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Mandarini Mandarini
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6 years ago
The Williams Trust was established six years ago. The trust document allows the trustee to distribute income in its discretion to beneficiaries Carol and Karen for the next 15 years. The trust will then be terminated and the trust assets will be divided equally between Carol and Karen. Capital gains are part of principal.

The current year income and expenses of the trust are reported below.

   Amounts Allocable To
   Income   Principal
Dividends   $15,000
Rental income from land   2,500
Tax-exempt interest   7,500
Rental expenses   500
Trustee's fees   $600
Tax return preparation fee   250
Capital gain on stock sale (stock purchased four years ago)   6,000
Distribution of net accounting income to:
   Carol   7,000
   Karen   3,500
Payment of estimated tax   2,620   1,680

Compute (a) distributable net income (DNI), (b) distribution deduction, (c) trust taxable income, and (d) Carol's and Karen's reportable income and its classification. Charge all of the deductible expenses against the rental income.
Textbook 
Prentice Hall's Federal Taxation 2014 Corporations, Partnerships, Estates & Trusts

Prentice Hall's Federal Taxation 2014 Corporations, Partnerships, Estates & Trusts


Edition: 27th
Authors:
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strwbrrystrwbrry
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6 years ago
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(a)   DNI = $23,650 ($15,000 + $2,500 + $7,500 - $500 - $250 - $600)
(b)   Distribution deduction = $7,250 [$10,500 - ($7,320/$23,650 × $10,500)]. Note that $7,320 is the $7,500 of tax-exempt income minus the nondeductible trustee's fee of $180 [($7,500/$25,000) × $600].
(c)   Trust taxable income = $14,980 ($15,000 + $2,500 + $6,000 - $500 - $250 - $420 - $100 exemption - $7,250)
(d)   Carol receives 0.296 ($7,000/$23,650) of the income, and Karen receives 0.148 ($3,500/$23,650) of the income; Carol receives dividends, $4,439.50; rents, $394; and tax-exempt interest, $2,166.50. Karen receives dividends, $2,220; rents, $196.50; and tax-exempt interest, $1,083.50.
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Mandarini Author
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#2
5 years ago
finished my 2 tests in under 30 min thanks to you
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