Law question data bank

2564. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #6
The LMN Trust is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Kathie, Lynn, Mark, and Norelle) are entitled to the trust’s annual accounting income in shares of one-fourth each. For the current calendar year, the trust has ordinary business income of $30,000, a long-term capital gain of $20,000 (allocable to income), and a trustee commission expense of $4,000 (allocable to corpus). Use the format of Figure 20.3 in the text to address the following items.

a.	How much income is each beneficiary entitled to receive?
b.	What is the trust’s DNI?
c.	What is the trust’s taxable income?
d.	How much is taxed to each of the beneficiaries?

2565. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #7
The Cooper Trust is required to distribute $80,000 annually, split equally between its two income beneficiaries, Amber and Byron. If trust income is not sufficient to pay these amounts, the trustee can invade corpus to the extent necessary. During the current year, the trust has DNI of $50,000. Byron receives an additional $20,000 discretionary corpus distribution.

a.	How much of the $40,000 distributed to Amber is included in her gross income?
b.	How much of the $60,000 distributed to Byron is included in his gross income?
c.	How much of these distributions are first-tier or second-tier?

2566. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #8
An estate has $100,000 DNI, composed of $50,000 dividends, $20,000 taxable interest, $10,000 passive income, and $20,000 tax-exempt interest. The trust’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.

Beneficiary	Amount Received	DNI, Income Type	Corpus, Non-taxable
		Dividends	Taxable Interest	Passive	Exempt Interest
Shanna
Tom
Totals in DNI

2567. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #9
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.

Taxable interest income	$40,000
Tax-exempt interest income	20,000
Long-term capital gains—allocable to corpus	10,000
Fiduciary’s fees—allocable to corpus	6,000

The trustee distributed $40,000 to Paula and $40,000 to George.

a.	What is Miguel’s trust accounting income?
b.	What is Miguel’s DNI?
c.	What is Miguel’s taxable income?
d.	How much gross income is recognized by each of the beneficiaries?

2568. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #10
The Yan Estate is your client, as are many of the decedent’s family members. Determine the tax effects of the indicated losses for the Yan Estate for both tax years. The estate holds a variety of investment assets, which it received from the decedent, Mrs. Yan. The estate’s sole income and remainder beneficiary is Yan, Jr.

Tax Year	Loss Generated
2011 (first tax year)	Taxable income ($300)
	Capital loss ($20,000)
2012 (final tax year)	Taxable income ($40,000)

2569. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #1
Explain how the Federal income tax law applies to a fiduciary entity like a trust. Is the tax structure similar to that of an individual? A partnership?

2570. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #2
List some of the most commonly encountered motivations for creating fiduciary entities.

2571. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #3
Identify the parties that are present when an estate is created, and their key duties. Then do the same for a trust.

2572. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #4
Tax professionals use the terms simple trust and complex trust when dealing with fiduciary arrangements. How does one know whether a trust is “simple” or “complex?” When is this determination made?

2573. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #5
Is a trust subject to the alternative minimum tax? Or does the trust “pass through” AMT items to its grantor and beneficiaries?

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2574. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #6
How is entity accounting income computed? What role does it play in Subchapter J?

2575. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #7
When a fiduciary distributes to a beneficiary a non-cash asset, how is the realized gain or loss treated?

2576. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #8
The Gibson Estate is responsible for the income in respect of a decedent (IRD) of Juanita Gibson, the deceased. Define the term IRD and describe its treatment for Federal tax purposes

2577. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #9
The Circle Trust has some exempt interest income for the year. How does this investment income affect Circle’s deduction of its fiduciary fees? Charitable contributions?

2578. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #10
The Leonardo Estate operates a business and generates cost recovery deductions. Which taxpayer(s), if any, can deduct these items, e.g., the deceased, the estate, the income or remainder beneficiaries?

2579. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #11
What is meant by the term “distributable net income?” What is its significance in connection with the income taxation of estates, trusts and their beneficiaries?

2580. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #12
In computing Federal taxable income, can the trust or estate use its distributable net income (DNI) as its deduction for distributions to beneficiaries? Explain.

2581. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #13
There are several business tax credits that the Yeoman Trust has generated for this tax year. Which taxpayer(s), if any, can use these credits in computing a Federal income tax liability? Explain.

2582. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #14
List the three major functions of distributable net income (DNI) as that amount is used under Federal income tax law.

2583. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #15
Your client Pryce is one of the income beneficiaries of the Santiago Trust. Pryce says to you, “I want all of the exempt interest income from Santiago to be allocated to me, as I am the income beneficiary who is subject to the highest marginal Federal income tax rate.” How do you respond to Pryce’s request?

2584. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #16
When the Holloway Trust terminated this year, it held a $1 million NOL carryforward. How is the loss carryforward treated? Does it expire with the trust or can another taxpayer use it? Be specific.

2585. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #17
Peggy, a trustee, has learned that the Olsen Trust has been characterized as a “grantor trust.” What are the tax consequences of this status?

2586. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #18
A grantor trust results when the donor of the entity’s corpus retains “too much” control over the trust income and assets. Name at least three powers that can trigger grantor trust status.

2587. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #19
You are responsible for the Federal income tax filings of the Tyrone Trust. Summarize the relevant due dates and filing requirements for Tyrone.

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2588. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question ES #20
Your client Ming is a complex trust that operates exclusively in the U.S. Make a list of five or more tax planning opportunities that you might suggest to Ming.