721 Testbank 2010 CCH All Rights Reserved Chapter 18 A two tier income

721 testbank 2010 cch all rights reserved chapter 18

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721 Testbank Chapter 18 A two-tier income distribution system is used to determine the taxability of trust distributions. All required 54. income distributions are in the fi rst tier. First-tier distributions are fi rst compared to DNI and are taxable to the extent of DNI. Second-tier distributions of current income are subject to taxation to the extent of remaining DNI. Payments First tier Second tier Total Peter $10,000 $10,000 $20,000 James 5,000 15,000 20,000 Total $15,000 $25,000 $40,000 First-tier payments are fully taxable ($15,000 - $30,000 DNI). Second-tier payments are greater than remaining DNI after fi rst-tier payments ($25,000 - $15,000 remaining DNI) and, therefore, their taxability is in proportion to remaining DNI. Second tier payments Peter $10,000 × $15,000/$25,000 = $6,000 taxable James $15,000 × $15,000/$25,000 = $9,000 taxable Total taxable amounts $15,000 Total Taxable Payments First tier Second tier Total Peter $10,000 $ 6,000 $16,000 James 5,000 9,000 14,000 Total $15,000 $15,000 $30,000 No, four separate gifts of property payable at different times are required by the instrument, so none of the 55. gifts qualify for exemption under Code Sec. 663(a), and distributions of them to Donna may carry out DNI. A tax return for the calendar year 2009 must be fi led on or before April 15, 2010, and the tax return for the 56. fractional part of 2010, that is, January 1 to March 28, 2010, must be fi led on or before April 15, 2011. $15,000 is the trust’s charitable deduction for 2010 ($20,000 - $20,000/$80,000 × $20,000). 57.
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722 CCH Federal Taxation—Basic Principles Chapter 18 © 2010 CCH. All Rights Reserved. DIFFICULTY LEVEL RATINGS—CHAPTER 18 The following table denotes the relative dif fi culty level of each question. Teachers may wish to organize test questions based on the dif fi culty level of the particular class. True-False Question Ratings Easy 1. Easy 2. Easy 3. Easy 4. Easy 5. Easy 6. Easy 7. Easy 8. Easy 9. Easy 10. Easy 11. Easy 12. Easy 13. Easy 14. Moderate 15. Moderate 16. Moderate 17. Moderate 18. Dif fi cult 19. Moderate 20. Moderate 21. Moderate 22.
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