One of the basic rules in fiduciary taxation is that the person or entity that receives the taxable income from the trust or estate is taxed on that income. The calculation of Distributable Net Income (DNI) and the Distribution Deduction determine the allocation of the tax burden between the fiduciary entity and the beneficiary. Therefore, when distributions are made that "carry out" DNI, the fiduciary entity operates as a conduit and the beneficiaries are taxed on the amounts reflected on the Schedule K-1. The fiduciary entity receives a corresponding distribution deduction. When taxable income is accumulated by the entity, the fiduciary pays the tax. We will explore the various distributions made to beneficiaries and their impact on the entity's taxation.
Learning Objectives
• Review the calculation of DNI & the Distribution Deduction
• Determine the types of distributions and whether a distribution "Carries Out" DNI
• Review in-kind distributions & the impact on the Distribution Deduction
• Recognize special tax treatment for various types of distributions
• Identify distributions that are deductible and those that are non-deductible
Major Topics
• Calculating DNI & the Distribution Deduction
• Determining Types of Distributions and Whether a Distribution "Carries Out" DNI
• In-Kind Distributions & the Impact on the Distribution Deduction
• Depreciation and the Distribution of In-Kind Property
• Distributions that Result in "Kenan Gain"
• Funding a Pecuniary Bequest with Depreciated Property
• IRC Sec. 643(e)
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