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REG
Fiduciary Taxation
19
Accounting
Undergraduate 4
02/04/2012

Additional Accounting Flashcards

 


 

Cards

Term
fiduciaries
Definition
  • trusts and estates can be taxed on the income that accrues during the administration of the fiduciary
  • they are taxed on income retained by the fiduciary and not distributed currently to beneficiaries 
Term
trust
Definition
  • legal entity created by transfer of property from a grantor
  • purpose: hold and administer property for beneficiaries according to the terms of the trust instrument
Term
terminable interest
Definition
one that ends upon the occurrence of a contingency
Term
remainderman
Definition
person who receives property after a present interest is terminated
Term
contingent interest
Definition
created upon occurence of a contingency in future
Term
2 single taxation meassures for fiduciary
Definition
  1. distribution deduction is allowed for fiduciaries
  2. income taxed to beneficiaries retains its character
Term
personal exemption for fiduciaries
Definition
  • $600 for estates
  • $300 for simple trusts and for complex trusts that dirstibute all of their income currently
  • $100 for all other complex trusts
Term
3 musts for simple trusts
Definition
  1. must distribute all income currently 
  2. must make no distributions of corpus currently
  3. must make no charitable contributions
Term
grantor trusts
Definition
trust controlled by the grantor through retained powers or the possibility the property in the trust will revert to the grantor
Term
character of trusts
Definition
can change year to year (not binding)
Term
3 income computation rules for fiduciaries
Definition
  1. get no standard deduction but can deduct interest, taxes, charitable contributions, and trustee's fees
  2. when income is distributed, beneficiaries are taxed on it
  3. investment advisory fees of nongrantor trusts and estates generally are subject to the 2% of AGI floor as miscellaneous itemized deductions, unless the fees are not commonly incurred by individuals
Term
fiduciary accounting rules
Definition
  1. receipts and disbursements of trusts and estates are categorized by the fiduciary instrument or state law as either belonging to income or corpus (principal)
  2. income and deductions are allocated among beneficiaries according to the trust instrument
Term
corpus
Definition
principal or property in a state or trust.  income earned on the principal is distinguished from the principal
Term
2 distribution rules for fiduciaries
Definition
  1. deduct distributions of income to beneficiaries
  2. pay income taxed (including AMT if applicable) on undistributed taxable income
Term

4 distributable net income (DNI) rules

 

Definition
  1. amount of accounting "income" thats available to be distributed; typically capital gains belong to corpus and are not apart of DNI
  2. distribution deduction can't exceed DNI
  3. property distributions are distributiong of DNI
  4. beneficiaries are taxed on receipt of distributions to extent of DNI
Term
calculation of DNI (starting at taxable income)
Definition
  1. add back personal exemptionm net tax-exempt income, and net capital loss
  2. subtract net capital gains allocable to corpus
Term
5 procedural rules for trusts
Definition
  1. calendar year
  2. file on 15 day of 4th month after year-end
  3. automatic 5 month extension
  4. must pay estimated income taxes
  5. must file income tax return (form 1041) if gross income exceeds $600, has taxable income, or nonresdient alien is a beneficiary 
Term
5 proceudral rules for estates
Definition
  1. may choose any year-end
  2. file on 15 day of 4th month after year-end
  3. automatic 5 month extension
  4. must pay estimated income taxes
  5. must file income tax return (form 1041) if gross income exceeds $600, has taxable income, or nonresdient alien is a beneficiary 
Term
income in respect of a decedent (IRD)
Definition
  • occurs if decedent was entitled to receive income at the date of death but the income was not received until after death
  • taxed as income to the estate and included on the estate tax return
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