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Practice CPA®CPA TCP Practice Exam 3Question 43

Medium1 markMultiple Choice

Area II: Entity Tax ComplianceTCPArea IIGroup D

CPA · Question 43 · Area II: Entity Tax Compliance

A grantor establishes a trust, retaining the power to revoke it. The trust earns $5,000 in interest and $10,000 in dividends. Who pays the tax on this income?

Answer options:

A.

The grantor.

B.

The trust.

C.

The beneficiaries.

D.

Split between grantor and trust.

How to approach this question

Identify Grantor Trust status (Revocable). Income is taxed to the Grantor.

Full Answer

A.The grantor.✓ Correct

A

IRC §676. The grantor is treated as the owner of any portion of a trust where they retain the power to revoke. All income is taxed to the grantor.

Common mistakes

Thinking the trust pays tax because it has a separate EIN.

Question 42 All questions Question 44

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