Subject of Assignment: Taxation of Trusts and Estates

Code 677 - Income for benefit of the grantor

3. Facts:

G created an irrevocable trust, with ordinary income to G for life, remainder to B, an unrelated person. Except for the right to receive income, G did not retain any powers that would cause him to be treated as the owner under IRC sections 671 and 677. Local law requires capital gains to be applied to corpus. The trust had the following item of gross income and deductions for the current year:

Dividends $5,000.00

Capital gains $1,000

Expenses allocable to income $200

Expenses allocable to corpus $100

1. What are the tax consequences to the trust of the transaction described above?
2. What are the tax consequences to the grantor of the transactions described above?
3. What are the tax consequences to the trusts beneficiaries of the transactions described above?