2510. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #31 The Edgerton Estate generated distributable net income (DNI) this year of $100 000 one-fourth of which was tax-exempt interest and the balance of which was long-term capital gain. Kyle Edgerton the sole income beneficiary of the Estate received a distribution of the entire $125 000 accounting income of the entity. How does Kyle report the distribution? a. $100 000 ordinary income. b. $125 000 ordinary income. c. $50 000 long-term capital gain $50 000 exempt interest. d. $75 000 long-term capital gain $25 000 exempt interest. 2511. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #32 The Suarez Trust generated distributable net income (DNI) this year of $150 000 one-third of which was portfolio income and the balance of which was exempt interest. Under the terms of the trust Clara Suarez is to receive an annual income distribution of $30 000. At the discretion of the trustee additional distributions can be made to Clara or to Clark Suarez III. This year the trustee’s distributions to Clara totaled $90 000. Clark also received $90 000. How much of the trust’s DNI is assigned to Clara? a. $90 000. b. $78 000. c. $48 000. d. $30 000. 2512. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #33 The Suarez Trust generated distributable net income (DNI) this year of $150 000 one-third of which was portfolio income and the balance of which was exempt interest. Under the terms of the trust Clara Suarez is to receive an annual income distribution of $30 000. At the discretion of the trustee additional distributions can be made to Clara or to Clark Suarez III. This year the trustee’s distributions to Clara totaled $90 000. Clark also received $90 000. How much of the trust’s DNI is assigned to Clark? a. $0 only first-tier distributions are subject to Federal income tax. b. $72 000. c. $75 000. d. $90 000. 2513. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #34 To reduce trustee commissions the Sigrid Trust is operated as though it were two trusts (i.e. with 70-year-old Grandma and 7-year old Skippy each holding equal shares). This year the trust generated distributable net income (DNI) of $80 000. The Sigrid trustee distributed $100 000 to Grandma this year: $40 000 as her one-half share of the entity’s income and $60 000 as a distribution of principal. Skippy received no distribution. How much of the year’s distributable net income is assigned to Grandma? a. $40 000. b. $50 000. c. $80 000. d. $100 000. 2514. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #35 The Williamson Estate generated distributable net income (DNI) this year of $120 000 one-third of which was tax-exempt interest and the balance of which was long-term capital gain. Muffy Williamson the sole income beneficiary of the estate received a distribution of the entire $150 000 accounting income of the entity. How is this distribution accounted for by Muffy? a. $150 000 ordinary income. b. $120 000 ordinary income. c. $80 000 long-term capital gain $40 000 exempt interest. d. $100 000 long-term capital gain $50 000 exempt interest. 2515. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #36 The Exeter Trust instrument provides that Tamara the sole income beneficiary is to receive $30 000 annually. If trust accounting income is not sufficient to pay this amount the Exeter trustee is empowered to invade corpus to the extent necessary. During the current year the trust has distributable net income (DNI) of $100 000 including $20 000 of tax-exempt interest. In accordance with the trust instrument $30 000 is paid to Tamara. What is Tamara’s gross income from Exeter for the current year? a. $100 000. b. $30 000. c. $24 000. d. $10 000. 2516. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #37 Which of the following restrictions applies concerning distributions to trust beneficiaries? a. Special allocations are not allowed under Subchapter J. b. Special allocations are allowed but only in the trust’s termination year. c. Special allocations are allowed but only for portfolio income items. d. Special allocations of income types are allowed assuming that they carry substantial economic effect. 2517. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #38 The Raven Trust was terminated this year and David the beneficiary of the corpus received all of the trust assets. The trust had a $10 000 net operating loss; this was the only tax year in which the trust operated a business. The entity has one income beneficiary Flo. As a result of these transactions: a. Flo claims the $10 000 NOL on her Form 1040. b. David claims the $10 000 NOL on his Form 1040. c. Flo and David each report a $5 000 NOL on their Forms 1040. d. The $10 000 NOL is lost forever. 2518. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #39 The Code defines a grantor trust as which of the following? a. One which is required to file Form 1041-G. b. One in which a member of the grantor’s family is the sole trustee. c. One which the grantor can revoke or otherwise amend. d. One which makes annual payments to designated charities. 2519. CHAPTER 20—INCOME TAXATION OF TRUSTS AND ESTATES Question MC #40 The Yellow Trust incurred $10 000 of portfolio income. Its corporate trustee paid fiduciary fees of $1 000 therefrom and also paid $1 000 in premiums for a life insurance policy on Marcia the grantor of the trust. How much gross income does Marcia include with respect to these trust activities? a. $10 000. b. $9 000. c. $1 000. d. $800.
