Fed Tax - Specialized Returns
The JLB trust is a simple trust. Alan 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 a) $1,000 b) $1,500 c) $2,000 d) $3,000
a) $1,000
The decedent died on June 30. The decedent used the cash method of accounting and a calendar year-end. What total amount of the following is includible in the decedent's final return (Form 1040)? Total received during the tax year $5,000: Taxable Interest (earned and received equally all year) $2,000 Dividends (declared on June 15 and received on July 10) $500 Final wages (received July 10) $2,500 a) $1,000 b) $2,500 c) $4,000 d) $3,500
a) $1,000
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? a) $11,000 b) $12,000 c) $2,000 d) $10,000
a) $11,000
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. a) $3,500 b) $4,000 c) $4,500 d) $5,000
a) $3,500
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 is taxable to Bill's son? a) $4,000 b) $5,000 c) $8,000 d) $10,000
a) $4,000
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? a) $55,000 b) $60,000 c) $70,000 d) $75,000
a) $55,000
Which of the following items is NOT an allowable deduction on a decedent's estate tax return? a) Bequest to a surviving ex-spouse b) Property taxes accrued before death but not paid until after death c) Executor's fees for administering the estate d) None of the items is allowed as a deduction against the decedent's estate
a) Bequest to a surviving ex-spouse
Which of the following statements is true regarding estate income tax returns filed on Form 1041? a) Form 1041 has its own tax rate schedule b) Estates are never liable for the alternative minimum tax c) All estates are required to make estimated tax payments d) None of the above
a) Form 1041 has its own tax rate schedule
An organization may qualify under Section 501(c)(3) if it is organized exclusively for which of the following purposes? a) charitable b) business c) political action d) personal
a) charitable
All of the following returns would include income in respect of a decedent EXCEPT: a) the final Form 1040 for the decedent b) the decedent's estate, Form 1041, if the decedent's estate receives right to the income c) the Form 1040 of any person to whom the decedent's estate properly distributes the income d) the beneficiary's Form 1040, if the right to income arising out of the decedent's death is passed directly to the beneficiary and is never acquired by the decedent's estate
a) the final Form 1040 for the decedent
The Alan Trust must distribute all of its income annually. Shown below are the trust's income and expenses for the year ($100 of the fiduciary fee is allocable to the nontaxable interest). Based on this information, how much taxable income will be passed through to the trust's beneficiaries? Taxable interest $3,000 Tax-exempt interest $1,000 Fiduciary fee $400 a) $2,600 b) $2,700 c) $3,000 d) $3,600
b) $2,700
John died on January 1. 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 year end? Allow for the estate's exemption amount. Taxable interest $2,000 Tax-exempt interest $1,000 Capital gain $3,000 Executor's fees $300 a) $6,300 b) $4,200 c) $4,100 d) $4,900
b) $4,200
XYZ Trust is a complex trust. What is the trust's distribution deduction based on the following information (capital gains are allocated to income, there is no interest income, and there is no charitable contribution): Adjusted Total Income $10,000 Capital Gain (included in Adjusted Total Income) $2,000 Income required to be distributed currently $5,000 a) $10,000 b) $5,000 c) $0 d) $8,000
b) $5,000
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 as taxable on his tax return? Adjusted total income $9,000 Adjusted tax-exempt interest $1,000 Distributable net income$10,000Required distributions$5,000Discretionary distributions$2,500 a) $5,000 b) $6,750 c) $9,000 d) $10,000
b) $6,750
A trust was required to distribute $10,000 a year to its sole beneficiary out of the trust's income for the year. For 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? a) $10,000 b) $8,000 c) $0 d) $7,000
b) $8,000
The John Q estate fiscal tax year runs from April 1, 20X1, to March 31, 20X2. The estate made distributions to beneficiaries on December 12, 20X1, and March 15, 20X2. Assuming the estate has taxable income, in what year(s) tax return(s) will its beneficiaries be required to report taxable distributions on? a) 20X1 b) 20X2 c) Both 20X1 and 20X2 d) Neither 20X1 nor 20X2
b) 20X2
Which of the following is NOT an example of income in respect of a decedent? a) Wages earned before death, but unpaid at the time of death b) A dividend check that was received by the decedent, but cashed after death c) The taxable portion of an inherited IRA d) The taxable portion of payments received on an inherited installment obligation
b) A dividend check that was received by the decedent, but cashed after death
Of the organizations listed below, which organization could not receive approval for tax-exempt status under Internal Revenue Code section 501(C)(3)? a) A local chapter of the Salvation Army b) A partnership for scientific research c) A college alumni association d) A local boys club
b) A partnership for scientific research
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? a) Christopher will be taxed only income that is distributed to him. b) Christopher will be taxed on all income of the trust, regardless of distributions. c) State law will determine how much of the trust income is taxable to Christopher. d) If the rental income is passive, it will not be taxable to him.
b) Christopher will be taxed on all income of the trust, regardless of distributions.
Trust A is a simple trust with two equal beneficiaries, Jim and Randy. The trust had $30,000 of distributable net income, all from taxable interest. During the year, the trust distributed $5,000 to Jim and $10,000 to Randy. Based on this information, the trustee should issue K-1's as follows: a) Jim $5,000; Randy $10,000 b) Jim $15,000; Randy $15,000 c) Jim $10,000; Randy $20,000 d) Jim $30,000; Randy $30,000
b) Jim $15,000; Randy $15,000
Mrs. A died on June 30. 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 income, $20,000 to each child during the year. For the year, the estate had net earnings of $30,000. Without considering any exemptions or deductions on the estate income tax return, how much income will each child report? a) $20,000 ordinary income b) $40,000 ordinary income c) $10,000 ordinary income d) $0
c) $10,000 ordinary income
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. What is the trust's distributable net income? a) $9,000 b) $10,000 c) $11,000 d) None of the above
c) $11,000
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 tax return (deduct the exemption amount before selecting the answer): Adjusted total income $70,000 Distribution deduction $40,000 Exemption ? a) $29,400 b) $29,700 c) $29,900 d) $30,000
c) $29,900
Anissa's father died in February 20X1. Anissa is the sole beneficiary of her father's estate. The estate was closed December 20X1 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 in 20X1: Cash $12,000 IRA distribution of $300,000 (decedent had no basis) Wages paid after death $6,000 Stock $75,000 Life insurance $150,000 How much, if any, of the amounts paid, will be reported on Anissa's 20X1 Form 1040 income tax return? a) $0 b) $6,000 c) $306,000 d) $543,000
c) $306,000
What is the tax consequence of a taxpayer receiving the wages that were due to a decedent at the time of their death? a) There is no tax consequence. Inheritances are not taxable. b) The income is considered a long term capital gain because it was inherited. c) The income is considered ordinary income just as it would have been considered for the decedent. d) The income is considered a short term capital gain if it is paid out within one year of the decedent's death.
c) The income is considered ordinary income just as it would have been considered for the decedent.
John, a retired insurance salesman, died this year. Using the information below, determine the amount of income in respect of a decedent that must be reported on the estate's Form 1041 income tax return. Received Before Death (Received After Death) Wages $10,000 ($3,000) Renewal commissions $20,000 ($7,000) Life insurance (on John's life) ($100,000) a) $3,000 b) $10,000 c) $110,000 d) $170,000
b) $10,000
The LMH trust is a simple trust. Given the following information, determine the trust's distribution deduction. Adjusted total income $15,000 Adjusted tax-exempt interest (not included in total income) $2,000 Capital gain allocable to corpus $3,000 a) $10,000 b) $12,000 c) $13,000 d) $15,000
b) $12,000
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 trusts' distributable net income for the year. a) $20,000 b) $19,000 c) $9,000 d) $10,000
b) $19,000
On December 15, 20X1, Kyle received a $10,000 distribution from his father's estate. On March 30, 20X2, Kyle was issued Schedule K-1 for the estate's first fiscal year (February 1, 20X1 through January 31, 20X2). 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? a) Kyle must report income of $10,000 on his 20X2 return b) Kyle must report $200 interest income on his 20X2 return c) Kyle may claim a deduction on Schedule A for a pro rata share of the estate tax that was paid by the estate d) Both B and C
b) Kyle must report $200 interest income on his 20X2 return
Which of the following is NOT a credit against gross estate tax in determining net estate tax? a) Foreign death taxes b) Qualified charitable contributions c) Unified credit (applicable credit amount) d) Tax on prior transfers
b) Qualified charitable contributions
Which of the following is income in respect of a decedent? a) Cash received from grandmother's estate b) Royalties received on deceased father's published book; the right to receive these royalties was distributed from the father's estate c) Certificate of deposit received as gift d) Proceeds from life insurance policy
b) Royalties received on deceased father's published book; the right to receive these royalties was distributed from the father's estate
A small university which operates as a private not-for-profit organization has received tax exempt status from the Internal Revenue Service. Thus, the charity gets to use a nonprofit postal permit for its mailings which reduces its costs significantly. In addition, except for unrelated business income, the charity pays no federal income taxes. Gifts made to the organization are tax deductible by the donor. What is the label that is attached to this tax exempt status? a) Section 501 (c) (1) b) Section 501 (c) (3) c) Section 501 (c) (4) d) Section 501 (c) (6)
b) Section 501 (c) (3)
Mark died on December 22, 20X1. The executor of his estate chose a calendar year. In 20X2, the estate had a tax liability of $2,000. It is expected that the estate will have an adjusted gross income of $43,000 and a tax liability of $3,000 in 20X3. All of the income is from interest and dividends from which no tax was withheld. Which of the following statements regarding estimated tax payments for this estate are true? a) The executor does not need to make estimated tax payments because the estate is only in its third year of existence. b) The executor should make equal estimated payments totaling at least $2,000 (last year's tax liability) to avoid a penalty for underpayment of tax. c) The executor should make equal estimated payments totaling at least $3,000 to avoid the penalty for underpayment of tax. d) Because the 20X3 tax liability is no more than $1,000 greater than the prior-year liability, no estimated tax payments are required.
b) The executor should make equal estimated payments totaling at least $2,000 (last year's tax liability) to avoid a penalty for underpayment of tax.
The Morrison Trust requires that all trust income be distributed at least annually. There are no provisions for charitable contributions. To be treated as a simple trust, what must also be true? a) Trust income can consist of interest and dividends only b) There were no other distributions of corpus in the current year c) All beneficiaries must be U.S citizens or resident aliens d) All of the above
b) There were no other distributions of corpus in the current year
A paycheck issued after the date of death to a taxpayer for work performed prior to death is considered? a) non-taxable income b) income in respect of a decedent c) excess compensation d) deferred income
b) income in respect of a decedent
Under the terms of Robert's will, annual payments are to be made from the estate's income as follows: Spouse $10,000 Daughter $5,000 Son $5,000 There are no charitable contributions for the year and the distributable net income is $10,000. How much should each beneficiary include in their respective gross income? Spouse / Daughter / Son a) $10,000 / $0 / $0 b) $10,000 / $5,000 / $5,000 c) $5,000 / $2,500 / $2,500 d) None of the above
c) $5,000 / $2,500 / $2,500 The required estate distributions are $20,000. These would be fully includable in ordinary income. However, the estate's distributable net income ($10,000) is less than the required distributions. Since the distributable net income is only 50% of the required distribution, each beneficiary needs to report their pro rata share of the distributable net income as ordinary income ($5,000 or 50% for the widow, $2,500 or 25% for the son and $2,500 or 25% for the daughter).
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)? a) $6,700 b) $6,300 c) $5,300 d) $4,700
c) $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 $20,000 (Capital Gains are allocable to Corpus) Fiduciary Fees $5,000 a) $70,000 b) $60,000 c) $50,000 d) $40,000
c) $50,000
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 $20,000 (Capital Gains are allocable to Corpus) Fiduciary Fees $5,000 a) $70,000 b) $60,000 c) $50,000 d) $40,000
c) $50,000
Stan is the personal representative of his brother Bruce who died June 30. 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 Form 1040 return and has the following information regarding Bruce's remaining estate. What will be the taxable income of the estate? $6,000 Unpaid salary not received by Bruce before he died $600 Dividend check on XYZ stock received August 15 $2,000 Form 1099 interest earned on savings after death $10,000 Sales price of coin collection sold to unrelated person $9,000 Value of the coins at the date of death $1,000 Attorney's fees for administration of the estate a) $8,600 b) $17,600 c) $8,000 d) None of the above
c) $8,000
The Bob Trust is a Simple Trust. Per the information listed below, how much taxable income is passed through to the beneficiaries? Taxable interest $1,000 Tax-exempt interest $1,000 Fiduciary fee $400 a) $1,600 b) $600 c) $800 d) $1,800
c) $800
Trust Y has taxable interest and dividends of $9,000 and tax exempt interest of $1,000. The only expense the trust incurred was a trustee fee of $500. Based on this information, what amount of adjusted tax-exempt interest is included in the trust's distributable net income? a) $8,550 b) $500 c) $950 d) $1,000
c) $950
Which of the following organizations is not required to file an annual information return such as Form 990 or 990-EZ, Return of Organization Exempt From Income Tax? a) All are required to file; no exceptions. b) Any exempt organization with annual gross receipts exceeding $50,000. c) A convention or association of churches with annual gross receipts exceeding $50,000. d) Any Chamber of Commerce with annual gross receipts exceeding $50,000.
c) A convention or association of churches with annual gross receipts exceeding $50,000.
All of the following are true regarding Income in Respect of a Decedent (IRD) EXCEPT: a) IRD is income the decedent would have received had death not occurred. b) The character of the IRD remains the same as it would have been to the decedent had they not passed. c) If an individual receives IRD and includes it on their return, they are not allowed to claim a deduction for the estate tax paid on that income if Form 706 was filed. d) IRD must be included as income on either the decedent's estate return, if the estate receives it, or any person to whom the estate properly distributes the right to receive it.
c) If an individual receives IRD and includes it on their return, they are not allowed to claim a deduction for the estate tax paid on that income if Form 706 was filed.
The Haskins Society is a tax-exempt organization. Which of the following statements is not true about tax-exempt organizations? a) Unless the organization is a church or very small, it must officially file in order to gain tax exempt status. b) Unless the organization is a church or very small, it must file an annual informational return for tax purposes. c) If an organization is tax-exempt, then donations that it accepts can be taken as itemized deductions by the individuals making the gift. d) Even with a tax-exempt organization, unrelated business income above a certain level is still subject to income taxation.
c) If an organization is tax-exempt, then donations that it accepts can be taken as itemized deductions by the individuals making the gift.
Which of the following statements regarding grantor trusts is true? a) A grantor of a grantor trust does not report income from the trust unless distributions are made from the trust. b) A grantor trust is a good way to shelter income. c) Income from a grantor trust is taxed to the grantor in the same manner as if no trust existed. d) All of the statements are true.
c) Income from a grantor trust is taxed to the grantor in the same manner as if no trust existed.
The computation of distributable net income of a trust takes into account which of the following items? a) Income distribution deduction b) Exemption c) Tax-exempt interest d) All of the above
c) Tax-exempt interest
All of the following statements about trusts are true EXCEPT: a) The income distributed to the beneficiary retains the same character as that earned by the trust. b) The Net Distributable Income of a simple trust excludes capital gains distributions that are allocable to corpus under the terms of the governing instrument and applicable local law. c) The income distribution deduction is the greater of distributable net income or net accounting income. d) All of the taxable income that is not taxed to the beneficiaries is taxed to the Trust.
c) The income distribution deduction is the greater of distributable net income or net accounting income.
After Mary's death on August 1, 20X1, her estate received the following: $50,000 life insurance proceeds $1,000 interest income from a certificate of deposit that matured on August 5, 20X1 $2,000 annual royalty on a patent What is the amount of taxable income (after any applicable exemption) reported by the fiduciary on the 20X1 Income Tax Return for Estate and Trusts (Form 1041)? a) $53,000 b) $52,400 c) $3,000 d) $2,400
d) $2,400
John, a self-employed carpenter, died on January 8. Which of the following, if allowable, could be deducted on John's final Form 1040? a) Unused net operating loss carryover from prior year b) The full amount of his standard deduction (without proration) c) Medical expenses paid by the estate within one year of death d) All of the above
d) All of the above
Which of the following organizations may request exempt status under the Internal Revenue Code as charitable organizations? a) Religious organization. b) School. c) Animal welfare organization. d) All of the above.
d) All of the above.
Which return might a tax-exempt organization be required to file? a) Employment tax returns. b) Annual information return, Form 990. c) Report of cash received. d) All of the above.
d) All of the above.
What tax year is an executor of an estate required to use for filing Form 1041? a) The same tax year that the taxpayer used. b) A calendar year. c) A fiscal year. d) Either a calendar year or a fiscal year.
d) Either a calendar year or a fiscal year.
The trustee of a grantor type trust must never: a) Give all payers of income the name and TIN of the grantor and the address of the trust b) File a trust return, completing only the entity information, and attach a statement identifying the grantor to whom the income is taxable c) File Forms 1099 with the IRS showing the trust income as paid to the grantor d) File a trust return, figuring the tax on all income and deductions of the trust
d) File a trust return, figuring the tax on all income and deductions of the trust
Review the list of tax credits below. Earned Income Credit Child Tax Credit Saver's Credit American Opportunity Tax Credit Which of the credits listed above may a decedent claim on their final income tax return, assuming they met all eligibility requirements for the tax year prior to death? a) I and II b) III c) II, III and IV d) I, II, III and IV
d) I, II, III and IV
The date of death plays a significant role in the treatment of income or expenses related to a deceased taxpayer. Which of the following statements about the final income tax return of the decedent is NOT true? a) Medical expenses paid for the decedent, decedent's spouse, and dependents are deductible as itemized deductions on the final income tax return if the expenses were paid before death. b) A deceased taxpayer is eligible to claim any credits on the final income tax return that they could have claimed had they not died, including the EIC. c) A net operating loss deduction from a prior year can be deducted on the final income tax return. d) NOL or capital losses not used on the final income tax return can be carried over for deduction on the estate's income tax return.
d) NOL or capital losses not used on the final income tax return can be carried over for deduction on the estate's income tax return.
Select the organization that could not receive approval for tax-exempt status under Section 501(c)(3). a) Salvation Army chapter. b) YMCA. c) College alumni association. d) Partnership for scientific research.
d) Partnership for scientific research.
