Mary is the sole beneficiary of a simple trust to whom the trustee is required t
ID: 2593327 • Letter: M
Question
Mary is the sole beneficiary of a simple trust to whom the trustee is required to distribute all current trust income by the terms of the trust agreement. During the taxable year of the trust it receives $10,000 of DNI(current FAI ). The trustee makes no distributions to Mary notwithstanding the terms of the trust agreement.
a. Mary reports the DNI on her 1040 but has a good claim for refund on the income tax she paid on the DNI.
b. Mary is not taxable on the DNI.
c. Mary is taxable on the DNI.
d. Mary is taxable on $9,700 of the DNI.
Explanation / Answer
Option “b) Mary is not taxable on the DNI” is correct
Because Beneficiaries of a trust typically pay taxes on distributions they receive from the trust's income. So they are taxed on receipt basis.