[Anonymous]

NINJA Question –

This may be the 1 point that separates a 74 and 75 so I would appreciate if any of you guys can help me with this.

Per Ninja Notes and Flashcard: Estate beneficiaries pay taxes on DNI — regardless if distributed or not. Whereas trust beneficiaries pay taxes on distributed income only.

Per Wiley estate beneficiaries pay taxes only on distributed income (not DNI). A live answer-question forum I attended yesterday with a CPA host said that Wiley is correct (estate beneficiaries pay taxes only on distributed income not on DNI).

Can someone please help me. This is DTax-0013 in Wiley and I have sent them an email (and Jeff too) but have not gotten any response.

[jeff]

I apologize – I have a bad habit of reading emails on my phone and then forgetting to come back to them later when I get to my computer and by then a mountain of emails have piled on top.

In short, the NINJAs are correct.

IRS Code Section 662:

(a) Inclusion

Subject to subsection (b), there shall be included in the gross income of a beneficiary to whom an amount specified in section 661 (a) is paid, credited, or required to be distributed (by an estate or trust described in section 661), the sum of the following amounts:

(1) Amounts required to be distributed currently

The amount of income for the taxable year required to be distributed currently to such beneficiary, whether distributed or not.

(emphasis added)

https://www.law.cornell.edu/uscode/text/26/662

[jeff]

I apologize – I have a bad habit of reading emails on my phone and then forgetting to come back to them later when I get to my computer and by then a mountain of emails have piled on top.

In short, the NINJAs are correct.

IRS Code Section 662:

(a) Inclusion

Subject to subsection (b), there shall be included in the gross income of a beneficiary to whom an amount specified in section 661 (a) is paid, credited, or required to be distributed (by an estate or trust described in section 661), the sum of the following amounts:

(1) Amounts required to be distributed currently

The amount of income for the taxable year required to be distributed currently to such beneficiary, whether distributed or not.

(emphasis added)

https://www.law.cornell.edu/uscode/text/26/662

[impska]

Doesn't that code section indicate that it applies to BOTH estate and trust beneficiaries?

If that's the case, then why do the flashcards and notes draw a distinction?

Also, later in the code section, it says,

“For purposes of this section, the phrase “the amount of income for the taxable year required to be distributed currently” includes any amount required to be paid out of income or corpus to the extent such amount is paid out of income for such taxable year.”

As usual, I feel like I need a translator when reading the IRC, but isn't that part saying that the beneficiary only includes it in gross income if it's paid?

REG - 94
BEC - 92
FAR - 92
AUD - 99

[impska]

Doesn't that code section indicate that it applies to BOTH estate and trust beneficiaries?

If that's the case, then why do the flashcards and notes draw a distinction?

Also, later in the code section, it says,

“For purposes of this section, the phrase “the amount of income for the taxable year required to be distributed currently” includes any amount required to be paid out of income or corpus to the extent such amount is paid out of income for such taxable year.”

As usual, I feel like I need a translator when reading the IRC, but isn't that part saying that the beneficiary only includes it in gross income if it's paid?

REG - 94
BEC - 92
FAR - 92
AUD - 99

[jeff]

impska, trust beneficiaries are taxed on their share of the trust's income distributed to them, but not more than their share of DNI of the trust.

I hope that helps? If your materials read differently then please let me know and I would be glad to walk through it.

[jeff]

impska, trust beneficiaries are taxed on their share of the trust's income distributed to them, but not more than their share of DNI of the trust.

I hope that helps? If your materials read differently then please let me know and I would be glad to walk through it.

[impska]

I actually emailed my former Estate/Trust professor to get clarification and I'm all set.

I think the confusion centers around the word “required” – if an Estate or Trust is not required to distribute all of DNI, then the beneficiary is taxed only on the distribution.

In the case of Simple Trusts, beneficiaries pay tax on all of DNI, because simple trusts are required to distribute all of DNI. So for Simple trusts, the distribution should always equal DNI.

Estates and Complex trusts aren't required to distribute all of DNI. So beneficiaries pay tax on the distribution.

Makes sense to me!

Although… it does almost sound like a third answer to this debate. I'm going with it though – He's a Doctor, after all. 😉

REG - 94
BEC - 92
FAR - 92
AUD - 99

[impska]

I actually emailed my former Estate/Trust professor to get clarification and I'm all set.

I think the confusion centers around the word “required” – if an Estate or Trust is not required to distribute all of DNI, then the beneficiary is taxed only on the distribution.

In the case of Simple Trusts, beneficiaries pay tax on all of DNI, because simple trusts are required to distribute all of DNI. So for Simple trusts, the distribution should always equal DNI.

Estates and Complex trusts aren't required to distribute all of DNI. So beneficiaries pay tax on the distribution.

Makes sense to me!

Although… it does almost sound like a third answer to this debate. I'm going with it though – He's a Doctor, after all. 😉

REG - 94
BEC - 92
FAR - 92
AUD - 99

[thehip41]

Good thread

I think this: “I think the confusion centers around the word “required” – if an Estate or Trust is not required to distribute all of DNI, then the beneficiary is taxed only on the distribution.”

I want to make sure you are understanding.

They may received a distribution of 10,000,000, but only taxed to the extent of the DNI. So DNI is the max.

So if it's less than their DNI – taxed on amount distributed

If it's greater than their DNI – Taxed on DNI

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[thehip41]

Good thread

I think this: “I think the confusion centers around the word “required” – if an Estate or Trust is not required to distribute all of DNI, then the beneficiary is taxed only on the distribution.”

I want to make sure you are understanding.

They may received a distribution of 10,000,000, but only taxed to the extent of the DNI. So DNI is the max.

So if it's less than their DNI – taxed on amount distributed

If it's greater than their DNI – Taxed on DNI

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[Author]

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