ExpertMedium1 markMultiple Choice
CPA · Question 55 · Area II: Entity Tax Compliance
A taxpayer is the beneficiary of a simple trust. The trust has $10,000 of ordinary income and $5,000 of long-term capital gains (allocable to corpus). The trust distributes $12,000 to the beneficiary. What is the beneficiary's taxable income from the trust?
A taxpayer is the beneficiary of a simple trust. The trust has $10,000 of ordinary income and $5,000 of long-term capital gains (allocable to corpus). The trust distributes $12,000 to the beneficiary. What is the beneficiary's taxable income from the trust?
Answer options:
A.
$12,000
B.
$10,000
C.
$15,000
D.
$0
How to approach this question
1. Calculate DNI. (Ordinary Income $10k. Cap Gains to Corpus -> Excluded). DNI = $10k. 2. Beneficiary taxed on lower of Distribution ($12k) or DNI ($10k).
Full Answer
B.$10,000✓ Correct
B
IRC §643(a). DNI includes ordinary income but excludes capital gains allocated to corpus. DNI = $10,000. The beneficiary reports income up to DNI.
Common mistakes
Including capital gains in DNI; taxing the full cash distribution.
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