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You have prepared the income tax returns for John Doe Trust, an irrevocable trust, since the inception of the trust five years ago. The grantor

You have prepared the income tax returns for John Doe Trust, an irrevocable trust, since the inception of the trust five years ago. The grantor is James Doe, another client of your firms and the father of John Doe, who is 17 years old and is the income beneficiary of the John Doe Trust. Last year, the Trust distributed $4,000 to John to pay his medical bills incurred in an accident. You have told James Doe that he must include the $4,000 trust distribution on his individual tax return because the distribution was used to satisfy his obligation to support John until he reaches age 18. James reminds you forcefully about all the clients he has sent to your firm, and with a raised voice, demands that you instead show the distribution as taxable to John so the income will be taxed at Johns low rates instead of at his rate, which is the highest marginal rate. How do you react? WHAT WOULD YOU DO?

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