subject to neither income nor estate tax,because it was received after Brianna's death.
C)The $40,000 is subject to tax only on her estate's income tax return.
D)The $40,000 is included only in Brianna's gross estate.

Question 63

The Brighton 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 is required to distribute $25,000 to Roger and $50,000 to Sally.After payment of these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the Brighton trustee distributes an additional $20,000 to Roger,and $30,000 to Sally.How much income from the trust must Sally recognize?

A)$80,000.
B)$65,000.
C)$50,000.
D)$30,000.

Question 64

The Doyle Trust reports 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 $25,000 to Roger and $25,000 to Sally.How much income from the trust must Sally recognize?

A)$25,000.
B)$30,000.
C)$50,000.
D)$55,000.

Question 65

Beneficiary Terry received $30,000 from the Urgent Trust.Trust accounting income for the year was $50,000.The trust generated $20,000 in cost recovery deductions.How much can Terry deduct with respect to the cost recovery deductions that Urgent generated?

A)$0.
B)$8,000.
C)$12,000.
D)$20,000.

Question 66

The Doyle Trust reports 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 $20,000 to Roger and $20,000 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 $25,000 to Roger and $50,000 to Sally.How much gross income from the trust must Sally recognize?

A)$70,000.
B)$60,000.
C)$40,000.
D)$20,000.

Question 67

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

A)Constitutes the maximum amount for the fiduciary's distribution deduction.
B)Specifies the character of the distributions in the hands of the year's income beneficiaries.
C)Marks the maximum amount of gross income that income beneficiaries must report when receiving distributions.
D)All of the above.

Question 68

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

A)26%.
B)28%.
C)33%.
D)35%.

Question 69

The Doyle Trust reports 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 $20,000 to Roger and $20,000 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 $25,000 to Roger and $50,000 to Sally.How much gross income from the trust must Roger recognize?

A)$50,000.
B)$45,000.
C)$40,000.
D)$20,000.

Question 70

The Ulrich 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 $60,000 to Roger and $60,000 to Sally.After paying these amounts,the trustee is empowered to make additional distributions at its discretion.Exercising this authority,the Ulrich trustee distributes an additional $15,000 to Roger and $15,000 to Sally.How much gross income from the trust must Roger recognize?

A)$15,000.
B)$50,000.
C)$60,000.
D)$75,000.

Question 71

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.

Question 72

Which of the following is the annual maximum amount to be included as gross income by all of the income beneficiaries of the trust or estate?

A)Distributable net income.
B)Entity taxable income.
C)Adjusted gross income.
D)Fiduciary accounting income.

Question 73

This year,the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI).Nano distributed $30,000 cash to Horatio,its sole income beneficiary.Nano is a complex trust.Nano's distribution deduction is:

A)$50,000.
B)$40,000.
C)$30,000.
D)$0.Because the distributions of a complex trust are discretionary,no deduction is allowed.

Question 74

During the current year,the Santo Trust received $30,000 of taxable interest income,paid trustee's commissions of $3,000,and had no other income or expenses.The Santo trust instrument requires that $20,000 be paid annually to Marilyn,and $40,000 be paid annually to Domingo.How much gross income must Marilyn and Domingo recognize?

A)$20,000 by Marilyn and $40,000 by Domingo.
B)$15,000 by Marilyn and $15,000 by Domingo.
C)$13,500 by Marilyn and $13,500 by Domingo.
D)$9,000 by Marilyn and $18,000 by Domingo.

Question 75

The Zhang Trust incurred the following items during the year. What is Zhang's deduction for the tax preparation fees?

A)$0.
B)$4,000.
C)$6,000.
D)$10,000.

Question 76

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?

A)Assuming that the trustee made an election under § 643(e),the trust is allowed a $10,000 distribution deduction for this transaction.
B)Assuming that the trustee made an election under § 643(e),Telly recognizes $10,000 gross income on the distribution.
C)Lacking any election by the trustee,the trust recognizes $15,000 gross income on the distribution.
D)Lacking any election by the trustee,Telly's basis in the asset is $10,000.
E)Lacking any election by the trustee,Telly's basis in the asset is stepped up to $25,000.

Question 77

This year,the Huang Trust distributed all of its accounting income and $1,000 from corpus.Huang's taxable income for the year is:

A)$0.
B)($100).
C)($300).
D)($1,000).

Question 78

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

A)The entity is required to distribute all of its income currently to its beneficiaries.
B)The entity must use the same tax year as its creator (i.e. ,grantor,decedent).
C)In the year of its termination,the entity's net operating loss carryovers are passed through to its beneficiaries.
D)The termination date of the entity is specified in the controlling document.

Question 79

This year,the Nano Trust reported $50,000 entity accounting income and $40,000 distributable net income (DNI).Nano distributed $60,000 cash to Horatio,its sole income beneficiary.Nano is a simple trust.Nano's distribution deduction is:

A)$60,000.
B)$50,000.
C)$40,000.
D)$0.

Question 80

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:

A)$0.
B)$100.
C)$300.
D)$600.