Solu�ons Manual for South-Western
Federal Taxa�on 2025, Corpora�ons,
Partnerships, Estates and Trusts 48e
Annete Nellen, James Young, Brad
Cripe, Sharon Lassar, Mark Persellin,
Andrew Cuccia (All Chapters 100%
Original Verified, A+ Garde)
All Chapters 20-1 (PDF)
All Chapters 1-20 Solu�ons Manual
with supplement files download link
at the end of this file.
, Solution and Answer Guide: Nellen, Young, Cripe, Lassar, Persellin, Cuccia, SWFT Corporations, Partnerships,
Estates & Trusts 2025, 9780357989074; Chapter 20: Income Taxation of Trusts and Estates
Solution and Answer Guide
NELLEN, YOUNG, CRIPE, LASSAR, PERSELLIN, CUCCIA, SWFT CORPORATIONS, PARTNERSHIPS,
ESTATES & TRUSTS 2025, 9780357989074; 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 and 10.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 1
website, in whole or in part.
, Solution and Answer Guide: Nellen, Young, Cripe, Lassar, Persellin, Cuccia, SWFT Corporations, Partnerships,
Estates & Trusts 2025, 9780357989074; 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., built-in gains tax penalty or for the tax on excessive passive
investment income). See Chapter 11.
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)
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) With respect to a distribution of appreciated property by a fiduciary, no gross
income generally is recognized by the entity. 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, though, the distribution can become a taxable event
to the entity. The gain is recognized by the fiduciary, and the beneficiary takes a basis
in the asset equal to its fair market value. 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.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2
website, in whole or in part.
, Solution and Answer Guide: Nellen, Young, Cripe, Lassar, Persellin, Cuccia, SWFT Corporations, Partnerships,
Estates & Trusts 2025, 9780357989074; Chapter 20: Income Taxation of Trusts and Estates
a. The deduction is allowed even if the payment is made during the following tax
year. Qualifying charitable organizations for gifts by fiduciaries include all of those
so recognized for gifts by individuals, plus certain non-U.S. charities.
b. The answer would not change. The “grace period” for the payment is one full tax
year. See text Example 16.
8. (LO 3) The major functions served by distributable net income (DNI) include the
following:
DNI is the maximum amount of the year’s distributions by the fiduciary that can
be taxed to the beneficiaries.
DNI is the maximum amount of the distribution deduction that the entity uses
in computing its annual Federal taxable income.
The tax character of the elements of DNI (e.g., taxable interest income and
exempt interest income) carry over proportionately to the beneficiaries in
determining the effects of each item on the beneficiary’s own taxable income.
9. (LO 4) Because the assets revert to Jada, the trust likely is a grantor trust, with
income to be taxed directly to Jada, and not subject to the rules of Subchapter J.
Grantor trust rules apply when trust income is used to satisfy the legal obligations
of the grantor, such as school tuition. Such obligations are held by the parents,
though, and not the grandparents in most cases. Thus, this provision alone may not
create grantor trust status.
Grantors of these types of trusts often name themselves trustee. The
administrative and investment decisions inherent in carrying out this position also
likely make this a grantor trust.
10. (LO 4) TAX FILE MEMORANDUM
DATE: November 4, 2024
FROM: Reed Rawlings
SUBJECT: Grantor trust rules
Carol’s ideas are contrary to the tax law. College tuition payments generally are
nondeductible personal expenditures. § 262(a).
By using a trust as a fiduciary entity in this plan, Carol also brings into play the grantor
trust rules of §§ 671–679. Where the grantor retains the right to make investment and
distribution decisions, the trust is ignored for Federal income tax purposes. Thus,
trust income and deductions are attributed directly to Carol, the owner of the trust
assets.
The donor can retain the following powers without making the entity a grantor trust:
• Invade corpus for the benefit of a beneficiary.
• Withhold income from a beneficiary during the beneficiary’s disability or minority.
• Allocate items between entity accounting income and corpus.
• Choose charitable beneficiaries.
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website, in whole or in part.
