SU 18: Decedent, Estate, and Trust Income Tax Returns

The Large Trust is a simple trust. Bert Little is the sole beneficiary of the trust. Capital gains are allocable to corpus. Based on the following information, what is the trust's distribution deduction? Interest $1,700 Dividends $300 Capital gains $2,000 Fiduciary fee $1,000 $1,000 $3,000 $1,500 $2,000

$1,000. 1,700+300-1,000= 1,000.

Mrs. A died on June 30 of the current year. According to the terms of her will, $20,000 was paid to each of her three children prior to the end of the year. Additionally, the estate was to pay from earnings $20,000 to each child in the current year. In the current year, the estate had net earnings of $30,000. Assuming no charitable contributions were made, how much income will each child report? $30,000 ordinary income. $40,000 ordinary income. $10,000 ordinary income. $0

$10,000 ordinary income. Since DNI is $30,000, each of the three children must include $10,000 in gross income.

If a trust has adjusted total income of $10,000, distributable net income of $11,000, and $12,000 is required to be currently distributed, what is its income distribution deduction? $11,000 $2,000 $12,000 $10,000

$11,000.

The MRY Trust has adjusted total income of $10,000. This amount includes a $1,000 capital loss. The trust had no tax-exempt interest income for the year. From the information below, determine the trust's distributable net income. $9,000 $11,000 $10,000 None of the answers are correct.

$11,000. Add back the capital loss to get 11,000.

Will, a cash-basis taxpayer, died on June 30 of the current year. Prior to his death, Will entered into a contract for the sale of land, and the sale was closed on June 25th. However, payment for the land was not received prior to Will's death. In September, the estate received $188,000, representing the $78,000 profit Will would have earned had he lived. His estate also received $24,000 total rent for the months April through December and $32,000 salary earned by Will prior to his death. How much is considered income in respect of a decedent? $110,000 $32,000 $40,000 $118,000

$118,000. Total is 78,000+32,000+8,000(24,000x(3/9 months before death))= 118,000.

The adjusted basis of Eliot's interest in a partnership was $60,000. He received a non-liquidating distribution of $48,000 cash plus a piece of equipment with a fair market value and a partnership adjusted basis of $18,000. Eliot's basis for the equipment is $12,000 $18,000 $6,000 $0

$12,000. Basis of new property cannot exceed the adj basis of the interest less any money received in the agreement. So, 60,000-48,000= 12,000.

An estate has $8,000 of dividends from domestic corporations and $6,000 of tax-exempt interest. Its only expense is $1,000 of interest incurred to carry the tax-exempt bonds. What is the estate's distributable net income (DNI)? $8,000 $13,000 $10,400 $7,400

$13,000. 8,000+5,000(6,000-1,000)= 13,000. Before the 600 personal exemption is taken.

Carolyn died in the current year. The terms of her will require the estate to pay $30,000 from assets of the estate to each of her three children in the year of her death. In addition, $20,000 a year is to be paid to each child out of the estate's income. There were no charitable contributions. In the current year, the estate had income of $45,000 after paying $10,000 in expenses. How much does each child include in gross income? $15,000 $45,000 $18,333 $50,000

$15,000. 45,000/3= 15,000

An irrevocable trust was established for the medical care of Joan's mother. During the tax year, the trust received interest and dividend income in the amount of $20,000. Per the trust provisions, the trustee paid $10,000 of medical expenses directly to the care provider. It also paid $1,000 of investment interest expense. Assuming that this is a complex trust, determine the trust's distributable net income for the year. $20,000 $10,000 $9,000 $19,000

$19,000. 20,000-1,000= 19,000.

After Mary's death on August 1 of the current year, her estate received the following: $50,000 life insurance proceeds $1,000 interest income from a certificate of deposit that matured on August 5 of the current year $2,000 annual royalty on a patent What amount of taxable income must be reported on the current-year U.S. Income Tax Return for Estates and Trusts (Form 1041)? $53,000 $3,000 $2,400 $52,400

$2,400. 1,000+2,000-600 exemption deduction.

Ann, a cash-basis taxpayer, died on September 30 of the current year. The following are Ann's items of income and gain during the year: Rent income allocated evenly throughout the year $14,000 Collection of accounts receivable on November 24th $2,400 Salary for August, received on September 14th $16,000 What is Ann's income in respect of a decedent for the year? $21,900 $16,400 $2,400 $0

$2,400. The rent for the last 3 months has not accrued at the time of her death.

A simple trust has tax-exempt interest income of $10,000 and rental income of $15,000. Fiduciary fees of $5,000 are entirely allocable to the rental income. There is $2,000 of depreciation, but the trust is not required to set up a reserve. All the income is distributable to the beneficiaries. What is the trust's distributable net income? $8,000 $10,000 $20,000 $18,000

$20,000. 10,000+15,000-5,000= 20,000.

Mr. Justin, a cash-basis taxpayer, died on January 21 of the current year. His estate received the following income and incurred the following expenses during the year: Gain on sale of asset $10,400 Dividend income $14,000 Interest income $6,000 Administration expenses $2,800 The personal representative filed a statement waiving the right to claim the administration expenses as a deduction for federal estate tax purposes. What is the estate's taxable income for the year? $17,200 $16,600 $27,600 $27,000

$27,000. 10,400+14,000+6,000-28,000-600 exemption deduction= 27,000.

The ABC Trust has only nondisabled beneficiaries. The trust is not required to distribute its net income to its beneficiaries, but it does make discretionary distributions. From the information below, determine the amount of taxable income that will be taxed to the trust on its 2021 return (deduct the exemption amount before selecting the answer): Adjusted total income $70,000 Distribution deduction $40,000 $29,400 $29,900 $29,700 $30,000

$29,900. 70,000-40,000= 30,000. Because the trust is a complex trust, ABC Trust is allowed a personal exemption of $100.

The MLN Trust had the following income and deductions. Taxable interest $4,000 Capital gain $1,000 Fiduciary fee $500 Assuming that capital gains are allocable to corpus, determine the trust's distributable net income. $3,500 $4,000 $4,500 $5,000

$3,500. 4,000-500= 3,500.

Anissa is the sole beneficiary of her father's estate. The estate was closed 10 months after her father's death, and the executor is filing one (first and final) Form 1041. After all expenses of the estate were paid, the following amounts were paid out to Anissa: Cash $12,000 IRA (decedent had no basis) $300,000 Wages paid after death $6,000 Stock $75,000 Life insurance $150,000 How much, if any, of the payment will be reported on Anissa's Form 1040 federal income tax return? $0 $543,000 $6,000 $306,000

$306,000.

On January 1, Year 1, Mr. Kolter, a cash-basis taxpayer, sold an office building and reported the sale using the installment method of accounting. The net sale price was $300,000, and its cost basis was $150,000. The installment agreement called for five equal annual payments (plus accrued interest) due on January 1 beginning one year from the sale date. Since Mr. Kolter died on July 1, Year 5, the executor of his estate collected the final installment payment plus $7,000 of accrued interest. Assuming the estate uses a calendar-end tax year, how much income in respect of a decedent should Mr. Kolter's estate include on the Form 1041 for Year 6? $37,000 $33,500 $3,500 $30,000

$37,000. 150,000/300,000= 50% gross profit margin. 60,000 installment receiptx50%+ 7,000 accrued interest= 37,000. Rest is merely a return of capital.

Bill Johnson's will provided that $10,000 a year would be paid to his widow and $5,000 a year to his son out of the estate's income. There were no charitable contributions made. If the estate's distributable net income for the year was $12,000, how much of the distribution to Bill's son is taxable to him? $5,000 $8,000 $10,000 $4,000

$4,000. Proportion was 2:1, so 8,000 to widow and $4,000 to son.

Trust C, a simple trust, has taxable interest of $8,000, tax-exempt interest of $12,000, and a short-term capital gain of $16,000. The trust instrument provides that capital gains are allocable to corpus. There are two equal beneficiaries. How much gross income does each beneficiary have from Trust C? $12,000 $4,000 $6,000 $10,000

$4,000. Total income is 20,000, but taxable is the 8,000 interest, so 50%x8,000= 4,000.

John died on January 1, 2021. A calendar year was elected for his estate. No distributions were made by the estate. Based on the following, what is the taxable income (Form 1041) of the estate for the December 31, 2021, year end? Allow for the estate's exemption amount. $2,000 in taxable interest $1,000 in tax-exempt interest $3,000 in capital gain $300 in executor's fees $4,900 $4,200 $6,300 $4,800

$4,200. 2,000+3,000-200= 4,800-600 estate exemption= 4,200 taxable income.

Gardner, a U.S. citizen and the sole income beneficiary of a simple trust, is entitled to receive current distributions of the trust income. During the year, the trust reported: Interest income from corporate bonds $5,000 Fiduciary fees allocable to income $750 Net long-term capital gain allocable to corpus $2,000 What amount of the trust income is includible in Gardner's gross income? $0 $5,000 $4,250 $7,000

$4,250. 5,000-750= 4,250.

Ms. Brown died on June 30 last year. During the current year, her estate received the following: Interest income $2,500 Dividend income $5,000 Long-term capital gain $2,500 Pursuant to her will, 50% of all income was to be distributed to a specific qualifying charitable organization. The executor complied with the provision in a timely manner. Assuming all income was accumulated, what is the estate's taxable income for the current year? $10,000 $2,500 $5,000 $4,400

$4,400. The total income of the estate is $10,000. A deduction for the charitable contribution reduces the income to $5,000. A $600 exemption deduction is then permitted, making the taxable income $4,400.

Mr. Green, a cash-basis taxpayer, died June 30 of the current year. A review of his records reflected that, as of June 30 of the current year, he had received interest of $800 and wages of $40,000. Also, on stock that he owned, a $600 dividend was declared on June 20 of the current year and was payable on July 15 of the current year. What is the amount of income to be reported on Mr. Green's final income tax return? $40,000 $40,600 $40,800 $41,400

$40,800. 40,000+800= 40,800.

Mr. A sold a tract of land and reported the sale using the installment method of accounting. The net sale price was $80,000, and the cost basis was $40,000. After A's death, the final $10,000 installment (plus interest) was collected by his personal representative. What amount (other than interest) must be reported as profit on a Form 1041, U.S. Income Tax Return for Estates and Trusts, for the year in which the $10,000 was received? $2,500 $5,000 $0 $10,000

$5,000. The gross profit margin is 50%(40,000/80,000). So, 10,000x50%= 5,000 income in respect of a decedent. The remaining $5,000 is merely a return of capital.

ABC Trust had the following income and deductions: Taxable interest $5,000 Capital gain $1,000 Fiduciary fee $700 The trust had no tax-exempt income for the year. Per the trust instrument, capital gains are not allocated to corpus. What is the distributable net income (DNI)? $4,300 $5,300 $6,000 $4,700

$5,300. 5,000+1,000-700= 5,300.

Given the following information, what is the distributable net income for the simple trust established by Mr. Bill? Dividend income $20,000 Taxable interest income $25,000 Tax exempt interest income $10,000 Long-term capital gains (capital gains are allocable to corpus) $20,000 Fiduciary fees $5,000 $50,000 $40,000 $60,000 $70,000

$50,000. 20,000+25,000+10,000-5,000= 50,000.

Under the terms of the trust agreement, the income of the W Trust is required to be currently distributed to Ryan during his life. Capital gains are allocable to corpus, and all expenses are charged against corpus. During the taxable year, the trust had the following items of income and expenses: Dividends from domestic corporations $30,000 Taxable interest $20,000 Nontaxable interest $10,000 Long-term capital gains $15,000 Commissions and miscellaneous expenses allocable to corpus $6,000 The trust's distributable net income is $50,000 $75,000 $69,000 $54,000

$54,000. 30,000+20,000+10,000-6,000= 54,000.

Trust B has distributable net income of $60,000, which includes $5,000 of tax-exempt income. The trustee distributed $75,000 to the trust's sole beneficiary. What amount will be shown as the distribution deduction on the trust's Form 1041? $55,000 $60,000 $70,000 $75,000

$55,000. The DNI is less than the distribution. The $60,000 of DNI for Trust B is reduced by the $5,000 of tax-exempt income for a total of $55,000. This amount is then shown as the distribution deduction on the trust's Form 1041.

Orsen, a U.S. citizen and the sole income beneficiary of a simple trust, is entitled to receive current distributions of the trust income. During the current year the trust reported: Dividend income $8,000 Accounting fees allocable to income $(2,000) Net short-term capital gain allocable to corpus $3,000 What amount of the trust income is includible in Orsen's gross income? $8,000 $6,000 $9,000 $0

$6,000. 8,000-2,000= 6,000

Charmaine, who was single, died on September 15 of the current year. She had purchased land in February of the same year for $10,000. When she died, the land had a fair market value of $10,500. The alternative valuation date was not elected. Her estate, the legal owner, sold the land in December for $12,000. Her estate also received the following: Salary owed Charmaine $3,000 Interest from banks $1,000 Dividends $800 What is the taxable income of Charmaine's estate before the personal exemption if no distributions were made to beneficiaries during the current year? $6,300 $6,800 $4,800 $3,800

$6,300. 3,000+1,000+800= 4,800 earned income by the decedent taxable to the estate. 12,000-10500 basis= 1,500 capital gain. 4,800+1,500= 6,300 total taxable income.

Paul is the sole beneficiary of a trust that his father set up before his father's death. Given the following information, how much trust income, if any, must Paul report on his tax return? Adjusted total income $9,000 Adjusted tax-exempt interest $1,000 Distributable net income $10,000 Required distributions $5,000 Discretionary distributions $2,500 $6,750 $5,000 $10,000 $9,000

$6,750. 5,000+2,500-750(1,000x(7,500/10,000) amount of tax exempt distributions.

Trust X invests solely in stocks and bonds. During the year, it received the following: Interest from corporate bonds $6,000 Interest from tax-exempt municipal bonds $2,000 Taxable dividends $2,000 Trust X also paid its trustee $1,000 for earning all of the above investment income. What is Trust X's taxable income before the exemption? $9,000 $7,000 $9,800 $7,200

$7,200. 6,000+2,000 dividends-800(1,000x80% of the applicable fee)= 7,200.

A trust was required to distribute $10,000 a year to its sole beneficiary out of the trust's income for the year. In the current year, the distributable net income of the trust was $8,000 and the actual amount distributed was $7,000. How much income must the beneficiary report for the current year? $10,000 $7,000 $8,000 $0

$8,000.

In Year 1, Thomas established the TWH Trust. TWH is a revocable trust. Thomas contributed cash, a significant stock portfolio and tax-exempt bonds to this trust when he established it. In Year 3, the TWH Trust had income consisting of $5,000 in taxable interest, $3,000 in ordinary dividends, and $2,000 in tax exempt interest. Thomas has never relinquished dominion and control of the TWH Trust. What amount of TWH Trust's income is taxable to Thomas in Year 3? $0 $5,000 $8,000 $10,000

$8,000. 5,000+3,000= 8,000.

Stan is the personal representative of his brother, Bruce, who died June 30, 2021. Stan has obtained an identification number for Bruce's estate and has notified the IRS on Form 56 that he has been appointed executor. He has filed his brother's final return for 2021 and has the following information regarding Bruce's remaining estate. What will be the taxable income of the estate? Unpaid salary not received by Bruce before he died $6,000 Dividend check on XYZ stock received August 15, 2021 $600 Form 1099 interest earned on savings after death $2,000 Sales price of coin collection sold to unrelated person $10,000 Value of the coins at the date of death $9,000 Attorney's fees for administration of the estate $1,000 $8,600 $17,600 $8,000 None of the answers are correct.

$8,000. Unpaid salary $6,000+Dividend income 600+Interest income 2,000+Gain on sale of coins 1,000-Administrative expense (1,000)-Exemption deduction (600)= Estate's taxable income $8,000

Mr. Benson, a cash-method, calendar-year taxpayer, leased his farm for pasture land each August for 1 year at $2,000 per year, payable when the lease was signed. He died on June 30 of the current year. Your review of his records, as a personal representative, reflected that, as of the date of his death, he had received interest of $8,000. You also found a dividend check in the amount of $650, which was undeposited and had been received on June 15 of the current year. What is the amount of income to be included on Mr. Benson's final income tax return? $8,000 $8,650 $10,000 $10,650

$8,650. If the decedent accounted for income under the cash method, only the items actually or constructively received before the date of death are included on the final return. Constructive receipt occurred if the income became available for use by the decedent without restriction. The interest received ($8,000) and the dividends constructively received ($650) are included in income. The rent is not included because it was not constructively received.

Mrs. Butler, a cash-method taxpayer, died on July 31 of the current year. A review of her records reflected that, as of July 31, she had received interest of $500 and wages of $80,000. Also, on stock that she owned, an $800 dividend was declared on June 20 and was payable on July 31. The dividend check was not received until August 3. What is the amount of income to be reported on Mrs. Butler's final income tax return? $81,300 $80,800 $80,500 $80,000

$80,500. 80,000+500= 80,500.

Pablo died October 10 of the current year. Prior to his death, Pablo had done the following: He sold and delivered a truckload of oranges to a co-op but did not receive the $3,000 payment prior to his death. The payment was made to his executor. He sold a truck to Roscoe for $5,000, but the payment was not received until after his death. Pablo's basis in the truck was $1,000. What is the amount of income in respect of a decedent for the above two payments? -$3,000 for the oranges and $4,000 for the truck. -None of the answers are correct. -No amount for either transaction. -$3,000 for the oranges and $5,000 for the truck.

-$3,000 for the oranges and $4,000 for the truck.

Taxpayer D was recently issued a civil fraud penalty connected to a fraudulent trust for splitting business income over multiple entities. D may be liable for -Up to 75% of the original taxes owed in addition to the tax underpaid. -100% of the tax underpaid in addition to the taxes owed. -Up to 90% of the difference between the taxes owed and the taxes paid. -100% of the taxes owed.

-100% of the taxes owed.

The John Q estate fiscal tax year runs from April 1, 2020, to March 31, 2021. The estate made distributions to beneficiaries on December 12, 2020, and March 15, 2021. Assuming the estate has taxable income, in what year will its beneficiaries be required to report taxable distributions? -2021. -Both 2020 and 2021. -Neither 2020 or 2021. -2020.

-2021.

Which of the following expenses may be deducted in computing the taxable income of an estate (Form 1041)? 1. Funeral expenses of decedent 2. Medical and dental expenses of decedent paid by estate 3. Alimony payments paid out of estate income 4. Decedent's prior-year net operating loss carryover 5. Estate net accounting income distributed to beneficiaries -3 and 5. -1 and 3. -4 and 5. -2.

-3 and 5.

Which of the following is NOT an example of income in respect of a decedent? -The taxable portion of an inherited IRA. -The taxable portion of payments received on an inherited installment obligation. -Wages earned before death, but unpaid at the time of death. -A dividend check that was received by the decedent, but cashed after death.

-A dividend check that was received by the decedent, but cashed after death.

Which of the following statements regarding the various types of trusts is NOT true? -A trust may qualify as a simple trust if all income must be distributed currently. -A trust may qualify as a simple trust if the trust does not distribute amounts allocated to the corpus of the trust. -A grantor trust is a separate taxable entity in which the grantor has not relinquished complete dominion and control over the trust. -A complex trust is any trust that does not qualify as a simple or grantor trust.

-A grantor trust is a separate taxable entity in which the grantor has not relinquished complete dominion and control over the trust.

Alice, a cash-basis taxpayer, died August 31 of the current year. During the current year, the following amounts were paid to her estate: $1,000 dividend from the ABC Corp., which was declared on August 25 and received in the mail on September 2. $5,000 distributive share of XYZ Partnership income received on October 3 of the current year. This distribution was for the partnership's tax year ended September 30 of the current year. What income must be included on Alice's final individual income tax return for the dividend and partnership payments? -The $1,000 dividend and a pro rata portion of the $5,000 partnership income. -The $1,000 dividend but no portion of the partnership income. -A pro rata portion of the partnership income but not the $1,000 dividend. -No income from either payment.

-A pro rata portion of the partnership income but not the $1,000 dividend.

Which of the following statements is NOT true regarding the income taxation of trusts? -A trust (except for a grantor-type trust) is a separate legal entity for federal tax purposes. -A trust may be created only during the life of the grantor. -A trust figures its gross income in much the same manner as an individual. -A trust is allowed an income distribution deduction for distributions to beneficiaries.

-A trust may be created only during the life of the grantor.

Which of the following receipts should be allocated exclusively to income by a trustee? -A stock dividend. -A very large year-end cash dividend. -A stock split. -A liquidating dividend whether in complete or partial liquidation.

-A very large year-end cash dividend. Cash dividends are exclusively allocable to income. Cash dividends are not a change in the form of the principal; rather, they represent earnings from the principal (corpus).

John, a self-employed carpenter, died on January 8 of the current year. Which of the following, if allowable, could be deducted on John's final Form 1040? -Standard deduction. -Unused net operating loss carryover from last year. -Medical expenses paid by the estate within 1 year of death. -All of the answers are correct.

-All of the answers are correct.

In general, with regard to net operating losses (NOLs), which of the following statements is true? -An estate or trust may elect to carry its net operating loss forward only. -A decedent's deduction for NOLs from business may not be taken on the final return. -An estate or trust may carry its net operating loss back 2 years. -An estate or trust may use the net operating loss not able to be used by the decedent in his final Form 1040 filing.

-An estate or trust may elect to carry its net operating loss forward only.

Fred, a calendar-year, cash-basis taxpayer who died in June of the current year, was entitled to receive a $10,000 accounting fee that had not been collected before the date of death. The executor of Fred's estate collected the full $10,000 in July of the current year. This $10,000 should appear in -Only the decedent's final individual income tax return. -Only the estate's fiduciary income tax return. -Only the decedent's estate tax return. -Both the fiduciary income tax return and the estate tax return.

-Both the fiduciary income tax return and the estate tax return.

Rudy, a cash-basis taxpayer, received $50,000 in wages before his death. In addition, his stock portfolio paid $4,000 in dividends, $2,500 of which was paid to him before his death. By what date is Form 1041, U.S. Income Tax Return for Estates and Trusts, required to be filed? -Form 1041 is not required to be filed. -Nine months after death. -By the 15th day of the 4th month after the end of the tax year selected by the estate's personal representative. -By the 15th day of the 3rd month after the end of the tax year selected by the estate.

-By the 15th day of the 4th month after the end of the tax year selected by the estate's personal representative.

Christopher wants to create a revocable grantor trust that will own all of his stocks and rental properties. Which statement regarding income of the trust is true? -Christopher will be taxed only income that is distributed to him. -Christopher will be taxed on all income of the trust, regardless of distributions. -State law will determine how much of the trust income is taxable to Christopher. -If the rental income is passive, it will not be taxable to him.

-Christopher will be taxed on all income of the trust, regardless of distributions.

Which of the following governmental bodies enacts statutes regarding the tax treatment of trusts? -The SEC. -The IRS. -The U.S. Treasury. -Congress.

-Congress.

A criminal conviction may result in which of the following? -A penalty of 75% of underpayment of tax. -A maximum fine of $600,000. -Fines and/or prison time for each offense. -A minimum of 10 years in prison.

-Fines and/or prison time for each offense.

Which of the following statements is true regarding estate income tax returns filed on Form 1041? -Form 1041 has its own tax rate schedule. -Estates are never liable for the alternative minimum tax. -All estates are subject to the same estimated tax rules that apply to Form 1040. -None of the answers are correct.

-Form 1041 has its own tax rate schedule. Form 1041 is subject to a tax rate schedule that reaches the 37% tax bracket in 2021 for taxable incomes exceeding $13,050.

James Smith, a cash-basis taxpayer, received $35,000 in wages before his death on July 7 of the current year. In addition, his stock portfolio paid $12,000 in dividends, $11,500 of which was paid to him before his death. By what date is Form 1041 required to be filed? -Form 1041 is not required to be filed. -Nine months after death. -By the 15th day of the 4th month after the end of the tax year selected by the estate's personal representative. -By the 15th day of the 3rd month after the end of the tax year selected by the estate.

-Form 1041 is not required to be filed. Only 500 dividends after death, so Form 1041 is not required.

James Smith, a cash-basis taxpayer, received $35,000 in wages before his death on July 7 of the current year. In addition, his stock portfolio paid $12,000 in dividends, $11,500 of which was paid to him before his death. By what date is Form 1041 required to be filed? -Form 1041 is not required to be filed. -Nine months after date of death. -By the 15th day of the 4th month after the end of the tax year selected by the estate's personal representative. -By the 15th day of the 3rd month after the end of the tax year selected by the estate.

-Form 1041 is not required to be filed. Under Sec. 6012(a)(3), every estate that has gross income of $600 or more must file an income tax return. Under Reg. 1.6012-3, the return to be filed by a fiduciary for an estate or a trust is Form 1041. Section 6072 requires the return to be filed on or before the 15th day of the 4th month after the end of the tax year. Because Mr. Smith's income after death is less than $600, the estate does not have to file a return.

What civil sanctions may result from the establishment of a fraudulent trust? -Fraud penalty of up to 50% of the underpayment of tax attributable to the fraud. -Fines up to $250,000 for individuals ($500,000 for corporations) and/or up to 5 years in prison for each offense. -Fines up to $250,000 for individuals ($500,000 for corporations). -Fraud penalty of up to 75% of the underpayment of tax attributable to the fraud.

-Fraud penalty of up to 75% of the underpayment of tax attributable to the fraud.

With regard to a trust, which of the following statements is false? -Generally, the trust is taxed on the income currently distributed and on the portion it has accumulated. -If income is required to be distributed currently or is properly distributed to a beneficiary, the trust is regarded as a conduit with respect to that income. -A trust is a separate taxable entity. -The income allocated to a beneficiary retains the same character in his or her hands as it had in the hands of the trust.

-Generally, the trust is taxed on the income currently distributed and on the portion it has accumulated.

All of the following are true regarding Income in Respect of a Decedent (IRD) EXCEPT -The character of the IRD remains the same as it would have been to the decedent had they not passed. -If an individual receives IRD and includes it on their return, they are not allowed a deduction for the estate tax attributable to the item of IRD as reported on Form 706. -IRD must be included as income on either the decedent's estate return, if the estate receives it, or the beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it, or any person to whom the estate properly distributes the right to receive it. -IRD is income the decedent would have received had death not occurred that was not properly included in the decedent's final return.

-If an individual receives IRD and includes it on their return, they are not allowed a deduction for the estate tax attributable to the item of IRD as reported on Form 706.

Taxpayer C has recently been assessed a civil penalty as a result of a fraudulent trust. The purpose of the trust was to split income over multiple entities in an attempt to minimize taxes. The penalty may be -A fine of $250,000 for individuals ($500,000 for corporations) and 5 years in prison. -A fine of $200,000. -In addition to the taxes originally owed. -Linked to a criminal conviction.

-In addition to the taxes originally owed.

Which of the following statements regarding grantor trusts is true? -Income from a grantor trust is taxed to the grantor in the same manner as if no trust existed. -A grantor trust is a good way to shelter income. -A grantor of a trust does not report income from the trust unless distributions are made from the trust. -All of the statements are true.

-Income from a grantor trust is taxed to the grantor in the same manner as if no trust existed.

A paycheck issued after the date of death to a taxpayer for work performed prior to death is considered -Non-taxable income. -Excess compensation. -Income in respect of a decedent. -Deferred income.

-Income in respect of a decedent.

The taxable income of estates and trusts is generally computed in the same manner as that of which type of taxpayer? -Association. -Individual. -Corporation. -Partnership.

-Individual.

Which one of the following statements concerning the consequences of income being classified as "income in respect of a decedent" is true? -It receives no step-up in basis upon the decedent's death. -It is all treated as ordinary income to recipient. -It is all taxable to the decedent's estate. -It must be included in the decedent's final return.

-It receives no step-up in basis upon the decedent's death.

On December 15, Year 1, Kyle received a $10,000 distribution from his father's estate. On March 30, Year 2, Kyle was issued Schedule K-1 for the estate's first fiscal year (February 1, Year 1, through January 31, Year 2). The Schedule K-1 from the estate showed taxable interest income of $200 and had no other entries. Based on the information above, which of the following statements are true? -Kyle must report income of $10,000 on his Year 2 return. -Kyle must report $200 interest income on his Year 2 return. -Kyle may claim a deduction on Schedule A for a pro rata share of the estate tax that was paid by the estate. -Kyle must report $200 interest income on his Year 2 return and he may also claim a deduction on Schedule A for a pro rata share of the estate tax that was paid by the estate.

-Kyle must report $200 interest income on his Year 2 return. The information in the question does not indicate whether there was any IRD. From the information, it must be assumed that the $10,000 was a nontaxable distribution of estate assets. It also should be assumed that the $200 represented income earned by the estate that flowed through to Kyle and was not IRD. Thus, Kyle would report only the $200 as income.

In the current year, the estate of Mr. B received the income listed below. No income was distributed to Mr. B's beneficiaries in the current year. All of the following items are considered gross income of the estate EXCEPT -Partnership income. -Life insurance proceeds. -Interest on life insurance. -Dividends received.

-Life insurance proceeds.

For income tax purposes, all estates -Must adopt a calendar year regardless of the year the estate was established. -Must use the same taxable year as that of its principal beneficiary. -May adopt a calendar year or any fiscal year. -Must adopt a calendar year, except for existing estates with fiscal years that ended in 1987.

-May adopt a calendar year or any fiscal year.

Which of the following statements is false? -The beneficiary of an estate or trust may be taxed on money required to be distributed whether actually distributed or not. -Money distributed to a beneficiary from an estate is taxed twice-on the estate return and on the beneficiary's return. -Tax-exempt interest distributed to a beneficiary is not taxable to the beneficiary. -Losses of estates and trusts are generally not deductible by the beneficiaries.

-Money distributed to a beneficiary from an estate is taxed twice-on the estate return and on the beneficiary's return.

Which of the following is NOT an abusive technique used to reduce income taxes? -Depreciation of personal assets. -Reporting income wired overseas. -Deduction of personal expenses. -Splitting income over multiple entities.

-Reporting income wired overseas.

The trustee of a simple trust has prepared Form 1041 for the tax year ending December 31 of the current year. After determining the proportionate share of distributable net income for each beneficiary, the trustee must provide the beneficiary a copy of which federal form for inclusion on the beneficiary's Form 1040 for the current year? -No form, since a simple trust does not distribute income. -Form 1099-t. -Form 1099-MISC. -Schedule K-1 (Form 1041).

-Schedule K-1 (Form 1041).

All of the following might include income in respect of a decedent EXCEPT -The estate's return, if the estate receives it. -The decedent's final return. -The beneficiary's return, if the right to income is passed directly to the beneficiary and the beneficiary receives it. -The return of any person to whom the estate properly distributes the right to receive income.

-The decedent's final return.

If you are the beneficiary of an estate that must distribute all its income currently (and none is tax-exempt), you must report your share of -The distributable net income that you have actually received. -None of the answers are correct. -The distributable net income whether or not you have actually received it. -The distributable net income plus all other amounts actually paid to you.

-The distributable net income whether or not you have actually received it.

In which circumstance must an estate of a decedent make estimated tax payments? -An estate is never required to make estimated tax payments. -The estate has a first tax year that covers 12 months. -The estate has income in excess of $400. -The estate has a tax year ending 2 or more years after the date of the decedent's death.

-The estate has a tax year ending 2 or more years after the date of the decedent's death.

Gary died on March 18 of the current year. The estate's tax year ends on December 31 of the current year. The estate had the following items of income during the year: Interest $250 Dividends $150 Stock sale-stock proceeds net of broker's commission $10,000 Basis of the stock $9,900 The estate made no distributions during the current year. Which of the following statements regarding the requirement to file a Form 1041 tax return are true? -The estate is not required to file a tax return. -The estate is required to file a tax return. -The estate is required to file a tax return and, if the estate has expenses that reduce it's income below $600, no estate tax is required. -If the estate has expenses that reduce it's income below $600, no estate tax is required.

-The estate is not required to file a tax return. 250+150= 400 total taxable income. Not required to file.

What is the tax consequence of a taxpayer receiving the wages that were due to a decedent at the time of their death? -There is no tax consequence. Inheritances are not taxable. -The income is considered a ST capital gain if it is paid out within 1 year of the decedent's death. -The income is considered ordinary income just as it would have been considered for the decedent. -The income is considered a LT capital gain because it was inherited.

-The income is considered ordinary income just as it would have been considered for the decedent.

If an extension is not granted, when must Form 706 be filed to report estate and/or generation-skipping transfer tax? -Within 1 year of the date of death. -Within 9 months after the date of death. -Within 6 months after the date of death. -By the 15th day of the fourth month following the date of death.

-Within 9 months after the date of death.

Under the terms of the will of Rick Waters, $6,000 a year is to be paid to his widow and $3,000 a year to his daughter out of the estate's income during the period of administration. There are no charitable contributions. For the year, the estate's distributable net income is only $6,000. How much must the widow and the daughter include in their gross incomes? Widow-Daughter $4,000-$2,000 $2,000-$1,000 $3,000-$3,000 $6,000-$3,000

Widow $4,000-Daughter $2,000.Each beneficiary receives a proportional amount. For them, the proportion is 2 to 1. So for every 1,000 that the daughter receives, the widow gets 2,000.