Taxable Estate
CPA Regulation (REG) · Learn by Concept
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CPA Regulation (REG) › Taxable Estate
Taylor created a trust, transferred property to this trust, and retained certain interests. For income tax purposes, Taylor was treated as the owner of the trust. Taylor has created which of the following types of trusts?
Grantor
Complex
Simple
Pre-need funeral
Explanation
The definition of a grantor trust is one in which the individual who established the trust retains control over it.
Of the following, which item is not normally taken into account in determining distributable net income of a simple trust?
Personal exemption
Fiduciary fee
Tax exempt interest
Taxable interest income
Explanation
The calculation of a distributable net income includes all of a trust’s gross income except capital gains attributable to corpus and is reduced by all of a trust’s deductions except the exemption.
Of the following, what is the standard deduction for a trust or estate fiduciary income tax return?
None
\$1,000
It depends on the fiduciary
Variable depending on charitable deductions
Explanation
There is no standard deduction allowed for fiduciary income tax returns.
Under the provisions of a decedent’s will, the following cash disbursements were made by the estate’s executor:
I. A charitable bequest to the American Red Cross
II. Payment of the decedent’s funeral expenses
What deduction(s) is (are) allowable in determining the decedent’s taxable estate?
II only
Neither I or II
I only
Both I and II
Explanation
The gross estate is taxed only after several deductions (discretionary and nondiscretionary) are taken. Nondiscretionary deductions include satisfying all outstanding debts, estate administrative expenses, medical expenses, funeral expenses, and certain taxes. Discretionary deductions include charitable bequests and marital deductions, both of which are unlimited.
A distribution from estate income that was currently required was made to the estate’s sole beneficiary during its calendar year. The maximum amount of the distribution to be included in the beneficiary’s gross income is limited to the estate’s
Capital gain income
Ordinary gross income
Distributable net income
Net investment income
Explanation
DNI is the upper limit on the amount of income that a beneficiary has to include in income from a trust distribution.
For income tax purposes, the estate’s initial taxable period for a decedent who died on October 20:
Must be a calendar year beginning on January 1 of the year of the decedent’s death.
May be either a calendar year, or a fiscal year beginning on October 1 of the year of the decedent’s death.
Must be a fiscal year beginning on the date of the decedent’s death.
May be either a calendar year, or a fiscal year beginning on the date of the decedent’s death.
Explanation
Upon the decedent’s death, the estate may elect either a fiscal year beginning at the death date or a calendar year. The resulting tax returns are due either the fifteenth day of the fourth month following the end of the fiscal year, or April 15, respectively.