CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES

2559. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #1
The Purple Trust incurred the following items this year.

Taxable interest income

$50,000

Tax-exempt interest income, not on private activity bonds

20,000

Tax-exempt interest income, on private activity bonds

10,000

Compute Purple’s tentative minimum tax for the year. Purple does not have any credits available to reduce the AMT liability.

2560. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #2
The Booker Trust is your client. Complete the chart below, indicating Booker’s trust accounting income for each of the alternatives.

Interest income, taxable

$60,000

Interest income, tax-exempt

30,000

Interest income, tax-exempt but AMT preference

10,000

Long-term capital gain

15,000

Trustee fee

3,000

Trust agreement provisions

Trust accounting income

Fees and capital gains allocable to corpus

______________________

Capital gains allocable to corpus, one-half of fees allocable to income

______________________

Capital gains allocable to income, silent concerning allocation of fees

______________________

Fees and exempt income allocable to corpus, silent concerning allocation of capital gain/loss

______________________

2561. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #3
Bob is one of the income beneficiaries of the LaQuanda Estate, which is subject to a 45% marginal Federal estate tax rate, a 35% marginal Federal income tax rate, and a 5% marginal state income tax rate. This year, Bob received all of the sales commissions that were earned and payable to Lulu LaQuanda (cash basis) at her death. Compute Bob’s § 691(c) deduction for the current year, given the following data.

Sales commissions receivable

$50,000

Deferred gain on installment sale, three payments to be received after this year

10,000

2562. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #4
The Raja Trust operates a welding business. Its current-year cost recovery deductions properly amount to $75,000. Raja’s accounting income was $100,000, of which $40,000 was distributed to first-tier beneficiary Chuck, $25,000 was distributed to second-tier beneficiary Ruby, and $35,000 was accumulated by the trustee. Ruby also received a $25,000 discretionary corpus distribution. Raja’s DNI was $80,000. Identify the treatment of Raja’s cost recovery deductions.

2563. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question PR #5
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 corpus), 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?

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)