4. The trustee of Pace Trust can distribute any amount of accounting income and corpus to...

4. The trustee of Pace Trust can distribute any amount of accounting income and corpus to the trust beneficiaries, Lynda and Scott. This year the trust incurred the following :

Taxable interest income $40,000

Tax-Exempt interest income $20,000

Long-term capital gains (allocable to corpus) $80,000

Fiduciary's fees (allocable to corpus) $9,000

The trustee distributed $26,000 to Lynda and $13,000 to Scott.

a. What is the Pace Trust accounting income?

b. What is the trust DNI?

c. What is the Pace Trust taxable income?

d. What is the distribution deduction?

e . What amount of tax will the Trust pay?

f. What is the amount and character of income tax to each of the beneficiaries?

Expert Solution




ITEM	TOTAL	ACCOUNTING INCOME	TAXABLE INCOME	DISTRIBUTABLE NET INCOME
Taxable Interest Income	$40,000	$40,000	$40,000
Tax exempt interest income	20000	20000	-
Net long term capital gain	80000	-	80000
Trustee Expense(fiduciary expense)	9000	-	-6000	(40000/60000)*9000
Personal Exemption			-100
Accounting Income/Taxable Income before distribution deductions:		$60,000	$113,900	$113,900
Exemption				100
Corpus capital gain/loss				-80000
Net Exempt Income				17000	20000-[(20000/60000)*9000]
Distributable Net income				51000
Distribution Deduction			($26,000)
Entity Taxable Income			$87,900

ANSWERS
a) Pace Trust Accounting Income		$60,000

b) Trust DNI		$51,000

c) Pace Trust Taxable Income		$87,900

d) Distribution Deduction		$26,000


f) Amount and character of income tax to each of beneficiaries

Beneficiary	Amount Received	Taxable Interest	Exempt Interest	Passive Income
Lynda	$26,000	$20,392	$10,196	$30,588
Scott	$13,000	$10,196	$5,098	$15,294

Note: Calculation of Taxable Interest
Lynda	($26000/51000DNI)*40000
Scott	($13000/51000DNI)*40000

Note: Calculation of Exempt Interest
Lynda	($26000/51000DNI)*20000
Scott	($13000/51000DNI)*20000

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