Marion Mosley created the Jenny Justice Trust in 1995 with First Bank named as trustee. For 20 years, the trust is to pay out all its income semiannually to the beneficiary, Jenny Justice. At the end of the twentieth year, the trust assets are to be distributed to Jenny's descendants. Capital gains are credited to principal, and depreciation is charged to principal. For the 2011, the irrevocable trust reports the following results:
Amounts Allocable to
Rental Income $15,000
Corporate bond interest $27,000
Interest on tax-exempt (non-private activity) bonds $8,000
Long-term capital gain on sale of land $30,000(a)
Maintenance and repairs of rental property $1,500
Property taxes on rental property $700
Fee for tax return preparation $500
Trustee's fee $2,000
Estimated federal income taxes paid $9,000
(a)The sales price and adjusted basis are $110,000 and $80,000 respectively. The trustee acquired the land in 2002 and the trustee sold it in November of the current year.
Prepare a Form 1041, including any needed schedule K-1s, for the Jenny Justice Trust. Ignore the alternative minimum tax (AMT). The trustee's address is P.O. BOX 100, Dallas, TX 75202. The identification number of the trust is 74-6224343. Jenny, whose Social Security number is 252-37-1492, resides at 2 Mountain View, Birmingham, AL 35205.
Requirements: Prepare the federal income tax return on the appropriate IRS Forms. Copies of those forms and instructions are available at www.irs.gov. You will need to prepare pp. 1-2 of the 1041, including Schedules D, p. 1 and p. 2, K-1 (Jenny Justice). You will also need to prepare Schedule D and Forms 4562 and 4797. Please do not prepare Schedule M-3 and Form 2220. Completed Schedule L. Schedule L is a book-basis statement, not tax-basis.
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