R4 Partnership, Estate, Gift (T)

Question 1

Partnership Passive Loss Limitation

Answer 1

Limit the ability of partners involved in passive activities (such as rental or real estate or nonactive participation in a partnership) from using ordinary losses from the passive activity to reduce ordinary taxable income

Question 2

Distributable Net Income

Answer 2

A limitation on the amount the trust or estate can deduct with respect to distributions to beneficiaries

Question 3

The Gift Tax (Form 709)

Answer 3

A transfer of tax payable by certain donors of gifts. Individuals can give up to $14,000 per year to a single donee without paying taxes on the distribution

Question 4

Complex Trust

Answer 4

A trust that may

accumulate current income
distribute principal
deduct charitable contributions
is permitted an exemption of $100 in arriving at its taxable income

Question 5

Simple Trust

Answer 5

A trust that
Only makes distributions out of current income; it cannot make distributions from the trust corpus
Is required to distribute all of its income currently
Cannot take a deduction for a charitable contribution
Is entitled to a $300 exemption

Question 6

Grantor Trust

Answer 6

A trust in which grantor retains control over the trust assets and is considered a disregarded entity for income tax purposes

Question 7

De Minimis Rule

Answer 7

Companies can make a de minimis annual expense election regarding expenditures to acquire or produce property if they have a capitalization policy in affect as of the beginning of the year

Question 8

Taxation of Estates

Answer 8

Estates are subject to Income tax and Estate Tax

Question 9

Income Tax of Estates

Answer 9

Income tax is due annually based on income earned during the year while the estate is in existence

Question 10

Estate Tax

Answer 10

A one-time-only transfer tax based on the value of the decedent’s estate

Question 11

Unified Estate and Gift Tax (transfer tax)

Answer 11

The estate and gift tax have been unified into a single transfer tax. Not all gifts are subject to the gift tax

Question 12

Lifetime Gifts of Transfer Tax

Answer 12

Gift of $14,000 or less per year per donee are excluded
For 2014, a $2,081,800 unified estate and gift tax credit effectively exempts from the gift tax cumulative, non-excluded gifts having a value of $5,340,000

Question 13

Calculation of Distributable Net Income

Answer 13

Estate (Trust) Gross Income (incl all cap gain)
(Estate / Trust deductions)
=Adjusted Total Income
\+ Adjusted Tax-Exempt Interest
(Cap Gains attributable to Corpus)
=Distributable Net Income

Question 14

Income Distributed to the Beneficiaries of Estates and Trusts

Answer 14

Income distributed to the beneficiaries (and reported on schedule K-1 on Form 1041) retains the same character (e.g., tax-exempt, portfolio, passive, etc.) as the income had at the fiduciary level (which is the same as occurs in partnership taxation)

Question 15

Income Distribution Deduction

Answer 15

Equals the lesser of the following
Actual distribution to beneficiary; or
DNI (less adjusted tax-exempt interest)