Trust Y provides that all of its income must be distributed currently to A. In addition, the trustee is empowered to make discretionary distributions of principal to J and K. For each of the following situations, determine the taxable income of the trust and the amount of trust income, if any, taxable to trust beneficiaries.

For the taxable year, Trust Y has tentative taxable income (TTI) and distributable net income (DNI) of $100,000 comprising $70,000 of taxable interest income and $30,000 of qualifying dividends. For the year, the trust has fiduciary accounting income (FAI) of $90,000. The trustee has distributed all of the FAI to A, $15,000 of principal to J, and $5,000 principal to K.

a) The trustee failed to distribute the FAI.

b) The trustee, while required to distribute all income currently, may distribute it to A and B in whatever proportion he desires, (i.e., the trustee has a sprinkling power). In the exercise of this discretion, the trustee distributes $54,000 to A and $36,000 to B.

c) The trust instrument provides that A is to receive an annuity of $50,000 annually from the trust, to be paid first out of available FAI. All other income distributions are purely discretionary.