Please answer the following as accurately as possible.
1. ABC Trust had the following income and deductions:
| * Taxable interest | $5,000 |
| * Capital Gain | $1,000 |
| * Fiduciary fee | $5,000 |
The trust had no tax exempt income for the year. Per the trust instrument, capital gains are NOT allocated to corpus. What is the distributable net income (DNI)?
A. $6,700.
B.
$6,300.
C.
$5,300.
D.
$4,700.
2. XYZ Trust is a complex trust. What is the trust's distribution deduction based on the following information (capital gains are allocated to income, there is no interest income, and there is no charitable contribution):
| * Adjusted Total Income. | $5,000 |
| * Capital Gain (included in Adjusted Total Income). | $1,000 |
| * Income required to be distributed currently. | $5,000 |
A. $10,000.
B. $5,000.
C.
$0.
D.
$8,000.
3. DUG Partnership operates a business. Its tax year ends on December 31, 2008. A partner dies on August 20th. The deceased partner's (and his or her estate's) distributive share of partnership income for the year of death is $18,000. The partner's share of self-employment income from the partnership is:
A. $18,000.
B. $11,500.
C.
$12,000.
D.
$9,000.
4. John, a self-employed carpenter, died on January 8, 2008. Which of the following, if allowable, could be deducted on John's final Form 1040?
A. Unused net operating loss carryover from 2007.
B. The
full amount of his personal exemption (with-out pro-ration).
C.
Medical expenses paid by the estate within one year of death.
D. All
of the above.
5. A calendar year estate came into existence November 12, 2007. It had a tax balance due of $15,000 on the 2007 return. The estate executor expects to have a $10,000 balance due on the 2008 tax return. The estate will not be finalized until 2009. Income is received evenly throughout the year, and there is not withholding. The executor is required to make estimated payments on:
A. April 15, 2008; June 15, 2008; September 15, 2008, January 15, 2009.
B.
December 31, 2008 if the return is filed on or before February 28, 2009.
C.
Either A or B.
D. No
estimated payments are required.
6. The John Q estate fiscal tax year run form April 1, 2007 to March 31, 2008. The estate made distributions to beneficiaries on December 12, 2007 and March 15, 2008. Assuming the estate has taxable income, in what year will its beneficiaries be required to report taxable distributions?
A. 2007.
B.
2008.
C.
Both 2007 and 2008.
D.
Neither 2007 nor 2008.
7. All of the following items can be claimed as deductions against a decedent's estate except:
A. Specific bequest to son.
B.
Executor's fees.
C.
Legal fees to settle estate.
D.
Charitable bequests.
8. Which of the following amounts paid may be claimed as a credit on the estate tax return:
A. Charitable contributions.
B.
Generations-skipping transfer tax.
C.
State death taxes paid.
D. Earned
income credit.
9. The Bordman Trust, an ongoing trust, was created in 1996. It has a net operating loss in 2008. Which of the following statements is or are true regarding the trustee's choices for claiming the loss?
A. Carry the NOL back to 1996.
B. Waive
the five year carryback and carry the NOL back two years.
C.
Waive both the two year and the five year carryback periods and pass the NOL
through to beneficiaries.
D. NOL
carryback is not available to trusts.
10. The Emerson estate has distributable net income (DNI) of $20,000 on its 2008 return. The only distribution the executor made during the year was $10,000, paid to the decedent's son, Sam. The distribution was made to fulfill a bequest stated in the decedent's will, which required that one payment of $10,000 be paid to Sam within six months of Mr. Emerson's death. Which of the following statements is true regarding who will pay tax on the estate's income:
A. Sam must pay tax on $10,000.
B. Sam
must pay tax on $20,000.
C.
Sam is not required to pay tax on the distribution.
D. None of
the above.
11. Laura's gross estate equals $2,000,000. Given the following information, determine Laura's taxable estate:
| * Charitable contribution specified in Laura's will | $100,000 |
| * Funeral expenses | $10,000 |
| * Medical expenses claimed on Laura's Form 1040 | $20,000 |
A. $1,870,000.
B.
$1,880,000.
C.
$1,890,000.
D.
$2,000,000.
12. Bill, a partner in Williams-Sonic is a calendar-year taxpayer. William-Sonic's partnership year ends on June 30. For the partnership year ending June 30, 2008, Bill's distributive share of partnership profits is $4,000. On August 20, 2008. Bill dies and his estate succeeds to his partnership interest. For the partnership year ending June 30, 2009, Bill and his estate's distributive share is $6,000. What is Bill's self-employment income on Schedule E (Form 1040) for 2008?
A.
$4,000.
B. $5,000.
C. $10,000.
D.
$7,000.
13. Which of the following is not an example of income in respect of a decedent?
A. Wages
earned before death, but unpaid at the time of death.
B. A dividend check that was received by the decedent, but cashed after death.
C. The taxable portion of an inherited IRA.
D. The
taxable portion of payments received on an inherited installment obligation.
14. Mark died on December 22, 2006. The executor of his estate chose a calendar year. In 2007, the estate had a tax liability of $2,000. It is expected that the estate will have an adjusted gross income of $43,000 and a tax liability of $3,000 in 2008. All of the income is from interest and dividends from which no tax was withheld. Which of the following statements regarding estimated tax payments for this estate are true?
A.
The executor does not need to make estimated tax payments because the estate is
only in its third year of existence.
B. The executor should make equal estimated payments totaling at least $2,000
(last year's tax liability) to avoid a penalty for underpayment of tax.
C. The executor should make equal estimated payments totaling at least $3,000 to
avoid the penalty for underpayment of tax.
D.
Because the 2001 tax liability is no more than $1,000 greater than the
prior-year liability, no estimated tax payments are required.
15. On December 15, 2007, Kyle received a $10,000 distribution from his father's estate. On March 30, 2008 Kyle was issued Schedule K-1 for the estate's first fiscal year (February 1, 2007, through January 31, 2008). The Schedule K-1 from the estate showed taxable interest income of $200 and had no other entries. Based on the information above, which of the following statements are true?
A. Kyle must report income of $10,000 on his 2008 return.
B. Kyle must report $200 interest income on his 2008 return.
C. Kyle may claim a deduction on Schedule A for a pro rata share of the estate
tax that was paid by the estate.
D.
Both B and C.
16. Which of the following items are included in a decedent's gross estate?
| The decedent's IRA, where the decedent's spouse is the named beneficiary. |
| A checking account with the decedent's daughter as joint tenants. The daughter's funds were used to set up the account. |
| Assets held in the decedent's revocable grantor trust. |
A. All of the assets are included in the decedent's estate.
B. The IRA and checking account are included in the decedent's estate.
C. The IRA and the assets in the revocable grantor trust are included in the
decedent's estate.
D.
None of the assets are included in the decedent's estate.
17. Which of the following items is not an allowable deduction on a decedent's estate tax return?
A. Bequest to a surviving ex-spouse.
B. Property taxes accrued before death but not paid until after death.
C. Executor's fees for administering the estate.
D.
None of the items is allowed as a deduction against the decedent's estate.
You will need IRS Instructions Form 706 to complete the following questions:
18. Which of the following is NOT a characteristic of a skip person as it pertains to the GST tax?
A. A natural person.
B. A
person only one generation below the generation of the donor.
C. A
person two or more generations below the generation of the donor.
D. A
donee of a gift.
19. Unless an extension is received, Form 706 Estate Tax Return must be filed:
A. By the 15th day of the fourth month following the month of death.
B.
Within 9 months of the date of death.
C.
Within 6 months of the date of death.
D. No
later than the due date of the estate income tax return.
20. Which of the following statements concerning the alternate valuation election is correct?
A. The alternate valuation election may be made even if no estate tax will be
paid if the election is not made.
B. If
the alternate valuation election is made, it is possible for some but not all of
the assets to be included in the decedent's estate at a higher FMV than on the
date of death.
C. If
the alternate valuation election is made, assets that are disposed of within 6
months of the decedent's death are generally valued on the date of death.
D.
None of the statements are correct.
You will need IRS Instructions Form 1041 to complete the following questions:
21. The Morrison Trust requires that all trust income be distributed at least annually. There are no provisions for charitable contributions. To be treated as a simple trust, what must also be true?
A. Trust income can consist of interest and dividends only.
B. There
were no other distributions of corpus in the current year.
C.
All beneficiaries must be U.S. citizens or resident aliens.
D. All of
the above.
22. Christopher wants to create a revocable grantor trust that will own all of his stocks and rental properties. Which statement regarding income of the trust is true?
A. Christopher will be taxed only income that is distributed to him.
B.
Christopher will be taxed on all income of the trust, regardless of
distributions.
C.
State law will determine who much of the trust income is taxable to Christopher.
D. If
the rental income is passive, it will not be taxable to him.
23. Trust A is a simple trust with two equal beneficiaries, Jim and Randy. In 2008, the trust had $30,000 of distributable net income, all from taxable interest. During the year, the trust distributed $5,000 to Jim and $10,000 to Randy. Based on this information, the trustee should issue K-1's as follows:
A. Jim $5,000; Randy $10,000.
B. Jim
$15,000; Randy $15,000.
C.
Jim $10,000; Randy $20,000.
D. Jim
$30,000; Randy $30,000.
24. Trust Y has taxable interest and dividends of $9,000 and tax exempt interest of $1,000. The only expense the trust incurred was a trustee fee of $500. Bases on this information, what amount of adjusted tax-exempt interest is included in the trust's distributable net income?
A. $8,550.
B. $500.
C. $950.
D.
$1,000.
25. The Large Trust is a simple trust. Bert Little is the sole beneficiary of the trust. Capital gains are allocable to corpus. Based on the following information, what is the trust's distribution deduction?
| Interest | $1,700 |
| Dividends | $300 |
| Capital gains | $2,000 |
| Fiduciary fee | $1,000 |
A. $1,000.
B.
$1,500.
C.
$2,000.
D.
$3,000.
26. Trust B has distributable net income of $60,000, which includes $5,000 of tax-exempt income. The trustee distributed $75,000 to the trust's sole beneficiary. What amount will be shown as the distribution deduction on the trust's Form 1041?
A. $55,000.
B.
$60,000.
C.
$70,000.
D.
$75,000.
27. The LMH trust is a simple trust. Given the following information, determine the trust's distribution deduction.
| Adjusted total income | $15,000 |
| Adjusted tax exempt interest (Not included in total income) | $2,000 |
| Capital gain allowable to corpus | $3,000 |
A. $10,000.
B.
$12,000.
C.
$13,000.
D.
$15,000.
28. The Tom Trust requires that all trust income be distributed at least annually. There are no provisions for charitable contributions. To be treated as a simple trust, what must also be true?
A. Trust income can consist of interest and dividends only.
B.
There were no distributions of corpus in the current year.
C.
All beneficiaries must be U.S. citizens or resident aliens.
D.
All of the above.
29. Which of the following statements regarding grantor trusts is true?
A. A grantor of a grantor trust does not report income from the trust unless
distributions are made from the trust.
B.
A grantor trust is a good way to shelter income.
C.
Income from a grantor trust is taxed to the grantor in the same manner as if no
trust existed.
D.
all of the statements are true.
You will need IRS Publication 950 to complete the following questions:
30. Generally, in which of the following scenarios must a gift tax return be filed?
A. You gave gifts to an individual (other than your spouse) totaling more than
$12,000.
B. You
gave a gift of a future interest that interest that was less than $12,000.
C. You
wish to split gifts with your spouse.
D. All
of the above.
32. Which of the following statements regarding the annual exclusion for gift taxes is true?
A. The gift of a present interest to more than 1 donee as joint tenants
qualifies for only 1 annual exclusion.
B. A
gift of a future interest cannot be excluded under the annual exclusion.
C.
The annual exclusion amount for 2008 is $12,000.
D.
None of the above.
33. Jack, a single individual, made the following gifts in 2008.
What is the gross amount of gifts that Jack must include on his 2008 Form 709, United States Gift Tax Return?
A. $80,000.
B.
$40,000.
C.
$65,000.
D.
$55,000.
34. George and Helen are husband and wife. During 2008, George gave $30,000 to his brother and Helen gave $22,000 to her niece. George and Helen both agree to split the gifts they made during the year. What is the taxable amount of gifts, after the annual exclusion, each must report on Form 709?
A. George and Helen each have taxable gifts of $15,000.
B.
George has a taxable gift of $18,000 and Helen has a taxable gift of $10,000.
C.
George and Helen each have taxable gifts of $3,000.
D.
George has a taxable gift of $6,000 and Helen has a taxable gift of zero.
35. Lace gave the following gifts during the year:
| Cash to her sister. | $8,000 |
| Stocks to her brother. | $12,000 |
| Cash to United Way. | $15,000 |
| A car to her cousin. | $16,000 |
Based on this information, what is the amount of taxable gifts given?
A. $0.
B.
$4,000.
C.
$8,000.
D.
$11,000.
36. Margaret's 2008 Form 709, page 1 has the following entries:
| Tax on current-year gifts. | $400,000 |
| Maximum unified credit. | $220,550 |
| Credit used in prior years. | $20,550 |
Based on this information, what is the balance due on Margaret's Form 709 Gift Tax Return this year?
A. $0.
B.
$179,450.
C.
$200,000.
D.
$379,450.
You will need IRS Instructions Form 709 to complete the following questions:
37. The annual gift tax exclusion amount is allowed on which of the following gifts:
A. $30,000 cash to Friend A.
B.
$30,000 car to Friend B.
C.
$30,000 remainder interest to Friend C.
D. Both A
and B.
38. John made several transfers during 2008. In January, he paid $6,000 of tuition directly to State University for his friend, Sam. He gave his niece, Sally, $5,000 for her school tuition. In addition, in May, he also gave the following graduation gifts:
| * Cash to his friend, Sam | $7,500 |
| * Cash to his niece, Sally | $5,000 |
He gave no other gifts during the year. From the information above, must John file a gift tax return, and why?
A. No, total gifts to any one individual during the year do not exceed $12,000.
B. No,
each transfer was under $12,000.
C.
Yes, total gifts given during the year exceed $12,000.
D.
Yes, total gifts to Sam exceed $12,000.
39. Tom, who is married, gave a vase worth $40,000 to his sister, Julie. Tom's basis in the vase is $10,000. What amount will Tom report as the value of the gift on Form 709?
A. $10,000.
B.
$20,000.
C.
$30,000.
D.
$40,000.
40. Andrew gave several taxable gifts to friends and relatives during 2008. He also gave $50,000 to his favorite charity, a qualified 50% organization. When he files his 2008 Form 709, what amount will Andrew pay tax on for his contribution.
A. $0.
B.
$25,000.
C.
$39,000.
D.
$50,000.
41. Edwin gave his grandson Todd $30,000. Todd is 15 years old and lives with his parents. Which of the following statements regarding the generation-skipping transfer tax is true?
A. Because the gift is subject to the generation-skipping transfer tax, it is
not subject to the regular gift tax.
B. The
gift is subject to both the regular gift tax and the generation-skipping
transfer tax.
C.
The gift is not subject to the generation-skipping transfer tax because Todd's
parents are still alive.
D. If
Edwin had transferred the funds into a trust solely for his grandson's benefit,
the gift would not be subject to the generation-skipping transfer tax.
6. Which of the following statements regarding gift splitting is correct?
A. The couple must have been married at the time the gift was given, but either
or both spouses may be remarried during the year.
B. The
couple must have been married at the time the gift was given and the spouse who
gave the gift may not be remarried during the year.
C.
The couple need not be married at the time of the gift, but must be married by
the end of the year.
D. The
couple must be married at all times during the year.
42. Alberta, who had not given taxable gifts in any prior year, gave her five children the following gifts in 2008.
| A car to Richard | $14,000 |
| Cash to Elizabeth | $12,000 |
| Stock to John | $10,500 |
| Stock to Jane | $9,500 |
| Cash to Robert | $5,000 |
A. $0.
B.
$1,000.
C.
$2,000.
D.
$41,000.
43. Cassy, a single individual, has not been required to file a gift tax return in any prior year. In 2008, Cassy paid $12,000 tuition directly to State University for her sister, Andrea. She gave her brother $8,000 to pay medical bills for his daughter. She also donated $20,000 to the United Way. Must Cassy file a gift tax return?
A. No.
B. Yes,
because the gift to her sister exceeded $10,000.
C.
Yes, because the United Way donation exceeded $10,000.
D. Yes,
because the total gifts she gave during the year exceeded $10,000.
