[knotworthy91]

What’s good A71,

I’m taking REG on Monday and have been finishing up my final review phase. When I initially went through Trust and Estates I felt confident on DNI calculations, but this topic has been throwing me for a loophole this afternoon. Becker’s visual in their book is not very well described, and some of the MCQ answer explanations seem to contradict themselves..

One answer explanation states..

“Distributable net income is computed as the trust’s income less any expenses allocable to income.”

Another SIM explanation states.. (relating to Trustee Fees)

“…for DNI purposes there is no special rule regarding expenses against corpus. All expenses should be taken into account for the DNI calculation” (So is trustee fees the exception??)

I’ve looked at a few other threads in attempt to gain some clarity but I’m still a deer in headlights here. My rule of thumb was to disregard all items allocable to corpus in the distributable net income calculations because that’s what I retained from most of the MCQ’s I practiced..

If anyone can enlighten me and shed some light on this topic it’d be much appreciated!!

AUD 91
BEC 81
FAR 80
REG 4/20/15

[spartancpa15]

I'm taking a graduate course right now on this, and here is a way to get DNI adjusting from taxable income:

Taxable income without the distribution deduction

+ Personal exemption

– Capital gains (or + deductible capital losses)

+ Tax-exempt income net of allocable expenses (like the part of the trustee's fee that is allocated to tax-exempt income)

=DNI

So, DNI is basically the trust's “accounting income” except that you also deduct expenses allocated to principal.

Accounting income (according to the Uniform Act) is rent, interest, dividends, expenses directly allocated to those receipts, and 1/2 of the trustee's fee (among other items)……unless the trust instrument says otherwise

For example, here is a trust's taxable income calculation:

Bond interest $60,000

LTCG 20,000

Trustee's fees (3,000)

Personal exemption (300)

=

TI before dist ded 76,700

So in this case, accounting income is: 60,000 – 1,500 = 58,500 (assuming the trust follows the Uniform Act)

DNI following my calculation is: 76,700 + 300 – 20,000 = 57,000

DNI following it logically is: 58,500 accounting income – 1,500 trustee's fee allocated to principal = 57,000

Hope this helps!

FAR - Aug '14 - 90
AUD - Jan '15 - 91
REG - May '15 - 93
BEC - July '15 - 85

Used CPAexcel exclusively
Master of Science in Accounting (focus in Tax) May '15

[knotworthy91]

Thanks spartan. That explanation did help. I'm still a little bit confused when it comes to DNI and Trust accounting income but I'm not going to stress over it considering my exam is in less than 48 hours. Simply remaining cool and confident really is half the battle on these exams

AUD 91
BEC 81
FAR 80
REG 4/20/15

[Author]

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