1. Joe died on February 3, 2012. The longest first tax year the executor of Joe’s estate can choose for filing the estate’s 1041 ends on
a. January 31, 2013.
b. December 31, 2012.
c. February 2, 2013.
d. January 15, 2013.
2. Referring to your answer to question 1, when would Joe’s executor ordinarily have to file the first Form 1041 for Joe’s estate?
a. April 15, 2013.
b. May 15, 2013.
c. May 17, 2013.
d. June 1, 2013.
3. By definition, charitable distributions can’t be made from
a. simple trusts.
b. testamentary trusts.
c. living trusts.
d. complex trusts.
4. Trust and estate distributions to charities, if otherwise allowable, can be deducted on the trust’s or estate’s 1041
a. but are limited to 30% of adjusted taxable income.
b. but are limited to 50% of adjusted gross income.
c. but are limited to 80% of gross income.
d. without being subject to a percentage limitation.
5. Attorney’s fees
a. can only be deducted on the Form 1041 to the extent they exceed 2% of adjusted gross estate or trust income.
b. can only be deducted on an estate’s federal estate tax return if an estate tax return is required. If no federal estate tax return is required, they can be deducted on the fiduciary income tax return, Form 1041.
c. can only be deducted on the estate’s or trust’s Form 1041 if a section 645 election is made by the fiduciary.
d. can be deducted on the fiduciary income tax return, Form 1041, or on the federal estate tax return for a decedent’s estate if a federal estate tax return is required.
6. A capital asset forming part of a decedent’s gross estate takes as its basis
a. the fair market value of the asset as determined for federal estate tax purposes.
b. the higher of the decedent’s basis in the asset or the fair market value of the asset as determined for federal estate tax purposes.
c. the lower of the decedent’s basis in the asset or the fair market value of the asset as determined for federal estate tax purposes.
d. the decedent’s basis in the asset.
7. Tom is the trustee of the Generous Trust. The trust agreement directs the trustee to pay all net fiduciary accounting at least annually to Deserving Beneficiary. During 2011 the trust earned $10,000 of net fiduciary accounting income, consisting of taxable bond interest and dividends paid on corporate stock. Tom made no trust distributions of any kind to Deserving Beneficiary during 2011.
a. The income tax deduction for distributions to beneficiaries (beneficiary, in this case) is not available to the trust for 2011.
b. The income tax deduction for distributions to beneficiaries is available to the trust for 2011.
c. The income tax deduction for distributions to beneficiaries will be available to the trust in 2011 if Tom distributes $10,000 to Deserving Beneficiary by the filing date for the trust’s 2011 Form 1041.
d. The 2011 income tax deduction for distributions to beneficiaries that would have been available had distribution been properly made must be carried forward to the next tax year.
8. When he died on April 14, 2011, Joe owned 5,000 shares of XYZ corporation. XYZ was listed on the New York Stock Exchange and on April 14, 2011, the stock had a fair market value of $3 per share . On October 14, 2011 the stock had a fair market value of $4 per share. Joe had purchased the stock on November 16, 2010 for $2 per share and that was his per share basis when he died. Joe’s gross estate was not large enough to require the filing of a federal estate tax return. Joe, in his will, left the sum of $5,000 to his brother, Bill. Pursuant to authority granted in the will, Joe’s executor distributed 1,000 shares of XYZ stock to Bill in satisfaction of the bequest and on the date of distribution the fair market value of the stock was $5 per shares. As a result of this transaction
a. Bill has a basis in the 1,000 shares of $2,000.
b. The estate realizes and must recognize a long term capital gain of $2,000.
c. Bill has a basis in the shares of $4,000.
d. The estate realizes and must recognize a short term capital gain of $1,000.
e. Bill has a basis in the shares of $3,000.
a. unlike trusts, are not required to pay estimated income taxes.
b. are not required to pay estimated income taxes on capital gain income.
c. are not required to pay estimated income taxes in their first two years.
d. are not required to pay estimated income taxes in their first two years if all income during the year consists of capital gain income and tax-exempt income.
10. In 2011 the Smith Family Trust has net long-term capital loss of $30,000. As a result, the maximum amount it may deduct against ordinary income on its 2011 Form 1041 is
d. none of the above.
11. Income distributions from an estate to estate beneficiaries are recognized as income by beneficiaries on their tax returns for the year in which the
a. distribution was received.
b. income was earned by the estate.
c. estate’s income tax year ends.
d. income was received by the estate.
12. Income received by a guardian from his or her ward’s income producing assets is to be reported by the guardian
a. on the ward’s Form 1040.
b. on Form 1041G.
c. on Form 1041.
d. on Form 1040G.
13. Joe, Larry, and Moe are the three equal residuary beneficiaries of Harry’s estate. Harry’s executor distributes to each of them from the estate 99 shares of CDF Corporation stock. Harry bought the stock for $1 per share and that was his per share basis when he died. An estate tax return was not required to be filed for Harry’s estate. On the date of Harry’s death, the fair market value of CDF Corporation stock was $2 per share. On the date the shares were distributed to Joe, Larry and Moe the stock was selling for $3 per share. Joe , Larry and Moe each have a per share basis in the CDF Corporation stock distributed to them of
d. none of the above.
14. Which of the following statements is incorrect?
a. The taxation of trusts and estates is governed by Subchapter J of the Internal Revenue Code.
b. Form 1041 illustrates the conduit theory of income taxation since all taxable income received by a trust or estate is taxed to the beneficiaries.
c. Form 1041 is an income tax return for most types of trusts and decedents’ estates.
d. The income tax rates applied to trusts and estates are highly compressed compared to income tax rates for individuals.
15. Which of the following is not an item of income in respect of a decedent (IRD)?
a. Salary earned by the decedent at the time of his or her death but payable to the estate after death.
b. The proceeds from the completed sale of the decedent’s automobile not paid before the decedent died.
c. Capital gains on common stock sold by the fiduciary after the decedent’s death which stock was owned by the decedent at the time of death.
d. Accrued interest on Series EE bonds not reported on the decedent’s final federal income tax return.