Seminar 401 - Fiduciaries

You may need adobe acrobat to download forms and publications online.

You will need IRS Publication 559 and California 541 Booklet to complete this topic.

1. A taxable entity separate form the decedent and comes into being with death of the individual. It exists until the final distribution of its assets to the heirs and other beneficiaries.

a. A survivor.
b. An executor.
c. An estate.
d. None of the above.

2. Every domestic estate with gross income of _____ or more during a tax year must file a Form 1041.

a. $ 400.
b. $ 600.
c. $ 800.
d. None of the above.

3. Estates may have to pay federal income tax. Beneficiaries may have to pay tax on their share of estate income resulting in a double tax.

True False

4. As a personal representative, you must furnish a statement to the beneficiary by the date on which the Form 1041 is filed. Failure to provide this payee statement can result in a penalty of $50 for each failure. You must furnish a

a. Schedule K-1 (Form 1041).
b. Schedule R-1 (Form 1040).
c. Form W-2 (Form 1041).
d. Schedule 3 (Form 1041).

5. If property is located outside the state in which the decedent's home was located, more than one personal representative may be designated by the will or appointed by the court. The person designated or appointed to administer the estate in the state of the decedent's permanent home is called

a. "Ancillary representative".
b. "Domiciliary representative".
c. "Tax home representative".
d. "Resident representative".

6. Each representative must file a separate Form 1041 with the appropriate IRS office for the representative's location. The domiciliary representative must include the estate's entire income in the return. The ancillary representative should provide

a. The name and address of the domiciliary representative.
b. The amount of gross received by the ancillary representative.
c. The deductions claimed against income received by the ancillary representative (including any income property paid or credited by the ancillary representative to a beneficiary.
d. All of the above.

7. Gross income of an estate consists of all items of income received or accrued during the tax year. It includes the following, except

a. Dividends, interest, rents and royalties.
b. Gain from the sale of property.
c. Income from business, partnerships, trusts and any other sources.
d. None of the above.

8. An estate may qualify to claim a deduction for estate taxes if the estate must include in gross income for any tax year an amount of income in respect of a decedent.

True False

9. An estate recognizes gain or loss on a distribution of property in kind to a beneficiary only if

a. The distribution satisfies the beneficiary's right to receive a specific dollar amount (in cash or in unspecified property or both).
b. The distribution satisfies the beneficiary's right to receive a specific property other than the property distributed.
c. You choose to recognize the gain or loss on the estate's income tax return.
d. Any of the above.

10. If you choose to recognize gain or loss, the choice applies to all non-cash distributions during the tax except charitable and specific bequests. To make the choice, report the transaction on

a. Schedule C (Form 1041).
b. Schedule E (Form 1041).
c. Schedule D (Form 1041).
d. None of the above.

11. Samantha Smith died on March 21, 2007, before filing her 2006 tax return. Her personal representative must file her 2006 return by April 16, 2007. Her final tax return is due

a. June 21, 2007.
b. April 15, 2008.
c. January 31, 2008.
d. December 31, 2007.

12. The primary duties of a personal representative are to collect all the decedent's assets, pay the creditors, and distribute the remaining assets to the heirs or other beneficiaries. The personal representative also must

a. Apply for an employer identification number (EIN) for the estate.
b. File any income tax return and the estate tax return when due.
c. Pay the tax determined up to the date of discharge from duties.
d. All of the above.

13. Generally, if the decedent died during 2007, an estate tax return (Form 706) must be filed if the gross estate is more than $2,000,000.

True False

14. You can request an automatic 3-month extension of time to file Form 1041, U.S. Income Tax return for Estates and Trusts by filing Form 7004.

True False

15. An executor, administrator, or anyone who is in charge of the decedent's property, normally named in a decedent's will to administer the estate and distribute properties as the decedent has directed.

a. A manager of an estate.
b. A personal representative of an estate.
c. A relative of the decedent.
d. All of the above.

16. You are liable for a penalty for

a. Failure to file a tax return when due unless the failure is due to reasonable cause.
b. Not including the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, unless you can show reasonable cause.
c. Not giving the taxpayer identification number of another person when required on a return, statement or other document.
d. All of the above.

17. Means any person acting for another person. This term applies to persons who have positions of trust on behalf of others such as a personal representative for a decedent's estate.

a. An attorney.
b. An advocate.
c. A fiduciary.
d. All of the above.

18. If you are appointed to act in any fiduciary capacity for another, you must file a written notice with the IRS stating this. You should file the written notice as soon as all of the necessary information is available. It notifies the IRS that, as a fiduciary, you are assuming the powers, rights, duties, and privileges of the decedent. This allows the IRS to mail to you all tax notices concerning the person (or estate) you represent. This notice is filed on

a. Form 4810.
b. Form 1310.
c. Form 1041.
d. Form 56.

19. Once the executor is discharged from personal liability, the IRS will no longer be able to assess tax deficiencies against the executor even if he or she still has any of the decedent's property.

True False

20. When filing the decedent's final income tax return, attach the death certificate or other proof of death to the final return.

True False

21. If you are a surviving spouse and have received a tax refund check in both your name and your deceased spouse's name,

a. Return the joint-name check to your local IRS office or the service center where you mail your return.
b. Return the joint-name check and  a completed Form 1310 to your local IRS office or the service center where you mailed your return and a new check will be issued in your name and mailed to you.
c. Sign the check and alongside your signature write "Surviving spouse" before you cash or deposit your check.
d. You cannot cash the check, but instead you must sign it over to the fiduciary of your spouse's estate so he or she can distribute it accordingly.

22. If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for

a. The corporation's tax year that ended within or with the decedent's final tax year.
b. The corporation's tax year that ended on the year ending on the date of death.
c. The period, if any, from the end of the corporation's tax year in to the decedent's date of death.
d. All of the above.

23. The death of a partner closes the partnership's tax year for that partner. Generally, it does not close the partnership's tax year for the remaining partners. On the decedent's final return, include the decedent's distributive share of partnership items for

a. The partnership's tax year that ended within or with the decedent's final tax year.
b. The period, if any, from the end of the partnership's tax year in to the decedent's date of death.
c. The period the partnership's year ended.
d. Both A and B above.

24. The credit for the elderly is allowable on a decedent's final income tax return if the decedent

a. Was a "qualified individual".
b. Had income (Adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits.
c. Had net earnings of $400 or more.
d. Both A and B above.

25. The Victims of Terrorism Tax Relief Act of 2001 (The Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Under The Act, the federal income tax liability is forgiven for those killed in

a. The April 9, 1995, terrorist attack on the Alfred P. Murrah Federal Building (Oklahoma City).
b. The September 11, 2001, terrorist attacks.
c. The Anthrax terrorist attacks occurring after September 10, 2001, and before January 1, 2002.
d. Any of the above.

26. The Victims of Terrorism Tax Relief Act of 2001 (The Act) reduces the estate tax of individuals who die as a result of a terrorist attack.

True False

27. The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred

a. While a U.S. employee.
b. In a military action.
c. In a terrorist action.
d. Any of the above.

28. The income tax liability of a civilian employee of the United States who died in 2006 because of wounds incurred while a U.S. employee in a terrorist attack that occurred in 1998

a. Will be forgiven for 2006.
b. Will be forgiven for all prior tax years in the period 1997 through 2005.
c. Will be forgiven for all future years in period 2006 through 2007.  
d. Both A and B above. 

29. To minimize the time needed to process the decedent's final return and issue any refund, be sure to

a. Write "DECEASED", the decedent's name, and the date of death across the top of the tax return.
b. If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write "Filing as surviving spouse" in the area where you sign the return.
c. If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as "personal representative". 
d. Any of the above.

30. The proceeds from a decedent's life insurance policy paid by reason of his or her death generally are includable in taxable income.

True False

31. This includes a trustee of a trust including a qualified settlement fund, or an executor, administrator, or person in possession of property of a decedent's estate. 

a. An attorney.
b. A fiduciary.
c. A beneficiary.
d. All of the above.

32. Fiduciaries use Form 541, California Fiduciary Income Tax Return, to 

a. Report income received by an estate or trust or income that is accumulated or currently distributed to the beneficiaries.
b. Report any applicable tax liability of the estate or trust.
c. File an amended return for the estate or trust.
d. Any of the above.

33. The fiduciary (or one of the fiduciaries) must file Form 541 for the estate of a decedent if

a. Gross income for the taxable year of more than $10,000 (regardless of the amount of net income).
b. Net income for the taxable year of more than $1,000.
c. There is an alternative minimum tax liability.
d. Any of the above.

34. You should always file a copy of the decedent's will or the trust instrument with the return as it is always required by FTB.

True False

35. California law is generally the same as federal law with regard to the following, except

a. Income and the character of income.
b. Allocation of deductions.
c. Gifts, bequests and past years.
d. None of the above.

36. Non-resident beneficiaries are taxed on income distributed or distributable from all sources.

True False

37. Generally, a fiduciary of an estate or trust must make 2008 estimate tax payments unless

a. 100% or more of the estate's or trust's 2007 tax was paid by withholding.
b. 90% or more of the estate's or trust's 2008 tax will be paid by withholding.
c. The tax for 2007 (after subtracting withholding and credits) was less than $200.
d. Either A or B above.

38. California does not require the filing of written extensions. If the estate or trust cannot file Form 541, California Fiduciary Income Tax Return, by the due date; the estate or trust is granted an automatic six-month extension.

True False

39. The fiduciary (or one of the fiduciaries) must file Form 541 for a trust if

a. Gross income for the taxable year of more than $10,000 (regardless of the amount of net income).
b. Net income for the taxable year of more than $100.
c. There is an alternative minimum tax liability.
d. Any of the above.

40. A Form 541 must be file by

a. The 15th day of the 4th month following the close of the taxable year of the estate or trust.
b. The 15th day of the 3rd month following the close of the taxable year of the estate or trust.
c. The 15th day of the 6th month following the close of the taxable year of the estate or trust.
d. None of the above.