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goldengold
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Joined: 20 Dec 2009
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Posts: 18

Posted: 24 Dec 2009 at 19:24 \| IP Logged

I am studying the Becker's regulation part. I don't understand the logic behind the following question.

Can anyone explain it to me why the taxable income for the beneficiary is not the distribution of $15,000 but $6,000? thanks!!!

A distribution to an estate's sole beneficiary for the 1994 calendar year equaled 15,000, the amount currently required to be distributed by the will. The estate's 1994 records were as follows:

Estate income:
40,000 Taxable Interest

Estate disbursements
34,000 Expenses attributable to taxable interest

What amount of the distribution was taxable to the beneficiary?

a: 40,000
b: 15,000
c: 6,000
d: 0

the correct answer is D, but don't understand why
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chicago.cpa
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Joined: 05 Aug 2009
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Posts: 68

Posted: 25 Dec 2009 at 02:18 \| IP Logged

First off, the correct answer is C, not D. I'm sure that was just a typo since you typed in the beginning that the answer is 6,000.

Second - if you read Becker's explanation to this question, it says: "The amount of income an estate beneficiary reports from the estate is limited by the estate's distributable net income, 6,000 in this case."

So the taxable distribution is the LESSOR of the ACTUAL distribution (15,000) and the distributable net income (DNI). In this example, DNI = 40,000-34,000=6,000. And 6,000 is less than 15,000 so therefore the answer is C.

Hope that helps. I was confused at first too but just keep going over the notes and doing the problems and you'll get it. Good luck!

__________________
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Becker 2009
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goldengold
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Joined: 20 Dec 2009
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Posted: 25 Dec 2009 at 11:47 \| IP Logged

chicago.cpa wrote:

First off, the correct answer is C, not D. I'm sure that was just a typo since you typed in the beginning that the answer is 6,000.

Hope that helps. I was confused at first too but just keep going over the notes and doing the problems and you'll get it. Good luck!

thank you so much!!! Finally I understand why!!

wish you Merry Christmas and Happy New Year!!
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