Chapter20
Problem
(pg. 20-36) Ques – *22, 23, 24, *27,
*29, *30, *31, 32, *33, *34, 35, 38, 39. (13)
22. LO.1 The trustee reports
thefollowing transactions for the 2011 tax year. The trustee
accumulates all accountingincome for the year.Compute the Federal income tax liability for the Kim Trust.
Operating
income from a business $400,000
Dividend
income, all from U.S. corporations 70,000
Interest
income, City of San Antonio bonds 40,000
Fiduciary
fees, deductible portion (20,000)
Net
rental losses, passive activity (100,000)
p. 20-7
23. LO.1 The Purple Trust
incurred the following items this year:
Taxable
interest income $75,000
Tax-exempt
interest income, not on private activity bonds 60,000
Tax-exempt
interest income, on private activity bonds
(notissued during 2009 or 2010) 25,000
Compute
Purple’s tentative minimum tax for the year. Purple does not have any creditsavailable to reduce theAlternative Minimum Tax (AMT) liability.
24. LO.2 The Grouper Trust
will incur the following items next year, its first year ofexistence:
Interest income $ 75,000
Rent income 100,000
Cost recovery deductions for
therental activity 15,000
Capital gain income 60,000
Fiduciary and tax preparation fees 11,000
Betty,
the grantor of the trust, is working with you on the language in the trust
instrumentrelative to the derivation of annual accounting income for the
entity. She will nameShirley as the sole income beneficiary and Benny as the
remainder beneficiary.
a. Suggest
language to Betty that will maximize the annual income distribution toShirley.
b. Suggest
language to Betty that will minimize the annual distribution to Shirley andmaximize
the accumulation on Benny’s behalf.
27. LO.2 Roberto is one of
the income beneficiaries of the Carol LeMans Estate. This year, asdirected by the will,
Roberto received all of the sales commissions that were earned andpayable to Carol (cash
basis) at her death, as well as one of three remaining installmentpayments. Compute
Roberto’s gross income attributable to Carol’s activities for thecurrent year, given the
following financial data:
Sales commissions receivable $60,000
Total ordinary gain on installment sale,
twopayments remaining after
this year 50,000
29. LO.2 The Oliver Trust has
generated $50,000 in depreciation deductions for the year. Itsaccounting income is
$25,000. In computing this amount, pursuant to the trustdocument, depreciation
was allocated to corpus. Accounting income was distributed atthe trustee’s discretion:
$20,000 to Hernandez and $5,000 to Jackson.
a. Compute the depreciation deductions that Hernandez,
Jackson, and Oliver may claim.
b. Same as (a), except that depreciation was allocated to
income.
c. Same as (a), except that the trustee distributed $10,000
each to Hernandez and toJackson and retained the remaining accounting income.
d. Same as (a) , except that Oliver is an estate (and not a trust)
.
30. LO.2, 3 The Ricardo Trust
is a simple trust that correctly uses the calendar year for taxpurposes. Its income
beneficiaries (Lucy and Ethel) are entitled to the trust’s annualaccounting income in
shares of one-half each. For the current calendar year, the trustgenerates ordinary income
of $50,000, a long-term capital gain of $25,000 (allocable tocorpus), and a trustee
commission expense of $10,000 (allocable to corpus) . Use theformat of Figure 20.3 to
address the following items.
|
Item |
Totals |
Accounting Income |
Taxable |
Distributable Net Income/ Distribution Deduction |
|
Ordinary income |
$50,000 |
$50,000 |
||
|
Net |
25,000 |
|||
|
Fiduciary |
10,000 |
|||
|
Personal |
||||
|
Accounting Income/Taxable Income |
||||
|
Exemption |
||||
|
Corpus Capital Gain/Loss |
||||
|
Net Exempt Income |
||||
|
Distributable Net Income |
|
|||
|
Distribution Deduction |
||||
|
Entity Taxable Income |
a. How much income is each
beneficiary entitled to receive?
b. What is the trust’sdistributable
net income (DNI)?
c. What is the trust’s taxable income?
d. How much gross income is reported by each of the beneficiaries?
PROOF: The trust
should be taxed on “its” $25,000 long-term capital gain less the $300 personal
exemption.
Figure 20.3 and Examples 21 and 22
31. LO.2, 3 Assume the same
facts as in Problem 30, except that the trust instrumentallocates the capital
gain to income.
|
Item |
Totals |
Accounting Income |
Taxable |
Distributable Net Income/ Distribution Deduction |
|
Ordinary |
$50,000 |
$50,000 |
||
|
Net |
25,000 |
25,000 |
||
|
Fiduciary |
10,000 |
|||
|
Personal |
||||
|
Accounting Income/Taxable Income |
||||
|
Exemption |
||||
|
Corpus Capital Gain/Loss |
||||
|
Net Exempt Income |
||||
|
Distributable Net Income |
|
|||
|
Distribution Deduction |
||||
|
Entity Taxable Income |
a. How much income is each
beneficiary entitled to receive?
b. What is the trust’sdistributable
net income (DNI)?
c. What is the trust’s taxable income?
d. How much gross income is reported by each of the beneficiaries?
Figure 20.3 and Examples 21 and 22
32. LO.3 Under the terms of the Lagos Trust instrument, the trustee has
discretion todistribute or accumulate income on behalf of Willie, Sylvia, and
Doris in equal shares.The trustee also can invade corpus for the benefit of any of the
beneficiaries to the extentof each person’s respective one-third interest in the trust.In the current year, the
trust has DNI of $120,000. Distribution and accumulationamounts were as follows.
-To Willie: $40,000 from DNI and $10,000 from corpus.
-To Sylvia: $25,000. The remaining $15,000 DNI is accumulated.
-To Doris: $0. The $40,000 DNI is accumulated.
a. How much income is taxed
to Willie? (Hint: Apply the separate share rule.)
b. To Sylvia?
c. To Doris?
d. To Lagos?
33. LO.3 The Putnam Sisters Trust is required to distribute $60,000
annually equally to itstwo income beneficiaries, Clare and David. If trust income is
not sufficient to pay theseamounts, the trustee can invade corpus to the extent necessary.
During the current year,the trust generates only taxable interest income and has DNI of
$150,000; the trusteedistributes $30,000 to Clare and $130,000 to David.
a. How much of the $130,000 distributed to
David is included in his gross income?
b. How much of the $30,000 distributed to Clare is included in her
gross income?
c. Are these distributions first-tier or second-tier
distributions?
34.
LO.3 The Dailey Estate has $100,000 of DNI, composed
of $40,000 in dividends, $20,000 in taxable interest, $15,000 of passive
activity income, and $25,000 in tax-exempt interest. The entity’s two
noncharitable income beneficiaries, Brenda and Del, receive cash distributions
of $20,000 each. How much of each class of income is deemed to have been
distributed to Brenda? To Del?
35. LO.2, 3 The trustee of the Purple Trust can distribute any
amount of accounting incomeand corpus tothe trust’s beneficiaries, Lydia and Kent. This year, the trust
incurred thefollowing.
Taxable interest income $40,000
Tax-exempt interest income 60,000
Long-term capital gains—allocable to corpus 30,000
Fiduciary’s fees—allocable to corpus 10,000
The trustee distributed $40,000 to Lydia and $20,000 to Kent.
a. What is Purple’s trust
accounting income?
b. What is Purple’s DNI?
c. What is Purple’s taxable
income?
d. How much is
taxed to each of the beneficiaries?
Figure 20.3 and Example 31
38. 2011 No flow-through of either the negative
taxable income or the capital loss incurred.
2012 Flow-through of $30,000 negative ordinary taxable income,
deductible by Yellow Jr. as a miscellaneous itemized deduction, subject to the
2% of AGI floor.
Example 34
39.
