CHAPTER 28 SOLUTIONS
END OF CHAPTER QUESTIONS COVERED IN LECTURE – NOT
7, 8, 9, 10, 11, 14, 15, 16, 17, 25, 26, 27, AND 29.
7. A fiduciary entity is subject to the alternative minimum tax. The entity then restates its
income and passes through AMT income, preferences, and adjustments to its beneficiaries.
Given the nature of most fiduciary operations, though, it is unlikely to encounter this
tax. No ACE adjustment need be computed by a fiduciary entity.The entity must make estimated
tax payments with respect to any AMT. The small-corporation
exception does not apply to a trust or estate. A fiduciary claims a $22,500 AMT exemption,
which phases out at a rate of one-fourth of the amount by which AMTI exceeds $75,000. The
AMTI of the entity is subject to a 26% tax rate, which reaches 28% when AMTI exceeds
8. a. All income is required to be distributed currently to the granddaughter of the
grantor. No corpus distributions are made.
b. All income is required to be distributed currently to State University, a qualifying
charity. No corpus distributions are made.
c. Income can be sprinkled at the discretion of the trustee; or, same as a. or b., except
that a corpus distribution is made during the year.
9. Step One Determine entity accounting income.
Step Two Compute entity taxable income before the distribution deduction.
Step Three Determine distributable net income (DNI) and the distribution deduction.
Step Four Compute entity taxable income [Step 2] - [Step 3].
Step Five Allocate DNI and its character to the beneficiaries, applying the tier
system if needed.
10. With respect to a distribution of appreciated property by a fiduciary, no taxable income
generally is recognized. Basis of the asset carries over to the recipient. DNI and the
distribution deduction reflect an amount for the distribution equal to the lesser of the
asset’s basis or its fair market value.
DNI and distribution deduction $65,000