TXX 5774 DIS
Fiduciary Income Tax
December 8, 2018
The test consists of 50 multiple choice questions worth 2 points each for a total score of 100 for the Final Exam.
*There is a separate answer sheet posted with the exam. You must use the answer sheet. BE SURE TO INCLUDE YOUR NAME ON THE ANSWER SHEET. DO NOT SUBMIT A COPY OF THE TEST.
Your completed answer sheet is due no later than 11PM Saturday, December 8. You will need to click on Assignments on the Canvas menu and then click on Final Exam which will take you to the submission page where you will upload your completed answer sheet.
Multiple choice. Identify on your answer sheet the one choice for each question that best completes the statement or answers the question.
21.Larry,Moe and Shep, estate residuary beneficiaries, each received a distribution of property from the estate consisting of 100 shares of ABC,Inc.
The stock constituted part of original estate inventory. The decedent paid $1,000 for each 100 share lot and each 100 share lot was worth $2,000 when he died. Larry sold his 100 share lot for $1,500 two months after receiving it. Larry
a.realizes and recognizes a long term capital loss of $500.
b.realizes and recognizes a short term capital gain of $500.
c.realizes and recognizes a long term capital gain of $500.
d.realizes neither gain nor loss.
22.The decedent’s will states in part “ I devise the sum of $20,000 to Jane and the personal representative shall pay this devise in five monthly installments of $4,000 each beginning 3 months from the date of my death. Knowing Jane is in desperate need of funds, the personal representative pays Jane her devise in one lump sum of $20,000 3 months after the decedent’s death. Jane’s devise
a.will be income tax free to her.
b.will be subject to income tax depending on the amount of DNI for the estate’s tax year.
c.must be returned to the personal representative for payment in installments.
d.is subject to the claims of the decedent’s creditors because it is payable in installments.
23.Distributable Net Income (DNI)
a.will vary depending on the number of estate/trust beneficiaries.
b.applies to estate but not trusts.
c.as a general rule does not include capital gains.
d.does not limit the amount that can be income taxed to estate/trust beneficiaries.
24.The net operating loss deduction (NOL)
a.cannot exceed 20% of the estate’s/trust’s DNI.
b.pass through (carryover) can be used by a beneficiary regardless of whether the beneficiary is engaged in a business operation.
c.is deductible only on the estate’s federal estate tax return.
d.is unavailable to estates and trusts..
25.Investment advisory fees paid by an estate or trust
a.are subject to the 4% reduction required by section 67 IRC.
b.are fully income tax deductible to the extent listed without objection on an estate/trust fiduciary accounting.
c.are fully tax deductible.
d.none of the above is correct.
26.Tax free income, e.g., municipal bond income, is
a.excluded from the computation of DNI for trusts but not estates.
b.included in the computation of DNI for complex trusts but not simple estates.
c.subject to reduction in DNI for its pro-rata share of estate/trust expenses.
d.excluded from the computation of DNI.
27.A simple trust has ordinary gross income of $30,000 . It also has $5,000 of capital gains allocated to trust principal. The trustee is paid a fee of $5,000 which the trust agreement says must all be paid from trust principal. How much is the trust’s accounting income (FAI)?
28.Which of the following statements is incorrect?
a.The income tax rates applied to trusts and estates are highly compressed compared to income tax rates for individuals.
b.Form 1041 is the income tax return for most types of trusts and estates.
c.Form 1041 illustrates the conduit theory of income taxation since all taxable income received by an estate or trust is subject to being taxed twice, like a C corporation.
d.The income taxation of estates and trusts is governed by Subchapter J, IRC.
29.Which of the following statements is incorrect?
a.The section 645,IRC election allows a qualified recovable trust to choose a fiscal income tax year.
b.The section 645 election is not available if there is a charitable trust beneficiary.
c.The section 645 election is available in the absence of an estate provided a qualified revocable trust exists.
d.The section 645 election is available to estates and trusts.
30.If no federal estate tax return (Form 706) is required for a decedent’s estate
a.the section 645,IRC election can be renewed by the personal representative for a period not exceeding 6 months.
b.the section 645 election ends when the local probate court enters its order discharging the personal representative.
c.the section 645 election begins on date of death.
d.alternate valuation of estate assets can still be elected by the personal representative.
31.The separate share rule
a.is limited to simple trusts.
b.applies to estates but not trusts.
c.applies to trusts but not estates.
d.applies to estates and trusts.
32.Trust DNI is $10,000. This consists of $3,000 tax exempt interest and $7,000 taxable interest. The trustee distributes $5,000 to the trust’s sole beneficiary. The beneficiary’s distribution is deemed to consist of
- taxable interest of $2,500 and tax exempt interest of $2,500.
b.taxable interest of $3,500 and tax exempt interest of $1,500.
c.zero assuming the trustee elects to have all of the income deemed taxed to the trust.
d.taxable interest of $3,500.
33.Alice is the sole beneficiary of a simple trust to whom the trustee is required to distribute all current trust income by the terms of the trust agreement. During the trust’s taxable year the trustee receives $10,000 of DNI which is also the same as FAI. The trustee ignores the terms of the trust agreement and makes no distribution to Alice.
a.Alice should report the DNI on her 1040 but not for income taxation since she received nothing.
b.Alice is not taxable on the DNI.
c.Alice is taxable on the DNI.
d.Alice is taxable on $9,700 of DNI.
- May’s will provides in part that she devises the sum of $30,000 each to Larry, Moe and Shep. During the estate’s first income tax year the estate has $6,000 of DNI and the personal representative distributes $30,000 each to Larry, Moe and Shep.
a.The personal representative can elect to have the $6,000 of DNI occur in tax year 2 of the estate.
b.The personal representative can elect to have all the DNI taxed all to the estate, or all in equal shares to Larry,Moe and Shep or partly to the estate and to Larry,Moe and Shep.
c.Larry,Moe and Shep will not be income taxed on their distributions.
d.Larry,Moe and Shep will each be taxed on $2,000 of DNI as first tier beneficiaries.
35.Fiduciary Accounting Income (FAI)
a.must be calculated on a monthly basis during the administration of and estate/trust.
b.is determined by the Internal Revenue Code.
c.rules trump Subchapter J rules on income taxation.
d.affects the computation of DNI.