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

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Accounting

4.The trustee of Pace Trust can distribute any amount of accountingincome and corpus to the trust beneficiaries, Lynda and Scott. Thisyear 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 ofthe beneficiaries?

Answer & Explanation Solved by verified expert
4.2 Ratings (739 Votes)

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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