Solved by verified expert :2520. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #41
The Yellow Trust incurred $10,000 of portfolio income. Its corporate trustee
paid fiduciary fees of $1,000 therefrom. Yellow’s accounting income is
distributed as follows.
· $5,000 to income beneficiary Larry
· $4,000 to pay part of the high
school tuition bills for Carrie, the daughter of Yellow’s grantor Marcia
How much gross income does Marcia include with respect to these trust
activities?
a.
$0.
b. $4,000.
c. $9,000.
d. $10,000.
2521. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #42
With respect to a timely filed Form 1041 for a trust based in Delaware, the IRS
will accept:
a.
Only paper returns.
b. Only e-filed returns.
c. Returns either on paper or in
electronic form.
d. Returns only at its Ogden, Utah
office.
2522. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #43
Jose is subject to the top marginal Federal income tax rates. Carlita is
considering establishing a trust in which Jose would be an income beneficiary.
Considering only income tax consequences, Jose should be designated as:
a.
A first-tier beneficiary.
b. A second-tier beneficiary.
c. Only a remainder beneficiary.
d. Both a first- and a second-tier
beneficiary.
2523. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #44
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.
Distribute the land to Eddie and make a § 643(e) election.
b. Distribute the land to Eddie and make
no § 643(e) election.
c. Sell the land to a third party.
d. Neither sell nor distribute the land.
2524. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question MA #1-
For each of the following independent
statements, choose the best answer.The entity has a legal identity separate
from its beneficiaries.The entity’s AMT preferences and adjustments pass
through to the income beneficiaries.The entity must file an income tax return
if its gross income for the year is $600 or more.The entity can choose between
the cash and accrual methods of reporting its income and deductions.The entity
is entitled to a personal exemption of $600.The entity is controlled by
state-level probate laws.In the year of termination, the entity’s net operating
loss carryovers are passed through to the beneficiaries.The entity’s management
generally is directed by the controlling document as to the date of the
entity’s termination.The entity can be operated under the separate share
rule.The entity is an information-reporting, not a tax-paying,
taxpayer.Distributions to beneficiaries are accounted for with a two-tier
system.A decedent created the entity.The entity was created by either a
decedent or a living person.For a calendar-year entity, the Form 1041 has an
unextended due date of April 15.Essentially, only a calendar tax year can be
chosen for the entity.Tax attribute of estates and complex trusts Tax attribute of neither estates nor complex
trusts Tax attribute of estates and
complex trusts Tax attribute of estates and
complex trusts Tax attribute of estates only Tax attribute of estates only Tax
attribute of estates and complex
trusts Tax attribute of complex trust only Tax attribute of estates and complex trusts Tax attribute of
neither estates nor complex trusts Tax attribute of estates and complex trusts Tax attribute of
estates only Tax attribute of complex trust only Tax attribute of estates and complex trusts Tax attribute of
complex trust only
1. The entity has a legal identity
separate from its beneficiaries.
2. The entity’s AMT
preferences and adjustments pass through to the income beneficiaries.
3. The entity must file an
income tax return if its gross income for the year is $600 or more.
4. The entity can choose
between the cash and accrual methods of reporting its income and deductions.
5. The entity is entitled to a
personal exemption of $600.
6. The entity is controlled by
state-level probate laws.
7. In the year of termination,
the entity’s net operating loss carryovers are passed through to the beneficiaries.
8. The entity’s management
generally is directed by the controlling document as to the date of the
entity’s termination.
9. The entity can be operated
under the separate share rule.
10. The entity is an
information-reporting, not a tax-paying, taxpayer.
11. Distributions to
beneficiaries are accounted for with a two-tier system.
12. A decedent created the
entity.
13. The entity was created by
either a decedent or a living person.
14. For a calendar-year
entity, the Form 1041 has an unextended due date of April 15.
15. Essentially, only a
calendar tax year can be chosen for the entity.
a. Tax attribute of estates and complex trusts
b. Tax attribute of neither
estates nor complex trusts
c. Tax attribute of estates and complex trusts
d. Tax attribute of estates and complex trusts
e. Tax attribute of estates
only
f. Tax attribute of estates
only
g. Tax attribute of estates and complex trusts
h. Tax attribute of complex
trust only
i. Tax attribute of estates and complex trusts
j. Tax attribute of neither
estates nor complex trusts
k. Tax attribute of estates and complex trusts
l. Tax attribute of estates
only
m. Tax attribute of complex
trust only
n. Tax attribute of estates and complex trusts
o. Tax attribute of complex
trust only
2525. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question MA #16
For each of the following items, insert
the best term or phrase. An answer choice may be used more than once, but only
one choice is the best for each descriptive phrase.An estate always is
created upon the death of this party.A trust whose income can be distributed to
beneficiaries and in amounts at the trustee’s discretion.A trust that is
required to distribute annual accounting income.The person who transfers assets
to a trust.A trust whose remainder beneficiary is its grantor.The fiduciary in
charge of a trust. A trust that might be used to reduce probate costs, but not
Federal estate and gift tax.The fiduciary in charge of an estate.A trust that
can accumulate, rather than distribute, its accounting income.A trust whose
income is taxed to the donor, not the beneficiaries.Decedent Sprinkling Simple
Grantor Reversionary Trustee Living Executor Complex Grantor
1. An estate always is created upon
the death of this party.
2. A trust whose income can be
distributed to beneficiaries and in amounts at the trustee’s discretion.
3. A trust that is required to
distribute annual accounting income.
4. The person who transfers
assets to a trust.
5. A trust whose remainder
beneficiary is its grantor.
6. The fiduciary in charge of
a trust.
7. A trust that might be used
to reduce probate costs, but not Federal estate and gift tax.
8. The fiduciary in charge of
an estate.
9. A trust that can
accumulate, rather than distribute, its accounting income.
10. A trust whose income is
taxed to the donor, not the beneficiaries.
a. Decedent
b. Sprinkling
c. Simple
d. Grantor
e. Reversionary
f. Trustee
g. Living
h. Executor
i. Complex
j. Grantor
2526. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question CO #1
A ____________________ trust is a revocable entity that is used to avoid
probate upon the death of the grantor.
2527. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question CO #2
The grantor of a trust generally designates both ____________________ and
____________________ beneficiaries under the controlling agreement.
2528. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question CO #3
Under the general rules of Subchapter J, whoever receives the ____________________
income of a trust or estate is the one who pays tax on it.
2529. CHAPTER
20—INCOME TAXATION OF TRUSTS AND ESTATES Question CO #4
A fiduciary arrangement creates a separate tax and legal entity, but Subchapter
J applies a modified ____________________ principle in deriving the Federal
income tax liability for estates, trusts, and their beneficiaries.
