The Testa Trust was terminated this year and Chip,the beneficiary of the corpus,received all of the trust assets.The trust reported a $10,000 net operating loss for the current tax year;this was the only tax year in which the trust operated a business.Testa has one income beneficiary,Flo.As a result of these transactions:

Question

Quizplus · Accepted Answer

In a simple trust like Testa, all income and deductions are passed through to the beneficiary. Therefore, Chip, as the beneficiary who received all the trust assets, is entitled to claim the $10,000 NOL on his Form 1040 as he is now responsible for paying income tax on the trust income. Flo has no right to claim the NOL as she is an income beneficiary and did not receive any trust assets. Option A and D are incorrect as they do not reflect the correct treatment of a simple trust's income and deductions.

The Testa Trust Was Terminated This Year and Chip,the Beneficiary