[carpeCPA]

This question was previously raised but not answered. Can someone please explain why the fees allocable to corpus are subtracted in calculating DNI? Also, can someone explain the difference between fiduciary income and DNI? Thanks!!

Here’s the question from Becker:

Skipper Family Trust, a simple trust, reported the following items of income and expenses during the year:

Ordinary income from rental properties (gross) $ 5,000

Taxable dividend income 1,500

Interest income from corporate bonds 1,000

Interest income from tax-exempt municipal bonds 500

Rental expenses 2,500

Trustee fees allocable to income 1,000

Trustee fees allocable to corpus 500

What is Skipper Family Trust’s distributable net income (DNI) for the year?

Here’s the answer:

Trust gross income:

Rental income $ 5,000

Dividend income 1,500

Interest income from corp. bonds 1,000

Total: $ 7,500

Less: Trust deductions allocable to income

Rental expenses $ (2,500)

Trustee fees allocable to income (1,000)

Total: (3,500)

Adjusted total income 4,000

Plus: Adjusted tax-exempt interest 500

Less: Capital gains allocable to corpus 0

Less: Trustee fees allocable to corpus (500)

Distributable net income = $ 4,000

REG - 93 (Jul'13)
FAR - 97 (Dec '13)
AUD - 99 (May '14)
BEC - Jul '14

Becker Self Study/Ninja Notes/Ninja Audio/Ninja MCQ/Wiley Test Bank/Wiley Book

[Heidi-O]

@Barelystayinginsane Sorry for the statement, it was an incorrect statement. It should have said “generally”. 🙁

@Ibi8 I like how you have that formula listed out – it much clearer than what they have in the material! (taking notes…)

FAR Aug 2012 79
AUD Oct 2012 84
REG Aug 2013 87
BEC Jan 2013 80

[Anonymous]

I just spent over an hour trying to figure this out – I had trouble with the exact same question, and DNI has always confused me. Usually I'm a great memorizer, but the DNI formula is impossible, so I wanted to try and come up with something else.

lbi18's long formula helped a lot, but I didn't think I had a hope of remembering the whole thing. I think this is correct, it's basically the same thing in the Ninja notes, and much easier to deal with! Obviously, it will only work to calculate the end result DNI with nothing in between (like adjusted income).

TAXABLE Income (exclude tax exempt interest, DO include capital gains – same as an individual)

– Usual business expenses (like the rental expenses)

– Administration fees allocable to INCOME (not corpus)

=DNI

I'm remembering this easier, because I do much better with individual taxation, so it makes sense. Taxable income, same as an individual, minus regular business expenses, minus admin fees related to the INCOME portion of the trust/estate. I also had to get a handle on understanding trust income versus corpus before that made sense.

[Anonymous]

I just spent over an hour trying to figure this out – I had trouble with the exact same question, and DNI has always confused me. Usually I'm a great memorizer, but the DNI formula is impossible, so I wanted to try and come up with something else.

lbi18's long formula helped a lot, but I didn't think I had a hope of remembering the whole thing. I think this is correct, it's basically the same thing in the Ninja notes, and much easier to deal with! Obviously, it will only work to calculate the end result DNI with nothing in between (like adjusted income).

TAXABLE Income (exclude tax exempt interest, DO include capital gains – same as an individual)

– Usual business expenses (like the rental expenses)

– Administration fees allocable to INCOME (not corpus)

=DNI

I'm remembering this easier, because I do much better with individual taxation, so it makes sense. Taxable income, same as an individual, minus regular business expenses, minus admin fees related to the INCOME portion of the trust/estate. I also had to get a handle on understanding trust income versus corpus before that made sense.

[barelystayingsane]

@CareBear that is not correct. As I said up above, fees are deductible when arriving at DNI, regardless of how they're allocable. You also need to subtract capital gains allocable to corpus. You also INCLUDE (not exclude) tax-exempt interest in DNI. Your equation (in a very simplified form) should look like this:

Gross income (including only capital gains attributable to income)

– Deductions/expenses/fees

+ Adjusted tax-exempt interest

= DNI

[barelystayingsane]

@CareBear that is not correct. As I said up above, fees are deductible when arriving at DNI, regardless of how they're allocable. You also need to subtract capital gains allocable to corpus. You also INCLUDE (not exclude) tax-exempt interest in DNI. Your equation (in a very simplified form) should look like this:

Gross income (including only capital gains attributable to income)

– Deductions/expenses/fees

+ Adjusted tax-exempt interest

= DNI

[barelystayingsane]

One other thing might be good to mention…if the question asks you for the income distribution deduction, you exclude tax-exempt interest. But if the question asks you for DNI, you include tax-exempt interest.

[barelystayingsane]

One other thing might be good to mention…if the question asks you for the income distribution deduction, you exclude tax-exempt interest. But if the question asks you for DNI, you include tax-exempt interest.

[Anonymous]

Sec 643 may answer your question. and remember, something is marked “exclude” in the sec-it doesn't mean you should ignore it, it just says you may need to add back or take out, FE, capital gain and loss; gain to the corpus is out; but loss to the allowable 3000 after net is added back.

[Anonymous]

Sec 643 may answer your question. and remember, something is marked “exclude” in the sec-it doesn't mean you should ignore it, it just says you may need to add back or take out, FE, capital gain and loss; gain to the corpus is out; but loss to the allowable 3000 after net is added back.

[Anonymous]

and also regarding the question, you know it is a simple trust right, and that means everything must be distributed in the year (currently), in sec 651 or 661 (which both together you can link to from 643), it mentions that anything (income or paid expenses) that must be currently distributed must be allowed in the calculation.

So combining both, you may have an idea…im glad it is simple trust, if it is a complex trust and states that something may not be currently distributed, the question may get tougher.

[Anonymous]

and also regarding the question, you know it is a simple trust right, and that means everything must be distributed in the year (currently), in sec 651 or 661 (which both together you can link to from 643), it mentions that anything (income or paid expenses) that must be currently distributed must be allowed in the calculation.

So combining both, you may have an idea…im glad it is simple trust, if it is a complex trust and states that something may not be currently distributed, the question may get tougher.

[henryv]

What is the nature of a corpus in an estate? Thanks!

FAR - 92 02/2013
AUD - 90 05/2013
REG - 85 10/2013
BEC - 80 12/2013

I'M DONE. THANK YOU LORD!

[henryv]

What is the nature of a corpus in an estate? Thanks!

FAR - 92 02/2013
AUD - 90 05/2013
REG - 85 10/2013
BEC - 80 12/2013

I'M DONE. THANK YOU LORD!

[Author]

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