1. An estate must file a federal income tax return (Form 1041) if it has
a. any gross income.
b. at least $600 of gross income excluding capital gain income.
c. at least $600 of gross income.
d. a resident alien beneficiary.
2. An estate begins its first income tax year
a. the day after the filing of the decedent’s final Form 1040.
b. at the date of the decedent’s death.
c. the day before the decedent’s date of death.
d. on a date elected by the personal representative not to exceed 30 days from date of death.
3. The issue of when an estate administration terminates for income tax purposes is determined by
a. federal law.
b. state law.
c. the estate’s personal representative.
d. the decision of a majority of estate residuary beneficiaries.
4. Distributable Net Income (DNI)
a. does not limit the amount that can be taxed to the estate/trust.
b. limits the amount on which beneficiaries are subject to taxation.
c. applies to estates but not trusts.
d. will vary depending on the number of estate/trust beneficiaries.
5. The charitable deduction for estates/trusts
a. is unlimited if properly paid.
b. is subject to the percentage limitations of section 170 of the Internal Revenue Code.
c. is subject to limitation depending on the character(type) of contribution.
d. is available only on the estate’s/trust’s final income tax return (Form 1041).
6. The next operating loss deduction
a. is unavailable to estates and trusts.
b. is deductible only on an estate’s federal estate tax return (Form 706).
c. is available for deduction on the estate’s or trust’s income tax return (Form 1041).
d. cannot exceed 20% of the estate’s or trust’s DNI.
7. An estate’s or trust’s depreciation or depletion deduction must be allocated
a. 100% to the estate or trust.
b. 100% to the beneficiaries.
c. 50% to the estate/trust, 50% to the beneficiaries.
d. in accordance with the allocation of income between the estate/trust and the beneficiaries of same.
8. Investment advisory fees paid by an estate or trust
a. are fully tax deductible.
b. are fully tax deductible to the extent approved by a probate court or listed without objection on a trust accounting.
c. are subject to the 2% “haircut” imposed by section 67 of the Internal Revenue Code.
d. are not tax deductible.
9. Computing DNI requires
a. that the estate’s/trust’s personal exemption amount be added to taxable income.
b. that the estate’s/trust’s taxable income be divided by the number of beneficiaries.
c. that the estate’s/trust’s capital gains be ignored in every case.
d. that the estate’s/trust’s tax exempt income be excluded.
10. Tax free income, e.g., municipal bond income, is
a. excluded from the computation of DNI
b. included in the computation of DNI.
c. included in the computation of DNI for simple trusts but not complex trusts.
d. excluded from the computation of DNI for trusts but not estates.
11. Capital gains
a. as a general rule are not considered as part of distributions to beneficiaries.
b. are part of fiduciary accounting principal and therefore not subject to taxation unless distributed.
c. if long term are taxed at a higher rate to estates/trusts than to beneficiaries.
d. are required to be distributed from estates/trusts to beneficiaries within 90 days of receipt.
12. Tom is the trustee of the Generous Trust. The trust agreement directs the trustee to pay all net fiduciary accounting at least annually to Ms. Behaven. During 2013 the trust earned $10,000 of net fiduciary accounting income, consisting of taxable bond interest and dividends paid on corporate stock. Tom made no trust distributions of any kind to Ms. Behaven during 2013.
a. The income tax deduction for distributions to beneficiaries (beneficiary, in this case) is not available to the trust for 2013.
b. The income tax deduction for distributions to beneficiaries is available to the trust for 2013.
c. The income tax deduction for distributions to beneficiaries will be available to the trust in 2013 if Tom distributed $10,000 to Ms. Behaven by April 15, 2014, the filing date for the trust’s 2013 Form 1041.
d. The 2013 income tax deduction for distributions to beneficiaries that would have been available had distribution been properly made must be carried forward to the next tax year.
13. Which of the following are subject to the 2% miscellaneous itemized deductions floor?
a. Attorney fees.
b. Fiduciary fees.
c. CPA fees.
d. Investment advisor fees.
14. A simple trust has ordinary gross taxable income of $20,000. It also has $10,000 of capital gains which are allocated to trust principal under Florida’s Principal and Income Act, Chapter 738, Florida Statutes. It pays a trustee fee of $5,000 which the trust agreement directs must be paid from trust principal. How much is the trust’s accounting income?
15. Which of the following statements is incorrect?
a. The taxation of trusts and estates is governed by Subchapter J of the Internal Revenue Code.
b. Form 1041 illustrates the semi-conduit theory of income taxation since all taxable income received by a trust or estate is taxed to the beneficiaries.
c. Form 1041 is an income tax return for most types of trusts and decedents’ estates.
d. The income tax rates applied to trusts and estates are highly compressed compared to income tax rates for individuals.
16. Which of the following statements is correct?
a. An estate’s charitable income tax deduction benefits first and second tier beneficiaries.
b. An estate’s charitable income tax deduction benefits only first tier beneficiaries.
c. An estate’s charitable income tax deduction benefits only second tier beneficiaries.
d. An estate’s charitable income tax deduction benefits neither first nor second tier beneficiaries.
17. Which of the following statements is correct?
a. The Section 645 Election is available to trusts but not estates.
b. The Section 645 Election is available to estates but not trusts.
c. The Section 645 Election is not available if there is a charitable beneficiary.
d. The Section 645 Election allows a qualified revocable trust to choose a fiscal income tax year.
18. If no federal estate tax return is required of the decedent’s estate
a. the Section 645 election is not available.
b. the Section 645 election period begins on date of death.
c. the Section 645 election period ends when the local probate court enters its order discharging the personal representative.
d. the Section 645 election period can be renewed by the personal representative for a period not exceeding 6 months.
19. The separate share rule
a. applies to estates and trusts.
b. applies to trusts but not estates.
c. applies to estates but not trusts.
d. is limited to trusts having fair market value of assets on date of death of less than $1 million.
20. Trust DNI is $5,000. This consists of $1,500 of tax exempt interest and $3,500 of taxable interest.
The Trustee distributes $2,500 to the sole beneficiary. The beneficiary’s distribution is deemed to consist of:
a. taxable interest of $1,750.
b. taxable interest of $1,750 and tax exempt interest of $750.
c. taxable interest of $1,250 and tax exempt interest of $1,250.
d. zero assuming the trustee elects to have all income taxed to the trust.
21. Mary is the sole beneficiary of a trust to whom the trustee is required by the terms of the trust agreement to distribute all current income. During the taxable year the trust has $10,000 of DNI. The trustee makes no distributions to Mary.
a. Mary is understandably upset.
b. Mary is taxable on the DNI.
c. Mary is not taxable on the DNI.
d. Mary reports the DNI income on her 1040 and has a good claim for refund on the income tax she paid.
22. Mary’s will provides in part that she devises the sum of $5,000 each to Tom, Dick and Harry. During the estate’s first income tax year following Mary’s death the estate has $3,000 of DNI and distributes $5,000 each to Tom, Dick and Harry.
a. Tom, Dick and Harry will each be taxed on $1,000 of DNI as First Tier beneficiaries.
b. Tom, Dick and Harry will not be taxed on their distributions.
c. The personal representative can elect to have the DNI taxed all to the estate, or all to Tom, Dick and Harry, or partly to the estate and partly to Tom, Dick and Harry.
d. The personal representative can elect to have the taxation of the $3,000 DNI occur in tax year 2 of the estate.
23. Fiduciary Accounting Income (FAI)
a. refers to income received by personal representatives and trustees.
b. rules trump Subchapter J rules on income taxation.
c. is determined by federal law.
d. cannot be accurately determined until the termination of estate or trust administration.
a. seldom have Second Tier beneficiaries.
b. unlike trusts, are not subject to the Tier System.
c. nearly always have First and Second Tier beneficiaries.
d. nearly always have Second Tier beneficiaries.
25. Distributions to estate/trust beneficiaries in excess of DNI
a. carry over to the next tax year for taxation.
b. do not affect the income taxes of the estate/trust or beneficiaries.
c. cannot be legally made.
d. should be returned to the estate/trust by the beneficiaries to avoid undesirable income tax consequences.
26. A simple trust
a. is a trust that makes distributions of trust principal not in excess of $100,000 to its beneficiaries during a tax year.
b. has no more than three beneficiaries.
c. requires the current distribution of trust income and makes no distributions of trust principal or distributions to charities during the tax year.
d. must terminate and distribute all of its assets within 70 years of its creation.
27. Which of the following statements is correct.
a. all decedents die owning an estate as defined by Subchapter J of the Internal Revenue Code.
b. all assets in which a decedent has an ownership interest comprise his/her Subchapter J estate.
c. a Subchapter J estate cannot exist without a decedent.
d. the income tax duration of an estate cannot exceed two years.
28. “Other amounts”
a. refers to distributions not required to be made currently.
b. refers to distributions only of fiduciary accounting principal.
c. refers to distributions that a trustee is required to make.
d. refers only to capital gain income.
29. A qualified revocable trust
a. is a trust over which the grantor holds the power of revocation.
b. is a trust that must be referred to in the grantor’s will.
c. is a trust for which the grantor has obtained a special (qualified) tax exemption.
d. is a trust over which a deceased grantor’s principal beneficiary holds the power of revocation.
30. The starting point in computing distributable net income (DNI) is
a. net fiduciary accounting income (FAI).
b. gross income of the estate or trust.
c. taxable income of the estate or trust.
d. adjusted gross income of the estate or trust.
31. The tax rule that forbids a double deduction refers to
a. taking the same deduction in the same amount on the estate’s/trust’s income tax return and on the estate’s federal estate tax return.
b. taking the same deduction on the estate’s/trust’s income tax return for two consecutive years.
c. taking the same deduction on the estate’s/trust’s income tax return and on the decedent’s final income tax return.
d. any device or technique that would otherwise permit taking the same deduction twice.
32. If tax exempt interest is received by an estate/trust
a. it is required that a pro-rata portion of administration expenses be allocated to it.
b. no reduction in deductible administration expenses is required.
c. it does not enter into DNI.
d. the tax exempt interest is considered retained and not distributed by the estate/trust.
33. Bob dies on January 30, 2010. His probate estate (subchapter J estate) includes:
a. $1,200 salary due him from his employment.
b. $100,000 life insurance policy payable to his widow.
c. $75,000 IRA naming his widow as beneficiary.
d. $10,000 in joint checking account with a surviving child.
34. Bill died on June 3, 2014. In existence when Bill died was a revocable living trust Bill had created and funded. Bill had been the only trustee and sole beneficiary of the trust. During his lifetime Bill retained the authority to amend the terms of the trust agreement and to revoke the entire trust agreement. The first income tax return for the trust, Form 1041, generally is due to be filed by
a. September 15, 2015.
b. April 15, 2015.
c. December 31, 2014 .
d. May 31, 2015.
35. Which of the following is not normally part of accounting income under Florida law?
c. capital gains.
d. municipal bond interest.
36. Attorney’s fees
a. can only be deducted on the Form 1041 to the extent they exceed 2% of adjusted gross estate or trust income.
b. can be deducted only on an estate’s federal estate tax return if an estate tax return is required to be filed. If no federal estate tax return is required to be filed, they can be deducted on the fiduciary income tax return, Form 1041.
c. can only be deducted on the estate’s or trust’s Form 1041 if a section 645 election is made by the fiduciary.
d. can be deducted on the fiduciary income tax return, Form 1041, or on the federal estate tax return for a decedent’s estate if a federal estate tax return is required.
37. Capital gain from the sale of assets of an estate or trust
a. is not a part of distributable net income unless it is short-term capital gain.
b. never enters into the computation of distributable net income.
c. does not ordinarily enter into the computation of distributable net income unless it’s the last tax year of the estate or trust.
d. according to the Internal Revenue Code cannot be used to satisfy a dollar bequest to charity unless it is the only income available to the estate or trust.
38. The trustee of Bill’s trust is required to pay to Bill’s wife $10,000 per year and, at the trustee’s discretion, may distribute trust income or principal to the other trust beneficiary, Bill’s son. In 2013 the trustee has DNI of $20,000. The trustee distributes $10,000 to Bill’s wife and $25,000 to Bill’s son. How much is Bill’s son taxed on in 2013?
39. The personal representative of Bill’s estate received the following items in the current tax year. All of the following items are considered taxable income except
c. income from partnership.
d. life insurance proceeds.
40. Which of the following are adjustments to the estate’s/trust’s taxable income in arriving at distributable net income?
a. no distribution deduction is subtracted.
b. no personal exemption is subtracted.
c. an addition is made for tax exempt interest (if any).
d. all of the above are adjustments.
41. All distributions to beneficiaries from estate/trust income or principal (corpus)
a. may subject the beneficiaries to taxation to the extent of DNI.
b. may subject the beneficiaries to taxation only to the extent of FAI.
c. may subject the beneficiaries to taxation even if from principal but only if the personal representative/trustee so elects.
d. will subject the beneficiaries to taxation but only if the distributions are mandatory.
42. Separate share treatment is available in an estate or trust only if
a. the personal representative/trustee files a section 1245 election.
b. the estate or trust has substantially separate and independent shares of different beneficiaries.
c. the grantor of the trust has explicitly stated in the trust agreement that the separate share rule is to be applied to the trust.
d. a majority of the then living adult estate/trust beneficiaries vote for separate share treatment.
43. A complex trust is
a. any trust that does not qualify as a simple trust.
b. has only Tier One beneficiaries.
c. has more than 12 living beneficiaries.
d. includes in the trust agreement tax savings provisions.
44. A complex trust receives taxable interest of $6,000, taxable dividends of $2,000, capital gain of $2,000 and pays a trustee fee of $500 charged to trust income. The trustee makes a $4,000 discretionary distribution to Tom. How much of the $4,000 distribution to Tom will be characterized as capital gain?
45. Which of the following may a personal representative/trustee not deduct?
a. attorney’s fee.
b. accountant’s fee.
c. that portion of a distribution to a beneficiary deemed to consist of tax free income.
d. personal representative’s/trustee’s compensation.
46. The personal representative/trustee will inform beneficiaries of the amounts and types of income they must report by
a. sending each a copy of Schedule K-1.
b. sending each a copy of Form 1041.
c. sending each an explanatory letter.
d. sending each a Notice of Income.
47. The tax policy underlying Subchapter J is
a. that estate/trust income be taxed only once.
b. the same as expressed by Subchapter C.
c. that passive income will be taxed at lower rates.
d. to discourage tax evasion by estates and trusts.
48. At the end of the Section 645 election period the qualified revocable trust
a. is deemed to become irrevocable.
b. may continue to file its income tax return on a fiscal year basis.
c. must start filing its income tax returns for calendar years.
d. becomes part of the decedent’s probate estate.
49. If the governing instrument (will or trust agreement) directs that a beneficiary be paid specific amounts in regular installments and in all events, out of income or principal, these “annuity” payments are said to be
a. first tier payments.
b. second tier payments.
c. variable tier payments.
d. no tier payments.
50. When Subchapter J refers to “income” this reference is to
a. adjusted taxable income.
b. net taxable income.
c. gross taxable income.
d. fiduciary accounting income (FAI).
This question was answered on: Sep 21, 2023
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