A Complex Trust has DNI of $15,000. It distributes $20,000 to the sole beneficiary. $5,000 of the DNI is tax-exempt interest. What is the amount of the Income Distribution Deduction allowed to the trust?

Answer options:

$20,000

$15,000

$10,000

$5,000

How to approach this question

Income Distribution Deduction = Lesser of (Total Distribution) or (DNI), reduced by tax-exempt income included in those amounts.

Full Answer

C.$10,000✓ Correct

IRC §651(b), §661(c). The deduction is limited to the taxable portion of DNI. <br/>Taxable DNI = Total DNI ($15,000) - Tax Exempt ($5,000) = $10,000. <br/>The deduction is $10,000.

Common mistakes

Deducting the full DNI including tax-exempt interest.

Question 41 All questions Question 43

Practice the full CPA TCP Practice Exam 4

68 questions · hints · full answers · grading

More questions from this exam

Q01In Year 1, an executive exercises Incentive Stock Options (ISOs) to purchase 1,000 shares of comp...Medium Q02A taxpayer provides an interest-free loan of $200,000 to their adult child on January 1, Year 1, ...Hard Q03A taxpayer, age 15, has $4,500 of interest income and no earned income in Year 1. The taxpayer is...Medium Q04A taxpayer anticipates their marginal tax rate will increase from 24% in Year 1 to 35% in Year 2....Medium Q05A taxpayer is subject to the safe harbor rules for estimated tax payments. Their Year 1 Adjusted ...Medium

View all 68 questions →