Federal Income Taxation
Midterm Exam
Course Introduction
Federal Income Taxation provides an in-depth exploration of the principles and laws governing the federal income tax system in the United States. The course covers significant topics such as gross income, deductions, exclusions, credits, tax rates, and the tax treatment of property transactions. Students learn about the process of computing taxable income for individuals, partnerships, and corporations while examining policy issues, statutory interpretation, and relevant case law. The curriculum also highlights current developments and practical applications, preparing students to understand and analyze tax issues that affect both individuals and businesses.
Recommended Textbook
South Western Federal Taxation 2019 Comprehensive 42nd Edition by David M. Maloney
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Page 2
Chapter 1: An Introduction to Taxation and Understanding
the Federal Tax Law
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Sample Questions
Q1) A state income tax can be imposed on nonresident taxpayers who earn income within the state on an itinerant basis.
A)True
B)False
Answer: True
Q2) A tax cut enacted by Congress that contains a sunset provision will make the tax cut temporary.
A)True
B)False
Answer: True
Q3) The pay-as-you-go feature of the Federal income tax on individuals conforms to Adam Smith's canon (principle) of certainty.
A)True
B)False
Answer: False
Q4) The majority of IRS audits are handled by correspondence.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Working with the Tax Law
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Sample Questions
Q1) Which of the following types of Regulations has the highest tax validity?
A) Temporary
B) Legislative
C) Interpretive
D) Procedural
E) None of these
Answer: B
Q2) In addressing the importance of a Regulation, an IRS agent must:
A) Give equal weight to the Internal Revenue Code and the Regulations.
B) Give more weight to the Internal Revenue Code rather than to a Regulation.
C) Give more weight to the Regulation rather than to the Internal Revenue Code.
D) Give less weight to the Internal Revenue Code rather than to a Regulation.
E) None of these.
Answer: A
Q3) A "Bluebook" is substantial authority for purposes of the accuracy related penalty.
A)True
B)False
Answer: True
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4
Chapter 3: Computing the Tax
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Sample Questions
Q1) In January 2018, Jake's wife dies and he does not remarry. For tax year 2018, Jake may not be able to use the filing status available to married persons filing joint returns.
A)True
B)False
Answer: True
Q2) Kiddie tax does not apply
Answer: f
Q3) Which, if any, of the following is a deduction for AGI?
A) Contributions to a traditional Individual Retirement Account.
B) Child support payments.
C) Funeral expenses.
D) Loss on the sale of a personal residence.
E) Medical expenses.
Answer: A
Q4) The deduction for personal and dependency exemptions has been suspended from 2018 through 2025.
A)True
B)False
Answer: True
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Chapter 4: Gross Income: Concepts and Inclusions
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Sample Questions
Q1) Roy is considering purchasing land for $10,000. He expects the land to appreciate in value 8% each year (compounded) and he will sell it at the end of 10 years. He also is considering purchasing a bond for $10,000. The bond does not pay any annual interest, but will pay $21,589 at maturity in 10 years. The before-tax rate of return on the bond is 8%. Roy is in the 40% (combined Federal and State) marginal tax bracket. Roy has other investments that earn an 8% before-tax rate of return. Given that the compound interest factor at 8% is 2.1589, and at 4.8% the factor is 1.5981, which alternative should Roy choose?
Q2) After the divorce in 2015, Jeff was required to pay $18,000 per year to his former spouse, Darlene, who had custody of their child. Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21. During the year, Jeff paid the $18,000 required under the divorce agreement. Darlene must include the $12,000 in gross income.
A)True
B)False
Q3) The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.
A)True
B)False
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Page 6
Chapter 5: Gross Income: Exclusions
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Sample Questions
Q1) Iris collected $150,000 on her deceased husband's life insurance policy. The policy was purchased by the husband's employer under a group policy. Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer. She elected to collect the policy in 10 equal annual payments of $18,000 each.
A) None of the payments must be included in Iris's gross income.
B) The amount she receives in the first year is a nontaxable return of capital.
C) For each $18,000 payment that Iris receives, she can exclude $500 ($5,000/$180,000 × $18,000) from gross income.
D) For each $18,000 payment that Iris receives, she can exclude $15,000 ($150,000/$180,000 × $18,000) from gross income.
E) None of these.
Q2) The exclusion for health insurance premiums paid by the employer applies to:
A) Only current employees and their spouses.
B) Only current employees and their spouses and dependents.
C) Only current employees and their disabled spouses.
D) Current employees, retired former employees, and their spouses and dependents.
E) None of these.
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Page 7
Chapter 6: Deductions and Losses: In General
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Sample Questions
Q1) Abner contributes $2,000 to the campaign of the Tea Party candidate for governor, $1,000 to the campaign of the Tea Party candidate for senator, and $500 to the campaign of the Tea Party candidate for mayor. Can Abner deduct these political contributions?
Q2) Are all personal expenses disallowed as deductions in 2018?
Q3) Which of the following is not a related party for constructive ownership purposes under § 267?
A) The taxpayer's aunt.
B) The taxpayer's brother.
C) The taxpayer's grandmother.
D) A corporation owned more than 50% by the taxpayer.
E) None of the above.
Q4) Which of the following is not deductible in 2018?
A) Moving expenses in excess of reimbursement.
B) Tax return preparation fees of an individual.
C) Expenses incurred associated with investments in stocks and bonds.
D) Allowable hobby expenses in excess of hobby income.
E) All of the above.
Q5) Briefly explain why interest on money borrowed to buy tax-exempt municipal bonds is disallowed as a deduction.
Page 8
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Chapter 7: Deductions and Losses: Certain Business
Expenses and Losses
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Sample Questions
Q1) A business theft loss is taken in the year of the theft.
A)True
B)False
Q2) A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.
A)True
B)False
Q3) A theft of investment property can create or increase a net operating loss for an individual.
A)True
B)False
Q4) James is in the business of debt collection. He purchased a $20,000 account receivable from Green Corporation for $15,000. During the year, James collected $17,000 in final settlement of the account. James can take a $2,000 bad debt deduction in the current year.
A)True
B)False
Q5) A bona fide debt cannot arise on a loan between father and son.
A)True
B)False
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Chapter 8: Depreciation, Cost Recovery, Amortization, and Depletion
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Sample Questions
Q1) Cora purchased a hotel building on May 17, 2018, for $3,000,000. Determine the cost recovery deduction for 2019.
A) $48,150
B) $59,520
C) $69,000
D) $76,920
E) None of the above
Q2) Antiques may be eligible for cost recovery if they are used in a trade or business.
A)True
B)False
Q3) Intangible drilling costs must be capitalized and recovered through depletion. A)True
B)False
Q4) A used $35,000 automobile that is used 100% for business is placed in service in 2018. If the automobile fails the 50% business usage test in the second year, no cost recovery will be recaptured.
A)True
B)False
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Q5) Discuss the reason for the inclusion amount with respect to leased automobiles.
Chapter 9: Deductions: Employee and
Self-Employed-Related Expenses
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Sample Questions
Q1) Travel status requires that the taxpayer be away from home overnight.
a. What does "away from home overnight" mean?
b. What tax advantages result from being in travel status?
Q2) On February 1, 2018, Tuan withdrew $15,000 from his IRA #1. He deposited the funds back into IRA #1 within 60 days (a"rollover"). Tuan may do one more nontaxable rollover distribution from either IRA #1 or IRA #2 in April 2018.
A)True
B)False
Q3) Isabella is a dental hygienist who works for five different dentists. She spends one day a week (i.e., Monday through Friday) with each. All of the dentists except Dr. Stanki (the Wednesday assignment) treat her as an employee. Dr. Stanki, however, classifies her as being self-employed. Comment on this discrepancy in treatment.
Q4) Under the simplified method, the maximum office in the home deduction allowed is the greater of $1,500 or the office square feet × $5.
A)True
B)False
Q5) Sue files a Schedule SE with her Form 1040.
Q6) Sue does not file a Schedule SE with her Form 1040.
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Chapter 10: Deductions and Losses: Certain Itemized
Deductions
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Sample Questions
Q1) Helen pays nursing home expenses of $3,000 per month for her mother. The monthly charge covers the following items: $1,400 for medical care, $900 for lodging, and $700 for food. Under what circumstances can Helen include the $3,000 per month payment when computing her medical expense deduction for the year? If Helen is not allowed to include the entire payment, how much can she include?
Q2) Fees for automobile inspections, automobile titles and registration, bridge and highway tolls, parking meter deposits, and postage are not deductible if incurred for personal reasons, but they are deductible as deductions for AGI if incurred as a business expense by a self-employed taxpayer.
A)True
B)False
Q3) Sadie mailed a check for $2,200 to a qualified charitable organization on December 31, 2018. The $2,200 contribution is deductible on Sadie's 2018 tax return if she itemizes her deductions.
A)True
B)False
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Page 12
Chapter 11: Investor Losses
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Sample Questions
Q1) Identify the types of income that are classified as investment income. Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.
Q2) Rick, a computer consultant, owns a separate business (not real estate) in which he participates. He has one employee who works part-time in the business.
A) If Rick participates for 500 hours and the employee participates for 620 hours during the year, Rick qualifies as a material participant.
B) If Rick participates for 550 hours and the employee participates for 2,000 hours during the year, Rick qualifies as a material participant.
C) If Rick participates for 120 hours and the employee participates for 120 hours during the year, Rick does not qualify as a material participant.
D) If Rick participates for 95 hours and the employee participates for 5 hours during the year, Rick probably does not qualify as a material participant.
E) None of the above.
Q3) What special passive activity loss treatment is available to real estate activities?
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Chapter 12: Tax Credits and Payments
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Sample Questions
Q1) The work opportunity tax credit is available only for wages paid to qualifying individuals during their first year of employment.
A)True
B)False
Q2) Which of the following correctly reflects current rules regarding estimated tax payments for individuals?
A) Employees are not subject to the estimated tax payment provisions.
B) Any penalty imposed for underpayment is deductible for income tax purposes.
C) Married taxpayers may not make joint estimated tax payments unless they file a joint income tax return.
D) No quarterly payments are required if the taxpayer's estimated tax is under $1,000.
Q3) Expenses that are reimbursed by a taxpayer's employer under a dependent care assistance program also can qualify for the credit for child and dependent care expenses.
A)True
B)False
Q4) Explain the purpose of the disabled access credit and describe the general characteristics of its computation.
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Chapter 13: Property Transactions: Determination of Gain or Loss,
Basis Considerations, and Nontaxable Exchanges
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Sample Questions
Q1) The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000. If the stock or cash is going to be given to her niece, it is preferable for the taxpayer to sell the stock and give the $8,000 of cash to her niece. The same preference would exist if the recipient were a qualified charitable organization.
A)True
B)False
Q2) Eric and Faye, who are married, jointly own a house in which they have resided for the past 17 years. They sell the house for $375,000 with realtor's fees of $10,000. Their adjusted basis for the house is $80,000. Since they are in their retirement years, they plan on moving around the country and renting. What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence) and if they elect to forgo the § 121 exclusion? With exclusion Elect to forgo
A) $0 $0
B) $35,000 $35,000
C) $0 $285,000
D) $35,000 $285,000
E) $285,000 $225,000
Q3) Define an involuntary conversion.
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Chapter 14: Property Transactions: Capital Gains and
Losses, Section 1231, and Recapture Provisions
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Sample Questions
Q1) Blue Company sold machinery for $45,000 on December 23, 2018. The machinery had been acquired on April 1, 2016, for $69,000 and its adjusted basis was $34,200. The § 1231 gain, § 1245 recapture gain, and § 1231 loss from this transaction are:
A) $0 § 1231 gain, $10,800 § 1245 recapture gain, $0 § 1231 loss.
B) $0 § 1231 gain, $0 § 1245 recapture gain, $14,800 § 1231 loss.
C) $0 § 1231 gain, $34,200 § 1245 recapture gain, $0 § 1231 loss.
D) $0 § 1231 gain, $10,800 § 1245 recapture gain, $34,200 § 1231 loss.
E) None of the above.
Q2) Williams owned an office building (but not the land) that was destroyed by a fire. The building was insured and Williams has a $156,000 gain because his insurance recovery exceeded his adjusted basis for the building. Williams may replace the building. Williams had taken $145,000 of depreciation on the building, has no § 1231 lookback loss, has no other § 1231 transactions for the year, and has no Schedule D transactions for the year. What is the final nature of Jamison's gain for the year and what tax rate(s) apply to the gain if:
(a) He does reinvest the insurance proceeds?
(b) If he doesn't reinvest the insurance proceeds?
Q3) Describe the circumstances in which the potential § 1245 depreciation recapture is extinguished.
Page 16
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Chapter 15: Taxing Business Income
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Sample Questions
Q1) Code § 199A permits an individual to deduct 25 percent of the qualified business income generated through a sole proprietorship, a partnership, or an S corporation.
A)True
B)False
Q2) Susan, a single taxpayer, owns and operates a bakery (as a sole proprietorship). The business is not a specified services business. In 2018, the business pays $60,000 in W-2 wages, has $150,000 of qualified property, and $200,000 in net income (all of which is qualified business income). Susan also has a part-time job earning wages of $11,000, receives $3,000 of interest income, and will take the standard deduction. What is Susan's qualified busine income deduction?
Q3) Ginger is a self-employed driver finding rides via a few different platform companies such as Lyft. She is single and claims the $12,000 standard deduction. For 2018, Ginger's income from driving is $67,000 and she has no other income. Ginger's QBI deduction for 2018 is $13,400.
A)True
B)False
Q4) Describe the limitations on the qualified business income deduction that apply to high income taxpayers.
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Page 17
Chapter 16: Accounting Periods and Methods
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Sample Questions
Q1) What incentives do the tax accounting rules provide for taxpayers to voluntarily change from an incorrect method of accounting that has reduced the company's tax liability in prior years?
Q2) Kathy was a shareholder in Matrix, Inc., when she sold the corporation a commercial building. The building cost $500,000 and the balance in the accumulated depreciation account was $400,000. Matrix, Inc., paid $100,000 in the year of sale and gave Kathy a note for $400,000 plus adequate interest due in 2019.
A) Because Kathy is a shareholder in Matrix, she cannot report the gain by the installment method.
B) Generally, if Kathy owned 100% of the Matrix stock, Kathy cannot use the installment method.
C) Generally, if Kathy owned only 60% rather than 100% of the Matrix stock, she could use the installment method.
D) Kathy cannot use the installment method to report the gain because the realized gain is equal to the depreciation she claimed on the building.
E) None of the above.
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18
Chapter 17: Corporations: Introduction and Operating Rules
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Sample Questions
Q1) In tax planning for charitable contributions, a current year's contribution might have to be deferred to a later year in order to deduct a contribution carryover amount.
A)True
B)False
Q2) The limitation on the deduction of business interest does not apply to noncorporate taxpayers.
A)True B)False
Q3) Schedule M-1 is used to reconcile net income as computed for financial accounting purposes with taxable income reported on the corporation's income tax return.
A)True
B)False
Q4) Albatross, a C corporation, had $140,000 net income from operations and a $25,000 short-term capital loss in the current year. Albatross Corporation's taxable income is $140,000.
A)True B)False
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Chapter 18: Corporations: Organization and Capital Structure
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Sample Questions
Q1) What is the rationale underlying the tax deferral treatment available under § 351?
Q2) Tina incorporates her sole proprietorship with assets having a fair market value of $100,000 and an adjusted basis of $110,000. Even though § 351 applies, Tina may recognize her realized loss of $10,000.
A)True
B)False
Q3) Alan, an Owl Corporation shareholder, makes a contribution to capital of equipment to Owl, basis of $40,000 and fair market value of $50,000. Owl's basis of the equipment that Alan contributes is equal to $50,000, the property's fair market value.
A)True
B)False
Q4) In determining whether § 357(c) applies, assess whether the liabilities involved exceed the bases of all assets a shareholder transfers to the corporation.
A)True
B)False
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20
Chapter 19: Corporations: Distributions Not in Complete Liquidation
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Sample Questions
Q1) In the current year, Quail Corporation distributed installment notes payable in redemption of some of its shares. Quail incurred the following expenditures in connection with the redemption: accounting fees of $7,000 and legal fees of $8,000. In addition, Quail paid $10,000 of interest expense on the installment notes payable. The distribution was a qualifying stock redemption. How much of the $25,000 is deductible in the current year?
A) $0
B) $7,000
C) $10,000
D) $25,000
E) None of the above
Q2) The terms "earnings and profits" and "retained earnings" are identical in meaning. A)True
B)False
Q3) Briefly define the term "earnings and profits."
Q4) Premiums paid on key employee life insurance policy (assume no increase in cash surrender value of policy) in 2018.
Q5) A decrease in the LIFO recapture amount during the year.
Q6) Gain realized, but not recognized, in a like-kind exchange transaction in 2018.
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Chapter 20: Corporations: Distributions in Complete
Liquidation and an Overview of Reorganizations
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Q1) Pursuant to a complete liquidation, Rust Corporation distributes to its shareholders land with a basis of $150,000 and a fair market value of $400,000. The land is subject to a liability of $300,000. What is Rust's recognized gain on the distribution?
A) $0.
B) $100,000.
C) $150,000.
D) $250,000.
E) None of the above.
Q2) Legal dissolution under state law is required for a liquidation to be complete for tax purposes.
A)True
B)False
Q3) Gains and losses are recognized by the liquidating corporation on distributions to a minority shareholder in a § 332 liquidation.
A)True
B)False
Q4) Explain why the antistuffing rules were enacted to limit the deductibility of losses realized by a corporation upon liquidation.
Page 22
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Chapter 21: Partnerships
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Q1) The JIH Partnership distributed the following assets to partner James in a proportionate liquidating distribution in which the partnership also liquidated: $25,000 cash, land parcel A (basis of $5,000, fair market value of $30,000) and land parcel B (basis of $5,000, fair market value of $15,000). James's basis in his partnership interest was $85,000 immediately before the distribution. James will allocate bases of $40,000 to parcel A and $20,000 to parcel B, and he will have no remaining basis in his partnership interest.
A)True B)False
Q2) § 179 deduction
Q3) Entity concept
Q4) Generally, no gain is recognized on a proportionate liquidating or current (nonliquidating) distribution of non-cash property even if the fair market value of property distributed exceeds the partner's basis in the partnership interest.
A)True B)False
Q5) Organizational costs
Q6) Precontribution gain
Q7) Disguised sale
Page 23
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Chapter 22: S Corporations
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Q1) Advise your client how income, expenses, gain, and losses are allocated to shareholders of an S corporation.
Q2) In the case of a complete termination of an S corporation interest, __________________ a tax year may occur.
Q3) Which, if any, of the following can be eligible shareholders of an S corporation?
A) A partnership.
B) A nonresident alien.
C) A three-person LLC.
D) The estate of a deceased shareholder.
E) None of the above are eligible shareholders.
Q4) A corporation may alternate between S corporation and C corporation status each year, depending on which results in more tax savings.
A)True
B)False
Q5) Pepper, Inc., an S corporation in Norfolk, Virginia, has revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. Calculate any passive investme income penalty tax payable by this corporation.
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Page 24
Chapter 23: Exempt Entities
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Q1) § 501(c)(4) civic league
Q2) Midnight Basketball, Inc., an exempt organization that organizes and conducts basketball games for youths ages 10-13, receives a $20,000 contribution from Brown Shoe Company. Midnight agrees to put Brown's logo on the cover of its monthly newsletter.
a. Is the contribution unrelated business income to Midnight?
b. Assume that instead of putting Brown's logo on the cover of its newsletter, Midnight agrees to include a statement in the newsletter that youth playing in the games conducted by Midnight wear only shoes manufactured by Brown. Is the contribution unrelated business income to Midnight?
b. change if the amount of the payment was $7,500 instead of $20,000?
c. Would your answer in
Q3) The Jimenez Group, a private foundation, has been found guilty of self-dealing. To minimize its Federal excise taxes from this activity, Jimenez should:
A) Surrender its tax-exempt status.
B) Reorganize as a C corporation.
C) Pay the second-level excise tax immediately.
D) Undo ("correct") the violation immediately.
Q4) Membership lists
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Chapter 24: Multistate Corporate Taxation
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Q1) When the taxpayer has exposure to a capital stock tax:
A) The pricing of inventory sales should reflect no more than inflation increases.
B) Subsidiary operations should be funded through direct capital contributions.
C) Dividends should be paid regularly to a parent based in a low-tax state.
D) Expansions should be funded with retained earnings.
Q2) Sales/use tax in most states applies to a restaurant meal.
A)True
B)False
Q3) Typically included in the sales/use tax base is the purchase of tablet computers and cell phone equipment by a large manufacturing firm, whose sales force uses the items.
A)True
B)False
Q4) Application of the unitary principle generally works to the taxpayer's benefit when:
A) The other affiliates generate net operating losses.
B) The other affiliates operate in low-tax states.
C) Both a. and b.
D) Neither a. nor b.
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Chapter 25: Taxation of International Transactions
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Q1) PlantCo is a company based in Adagio. PlantCo uses a formula to manufacture pharmaceuticals. The formula was developed and is owned by DrugCo, a U.S. entity. Royalties paid by PlantCo to DrugCo for the use of the formula are U.S.-source income.
A)True
B)False
Q2) Wood, a U.S. corporation, owns Holz, a German corporation. Wood receives a dividend (non-Subpart F income) from Holz of 75,000 . The average exchange rate for the year is $1US: 0.6 , and the exchange rate on the date of the dividend distribution is $1US: 0.8 . Wood's exchange gain or loss is:
A) $15,000 loss.
B) $15,000 gain.
C) $75,000 gain.
D) $0. There is no exchange gain or loss on a dividend distribution.
Q3) U.S. income tax treaties can be described as:
A) Napoleonic.
B) Spoke-and-Wheel.
C) Balanced.
D) Bilateral.
Q4) A non-U.S. citizen who holds a "green card."
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Chapter 26: Tax Practice and Ethics
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184 Verified Questions
184 Flashcards
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Sample Questions
Q1) If the taxpayer shows ________________ for an underpayment of tax, the failure to pay penalty can be reduced or eliminated.
Q2) Maria's AGI last year was $95,000. To avoid a penalty, her estimated tax payments and withholdings for this year must equal the lesser of ____________________ percent of last year's taxes or ____________________ percent of this year's taxes.
Q3) When a tax issue is taken to court, the burden of proof is on the IRS to show that its audit adjustments are correct.
A)True
B)False
Q4) Circular 230 compliance implies that a tax preparer provide training for the tax staff as to the latest changes in the tax law.
A)True
B)False
Q5) In connection with the taxpayer penalty for substantial understatement of tax liability, what defenses (if any) are available?
Q6) Aiding in preparing an improper tax return.
Q7) The chief executive of the IRS is the _________________________.
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Chapter 27: The Federal Gift and Estate Taxes
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) Using his own funds, Horace establishes a savings account designating ownership as follows: "Horace and Nadine as joint tenants with right of survivorship." Horace later withdraws all of the funds.
Q2) At the time of Dylan's death, he was a resident of the United States. He owns land located in a foreign country, which is subject to that country's estate tax. This same land also can be subject to the Federal estate tax.
A)True
B)False
Q3) On the date of her death, Ava owned the following.
? An insurance policy (face amount of $500,000) on the life of Benjamin (Ava's current husband) with herself as the designated beneficiary. The policy has a cash surrender value of $50,000.
? A life estate in a trust created by Alexander (Ava's deceased prior husband). The trust (current value of $2,900,000) was worth $1,000,000 when created ten years ago. A QTIP election was made by the executor of Alexander's estate.
? Federal income tax refund of $80,000 on a prior year's tax return and paid to the executor of Ava's estate.
As to these items, how much is included in Ava's gross estate?
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29
Chapter 28: Income Taxation of Trusts and Estates
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161 Verified Questions
161 Flashcards
Source URL: https://quizplus.com/quiz/7735
Sample Questions
Q1) Generally, capital gains are allocated to fiduciary income, because they arise from current-year transactions as directed by the trustee.
A)True
B)False
Q2) When a trust operates a trade or business, it can claim a deduction for wages paid to employees.
A)True B)False
Q3) The interest income of a trust usually is allocable to ________________ (income, remainder) beneficiaries.
Q4) During the current year, the Santo Trust received $30,000 of taxable interest income, paid trustee's commissions of $3,000, and had no other income or expenses. The Santo trust instrument requires that $20,000 be paid annually to Marilyn, and $40,000 be paid annually to Domingo. How much gross income must Marilyn and Domingo recognize?
A) $20,000 by Marilyn and $40,000 by Domingo.
B) $15,000 by Marilyn and $15,000 by Domingo.
C) $13,500 by Marilyn and $13,500 by Domingo.
D) $9,000 by Marilyn and $18,000 by Domingo.
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