Refer to Problem C:14-38. Assume the trustee must pay out all of its income currently to its beneficiary, Julio.

a. What is the deductible portion of the trustee’s fee?
b. What is the trust’s taxable income exclusive of the distribution deduction?
c. What is the trust’s DNI?
d. What is the trust’s taxable income using the formula approach of Figure C:14-1?

Question 14-38

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Gross Income (same rules as for individuals) Minus Deductions for expenses (interest, taxes, tax retum preparation fees, trustee's fee, trade or business expenses, expenses related to production of income, depreciation," and charitable contributions) Minus Distribution deduction (maximum is Distributable Net Income [DNI] minus net tax-exempt income) Minus Exemption deduction Equals Taxable income Tax on taxable income (using rates in Secs. 1(e) and 1(h)) Minus Credits Equals Net tax liability "No deduction is available for expenses allocable to tax-exempt income. "When the trust instrument is silent, depreciation is allocated for tax purposes between the fiduciary and the beneficiary according to the portion of income attributable to each. "Trusts and estates are subject to the altemative minimum tax (AMT). The AMT may be owed by a trust or estate in addition to the income tax levy described in this figure. The AMT is calculated in the same way as for individual taxpayers. Trusts and estates, however, are allowed only a $28,400 statutory exemption in 2023. The phase-out for the exemption begins at $94,600.