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Exam 20: Income Taxation of Trusts and Estates

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Question 21

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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.

E) A) and C)
F) B) and C)

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Question 22

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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.

E) All of the above
F) A) and B)

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Question 23

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The Drabb Trust owns a plot of business-related land,basis of $50,000,fair market value of $35,000.Drabb is subject to a 35% marginal income tax rate.Its sole beneficiary,Eddie,is subject to a 15% marginal income tax rate.Drabb's current-year distributable net income is $95,000.What is the most preferable action for the trustee of Drabb to take,considering only the related tax consequences?

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

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.

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?

The trust instrument indicates whether cost recovery is ____________________ to fiduciary accounting income,thereby reducing the amount of the distribution to the income beneficiary.

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.

Marcus has been determined to be a grantor trust by the IRS.Your partner explains that this probably happened because the donor of the trust assets retained excessive powers over the operation of the trust or the use of its assets and income.To what powers is your partner referring?

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

The depreciation deductions of a trust usually are allocable to ____________________ beneficiaries. or

The Willa estate reports $100,000 DNI,composed of $50,000 dividends,$20,000 taxable interest,$10,000 passive income,and $20,000 tax-exempt interest.Willa's two noncharitable income beneficiaries,Shanna and Tom,receive distributions of $75,000 each.How much of each class of income is deemed to have been distributed to Shanna? To Tom? Use the following template to structure your answer.

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.

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

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

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?

Identify the parties that are present when an estate is created,and their key duties.Then do the same for a trust.

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.

A Form 1041 must be filed by an estate that recognizes $____________________ or more gross income for the tax year.

The trustee of the Miguel Trust can distribute any amount of accounting income and corpus to the trust's income beneficiaries,Paula and George.This year,the trust incurred the following. The trustee distributed $40,000 to Paula and $40,000 to George.