Question;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;Income;Distributable Net Income/ Distribution Deduction;Ordinary income;$50,000;$50,000;Net;long-term capital gain;25,000;Fiduciary;fees;10,000;Personal;exemption;Accounting Income/Taxable Income;Before the Distributions Deduction;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;Income;Distributable Net Income/ Distribution Deduction;Ordinary;income;$50,000;$50,000;Net;long-term capital gain;25,000;25,000;Fiduciary;fees;10,000;Personal;exemption;Accounting Income/Taxable Income;Before the Distributions Deduction;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.
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