SOLUTIONS MANUAL
** All Chapters included
** Discussion Questions
** Exercises & Problems
** Solutions To Ethics & Equity Features
** Solutions To Becker CPA Review Questions
,Table of Contents are given below
1. Understanding and Working with the Federal Tax Law.
2. The Deduction for Qualified Business Income for Noncorporate Taxpayers.
3. Corporations: Introduction and Operating Rules.
4. Corporations: Organization and Capital Structure.
5. Corporations: Earnings & Profits and Dividend Distributions.
6. Corporations: Redemptions and Liquidations.
7. Corporations: Reorganizations.
8. Consolidated Tax Returns.
9. Taxation of International Transactions.
10. Partnerships: Formation, Operation, and Basis.
11. Partnerships: Distributions, Transfer of Interests, and Terminations.
12. S Corporations.
13. Comparative Forms of Doing Business.
14. Taxes in the Financial Statements.
15. Exempt Entities.
16. Multistate Corporate Taxation.
17. Tax Practice and Ethics.
18. The Federal Gift and Estate Taxes.
19. Family Tax Planning.
20. Income Taxation of Trusts and Estates.
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure
that all chapters are included in this document. (Complete Chapters included Ch20-1)
Solution and Answer Guide
NELLEN, YOUNG, CRIPE, PERSELLIN, LASSAR, CUCCIA, SWFT CORPORATIONS, PARTNERSHIPS,
ESTATES & TRUSTS 2027, 9798214058214; CHAPTER 20: INCOME TAXATION OF TRUSTS AND
ESTATES
TABLE OF CONTENTS
Discussion Questions .............................................................................................................1
Computational Exercises ..................................................................................................... 4
Problems................................................................................................................................ 5
Research Problems ..............................................................................................................13
Check Figures ...................................................................................................................... 14
Solutions To Ethics & Equity Features ...............................................................................15
Solutions To Becker CPA Review Questions .....................................................................15
Tax Return Problems ...........................................................................................................19
DISCUSSION QUESTIONS
1. (LO 1) Taxpayers create trusts for a variety of reasons. Some trusts are established
primarily for tax purposes, and others are designed to accomplish a specific
financial goal or to provide for the orderly management of assets in case of an
emergency. The most commonly encountered reasons for creating a fiduciary entity
include the following:
• To hold life insurance policies on the decedent as part of an estate plan to
remove such policies from the gross estate.
• To manage assets, reduce probate costs, and ensure the privacy of the
distribution of assets near the end of the grantor’s life.
• To provide funds for an advanced education, accumulating income at a lower
tax rate than the grantor.
• To manage the assets of a divorcing couple in an objective manner.
2. (LO 1) Each of the entities is taxed differently under Federal income tax law.
a. C corporations are separate taxable entities distinct from their shareholders.
See Chapters 3 to 6.
b. Partnerships are pass-through entities and never incur Federal income tax
liabilities. See Chapters 9 through 11.
1
, Solution and Answer Guide: Nellen, Young, Cripe, Persellin, Lassar, Cuccia, SWFT Corporations, Partnerships,
Estates & Trusts 2027, 9798214058214; Chapter 20: Income Taxation of Trusts and Estates
c. S corporations are pass-through entities and incur Federal income tax liabilities
only rarely (e.g., for built-in gains tax penalty or for the tax on excessive passive
investment income). See Chapter 12.
d. Trusts and estates are modified pass-through entities and incur Federal
income tax when taxable income is retained by the entity, rather than
distributed from taxable amounts to income beneficiaries.
3. (LO 1) Answers will differ among students. Here are examples:
a. All income is required to be distributed currently to the granddaughter of the
grantor. No corpus distributions are made.
b. All income is required to be distributed currently to State University, a qualifying
charity. No corpus distributions are made.
c. Income can be sprinkled at the discretion of the trustee; or same as part a. or b.,
except that a corpus distribution is made during the year.
4. (LO 2) Generally, the entity recognizes no gross income when it distributes appreciated
property to a beneficiary. However, the relatively low basis of the asset carries over
to the recipient. DNI and the distribution deduction reflect an amount for the
distribution equal to the lesser of the asset’s basis or its fair market value.
DNI and distribution deduction $80,000
Gross income to Liu –0–
Basis to Yang 80,000
Upon making a § 643(e) election, however, the distribution can become a taxable
event to the entity. This results in the fiduciary recognizing gain, and the beneficiary
taking a fair market value basis in the asset. Both DNI and the distribution deduction
would reflect the asset’s fair market value.
DNI and distribution deduction $100,000
Gross income to Liu 20,000
Basis to Yang 100,000
5. (LO 2) The default application of the deduction for administrative fees is to the estate
tax return. Code § 212 expenses of this sort are deductible on an income tax return
only if a waiver of the estate tax deduction is filed.
Here, the deduction is more valuable on the estate tax return, where the marginal
tax rate is higher. So the fees should be fully assigned to the Form 706.
6 . (LO 2) Cost recovery deductions related to the assets of a fiduciary are assigned
proportionately among the recipients of entity accounting income.
Mona deducts on her Form 1040 depreciation attributable to Sterling of $20,000
[$100,000 × ($500,000 ÷ $2,500,000)]. The beneficiaries’ shares of gross, taxable, and
distributable net income are irrelevant for this purpose.
7. (LO 2) If the charitable gift is determinable in both existence and amount to the
controlling will or trust agreement, the entity is allowed a deduction for the amount
of the gift that is paid from current-year gross income. See § 265 for disallowance
possibilities.
2
** All Chapters included
** Discussion Questions
** Exercises & Problems
** Solutions To Ethics & Equity Features
** Solutions To Becker CPA Review Questions
,Table of Contents are given below
1. Understanding and Working with the Federal Tax Law.
2. The Deduction for Qualified Business Income for Noncorporate Taxpayers.
3. Corporations: Introduction and Operating Rules.
4. Corporations: Organization and Capital Structure.
5. Corporations: Earnings & Profits and Dividend Distributions.
6. Corporations: Redemptions and Liquidations.
7. Corporations: Reorganizations.
8. Consolidated Tax Returns.
9. Taxation of International Transactions.
10. Partnerships: Formation, Operation, and Basis.
11. Partnerships: Distributions, Transfer of Interests, and Terminations.
12. S Corporations.
13. Comparative Forms of Doing Business.
14. Taxes in the Financial Statements.
15. Exempt Entities.
16. Multistate Corporate Taxation.
17. Tax Practice and Ethics.
18. The Federal Gift and Estate Taxes.
19. Family Tax Planning.
20. Income Taxation of Trusts and Estates.
,Solutions Manual organized in reverse order, with the last chapter displayed first, to ensure
that all chapters are included in this document. (Complete Chapters included Ch20-1)
Solution and Answer Guide
NELLEN, YOUNG, CRIPE, PERSELLIN, LASSAR, CUCCIA, SWFT CORPORATIONS, PARTNERSHIPS,
ESTATES & TRUSTS 2027, 9798214058214; CHAPTER 20: INCOME TAXATION OF TRUSTS AND
ESTATES
TABLE OF CONTENTS
Discussion Questions .............................................................................................................1
Computational Exercises ..................................................................................................... 4
Problems................................................................................................................................ 5
Research Problems ..............................................................................................................13
Check Figures ...................................................................................................................... 14
Solutions To Ethics & Equity Features ...............................................................................15
Solutions To Becker CPA Review Questions .....................................................................15
Tax Return Problems ...........................................................................................................19
DISCUSSION QUESTIONS
1. (LO 1) Taxpayers create trusts for a variety of reasons. Some trusts are established
primarily for tax purposes, and others are designed to accomplish a specific
financial goal or to provide for the orderly management of assets in case of an
emergency. The most commonly encountered reasons for creating a fiduciary entity
include the following:
• To hold life insurance policies on the decedent as part of an estate plan to
remove such policies from the gross estate.
• To manage assets, reduce probate costs, and ensure the privacy of the
distribution of assets near the end of the grantor’s life.
• To provide funds for an advanced education, accumulating income at a lower
tax rate than the grantor.
• To manage the assets of a divorcing couple in an objective manner.
2. (LO 1) Each of the entities is taxed differently under Federal income tax law.
a. C corporations are separate taxable entities distinct from their shareholders.
See Chapters 3 to 6.
b. Partnerships are pass-through entities and never incur Federal income tax
liabilities. See Chapters 9 through 11.
1
, Solution and Answer Guide: Nellen, Young, Cripe, Persellin, Lassar, Cuccia, SWFT Corporations, Partnerships,
Estates & Trusts 2027, 9798214058214; Chapter 20: Income Taxation of Trusts and Estates
c. S corporations are pass-through entities and incur Federal income tax liabilities
only rarely (e.g., for built-in gains tax penalty or for the tax on excessive passive
investment income). See Chapter 12.
d. Trusts and estates are modified pass-through entities and incur Federal
income tax when taxable income is retained by the entity, rather than
distributed from taxable amounts to income beneficiaries.
3. (LO 1) Answers will differ among students. Here are examples:
a. All income is required to be distributed currently to the granddaughter of the
grantor. No corpus distributions are made.
b. All income is required to be distributed currently to State University, a qualifying
charity. No corpus distributions are made.
c. Income can be sprinkled at the discretion of the trustee; or same as part a. or b.,
except that a corpus distribution is made during the year.
4. (LO 2) Generally, the entity recognizes no gross income when it distributes appreciated
property to a beneficiary. However, the relatively low basis of the asset carries over
to the recipient. DNI and the distribution deduction reflect an amount for the
distribution equal to the lesser of the asset’s basis or its fair market value.
DNI and distribution deduction $80,000
Gross income to Liu –0–
Basis to Yang 80,000
Upon making a § 643(e) election, however, the distribution can become a taxable
event to the entity. This results in the fiduciary recognizing gain, and the beneficiary
taking a fair market value basis in the asset. Both DNI and the distribution deduction
would reflect the asset’s fair market value.
DNI and distribution deduction $100,000
Gross income to Liu 20,000
Basis to Yang 100,000
5. (LO 2) The default application of the deduction for administrative fees is to the estate
tax return. Code § 212 expenses of this sort are deductible on an income tax return
only if a waiver of the estate tax deduction is filed.
Here, the deduction is more valuable on the estate tax return, where the marginal
tax rate is higher. So the fees should be fully assigned to the Form 706.
6 . (LO 2) Cost recovery deductions related to the assets of a fiduciary are assigned
proportionately among the recipients of entity accounting income.
Mona deducts on her Form 1040 depreciation attributable to Sterling of $20,000
[$100,000 × ($500,000 ÷ $2,500,000)]. The beneficiaries’ shares of gross, taxable, and
distributable net income are irrelevant for this purpose.
7. (LO 2) If the charitable gift is determinable in both existence and amount to the
controlling will or trust agreement, the entity is allowed a deduction for the amount
of the gift that is paid from current-year gross income. See § 265 for disallowance
possibilities.
2
