24211_ch25_final_p001-008

See p 25 3 when a beneficiary receives a distribution

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Unformatted text preview: p. 25-3.) When a beneficiary receives a distribution from a fiduciary exceeding DNI, the distribution may represent corpus or previously accumulated fiduciary income. Such amounts are nontaxable. (See p. 25-17.) Fiduciaries may want to avoid accumulating income since it may be taxed at very high rates. Because DNI may not be known until after the close of the year, a trustee may not know the amount of the current distributions needed to avoid accumulation. Under the 65-day rule, this problem can be avoided since it allows the fiduciary to treat distributions after the year end as made in the prior year. (See p. 25-24.) 25-11 25-12 25-13 25-14 25-15 25-16 25-17 PROBLEMS 25-18 Dividend income Tax-exempt interest Taxable interest Less: 60% of $5,000 trustee fee Fiduciary accounting income $38,000 18,900 12,400 $69,300 (3,000) $66,300 Each beneficiary will receive one-third of $66,300 for a distribution of $22,100. (See Example 1 and pp. 25-3 and 25-4.) 25-19 a. b. There is no income to M because he receives the stock as a specific bequest. [See 663(a)(1).] The trust must recognize a capital gain of $4,000. M's basis in the stock is $11,000. [See Example 11, p. 25-14, and Reg. 1.661(a)-2(f)(1).] $7,000 of trust income (basis of the distributed shares) is taxable income to M. Trust T will recognize no gain on the distribution and will use the $7,000 basis of the stock as its deduction for distributions to beneficiaries. M will have a $7,000 basis in the 100 shares. [See Example 10, p. 25-13, and 643(e)(1) and (2).] $11,000 of trust income (FMV of the distributed shares) is taxable income to M. Trust T will recognize a $4,000 gain on the distribution and will use $11,000 as its deduction for distributions to beneficiaries. M will have an $11,000 basis in the 100 shares. [See Example 10, p. 25-13, and 643(e)(1) and (3).] c. Solutions to Problem Materials 25-3 25-20 a. b. Per Reg. 1.167(h)-1(b), allowable depreciation is allocated to the trustee to the extent the governing trust instrument or local law requires a reserve for depreciation. Therefore, all $2,000...
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This note was uploaded on 02/05/2012 for the course ACCT 110 taught by Professor Smith during the Spring '11 term at Adrian College.

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