The trust instrument provides that Tamara,the sole income beneficiary,is to receive $8,000 annually.If the trust accounting income is not sufficient to pay this amount,the trustee is empowered to invade corpus to the extent necessary.During the current year,the trust has distributable net income (DNI)of $100,000,including $25,000 of tax-exempt interest.In accordance with the trust instrument,$8,000 is paid to Tamara.How much income is taxable to Tamara for the current year?

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Tamara's income is limited to $8,000,since this is the amount that is required to be distributed annually from the complex trust.However,the trust's income retains its character in the hands of the beneficiaries.Since 25% of distributable net income represents tax-exempt income,$2,000 of the amount received by Tamara is nontaxable.

The Trust Instrument Provides That Tamara,the Sole Income Beneficiary,is to Receive