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CHAPTER 28 INCOME TAXATION OF TRUSTS AND ESTATES

📅 October 13, 2025 ✍️ Bridge Essays ⏱ 2 min read

1.
ThePrasad
Trustincurred
thefollowing
itemsfor
2014.

Taxable
interestincome

$50,000

Tax-exemptinterest
income,notonprivateactivitybonds

25,000

Tax-exemptinterest
income,onprivateactivitybonds

5,000

Compute
Prasad’stentativeminimum
taxfor
theyear.
Prasaddoesnot
holdanycredits
availabletoreduce
the AMTliability.

2.
TheKapoor
Trustis
yourclient.
Completethe
chartbelow,indicating
Kapoor’strust
accountingincome
foreach
of thealternatives.

Interest
income,taxable

$60,000

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Interestincome,
tax-exempt

30,000

Interestincome,
tax-exemptbut
AMTpreference

10,000

Long-termcapital
gain

40,000

Trusteefee

5,000

Trustagreementprovisions Trustaccountingincome

Fees
and capital gains allocable to
corpus ______________________

Capital
gains allocable to corpus, one-
half of fees
allocable to income ______________________

Capital
gains allocable to income, silent
concerning
allocation of fees ______________________

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Fees and exempt income allocable
to corpus,
silent concerning
allocation of capital gain/loss ______________________
3.
Reggieisoneof
theincome
beneficiariesofthe
LaQuandaEstate,which
issubjectto
a35%marginalFederalestatetaxrate,a35%marginalFederalincometaxrate,anda10%marginal
stateincometaxrate.Thisyear,ReggiereceivedallofthesalescommissionsthatwereearnedandpayabletoLuluLaQuanda(cashbasis)atherdeath.Compute
Reggie’s§691(c)deduction
forthecurrentyear,giventhefollowingdata.

Sales
commissionsreceivable $50,000
Deferredgainoninstallmentsale,threepaymentstobereceived,startingnextyear 20,000
.

4.
The Raja Trust operates a welding business. Its current-year
cost recovery deductions properly amount to $75,000. Raja’s accounting income was $100,000, of which $40,000 was
distributed to first­tier beneficiary Chuck, $25,000 was distributed to second-tier beneficiary Ruby, and $35,000 was
accumulated by the trustee. Ruby also received a $25,000 discretionary corpus
distribution. Raja’s DNI was $80,000. Identify the treatment of Raja’s cost
recovery deductions.

5.
Counsellisasimpletrustthatcorrectlyusesthecalendaryearfortaxpurposes.Itsincomebeneficiaries(Kathie,Lynn,Mark,andNorelle)
areentitledtothetrust’sannualaccountingincomeinsharesofone­fourtheach.Forthecurrent
calendaryear,thetrusthasordinarybusinessincomeof$40,000,along-term
capitalgainof$20,000(allocabletocorpus),andatrusteecommissionexpenseof$4,000(allocabletocorpus).UsetheformatofFigure
20.3inthetexttoaddressthefollowingitems.

a.
Howmuchincomeis
eachbeneficiaryentitled
toreceive?

b.
Whatisthe
trust’sDNI?

c.
Whatisthetrust’s
taxableincome?

d.
Howmuch
istaxed
toeach
ofthe
beneficiaries?
6.
Counsellisasimpletrustthatcorrectlyusesthecalendaryearfortaxpurposes.Itsincomebeneficiaries(Kathie,Lynn,Mark,andNorelle)
areentitledtothetrust’sannualaccountingincomeinsharesofone­fourtheach.Forthecurrent
calendaryear,thetrusthasordinarybusinessincomeof$40,000,along-term
capitalgainof$20,000(allocabletoincome),andatrustee
commissionexpenseof$4,000(allocabletocorpus).UsetheformatofFigure
20.3inthetexttoaddressthefollowingitems.

a.
Howmuchincomeis
eachbeneficiaryentitled
toreceive?

b.
Whatisthe
trust’sDNI?

c.
Whatisthetrust’s
taxableincome?

d.
Howmuch
istaxed
toeach
ofthe
beneficiaries?

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