Chapter 25

2011 Federal Taxation (with H&R BLOCK At Home(TM) Tax Preparation Software CD-ROM)

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CHAPTER 25—INCOME TAXATION OF ESTATES AND TRUSTS TRUE/FALSE 1. There is no statutory period after which a decedent's estate must be terminated. ANS: T It may take several years to determine how the estate will be distributed. As long as reasonable pro- gress is being made to settle the decedent's affairs, the IRS will continue to recognize the estate. PTS: 1 REF: p. 15-1 2. Both estates and trusts may pay any income tax due for a year with a timely filed return. ANS: F As a general rule, fiduciaries must make estimated tax payments in the same manner as individuals. PTS: 1 REF: p. 15-4 and § 6654(1) 3. Decedent D, a calendar year taxpayer, died on October 18 of the current year. The estate of D also must use a calendar year for income tax purposes. ANS: F An estate may elect its own taxable year, regardless of the taxable year of the decedent. The first tax- able year of the estate starts the day after the decedent's death. PTS: 1 REF: p. 15-4 4. As a general rule, tax provisions that apply to the income taxation of individuals also apply to the in- come taxation of fiduciaries. ANS: T PTS: 1 REF: p. 15-4 and § 641(b) 5. The standard deduction available to a fiduciary is the same amount available to a married taxpayer filing separately. ANS: F A fiduciary is not entitled to a standard deduction. PTS: 1 REF: p. 15-5 and § 63(c)(6)(D) 6. Since fiduciaries are generally only managing assets and not carrying on a business, their expenses are not deductible. ANS: F Fiduciary expenses are normally deductible under § 212, which permits the deduction of ordinary and necessary expenses incurred in the management, conservation, or maintenance of property held to pro- duce income. PTS: 1 REF: p. 15-6
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7. The Estate of X incurred administration expenses of $42,000. These expenses can be taken as an estate tax deduction to reduce X's taxable estate and can also be deducted for income tax purposes on the es- tate income tax return. ANS: F The executor must elect to take these expenses as deductions for either estate tax purposes or income tax purposes but not both. However, administration expenses that could be deducted for either estate tax or income tax can be allocated between the two returns to achieve maximum tax benefit. PTS: 1 REF: p. 15-7, § 642(g), and Reg. § 1.642(g)-2 8. On February 9, 19X2 trustee T makes a $10,000 payment to a qualified charity out of the gross income of the Alpha trust, a calendar year taxpayer. T may elect to deduct the payment on Alpha's 19X1 or 19X2 income tax return. ANS: T This flexibility in the timing of the deduction is provided in § 642(c)(1). PTS: 1 REF: p. 15-8 and Reg. § 1.642(c)-1(b) 9. If a trust incurs a net operating loss or a capital loss, the trust beneficiaries may deduct the losses under the "conduit" theory for their taxable year within which the trust year ends. ANS: F
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