Select Page

Tax
University of Florida School of Law
Calfee, Dennis A.

FIDUCIARY ACCOUNTING INCOME (FAI)
I. TAX CODE
A. §643(b): “Income” when not preceded by “taxable”, “gross”, etc. means FAI
B. §1.643(b)-1: Def of Income: trust provs that depart fundamentally from traditional principles generally are not recognized
II. CH. 738 FL UNIFORM P&I ACT
A. Allocation of Receipts/Disbursemts
1. Step 1: trust doc/will [§738.103(1)(a)] 2. Step 2: fiduciary discretion [§738.103(1)(b)] 3. Step 3: statute [§738.103(1)(c)] 4. Step 4: default to Principal [§738.103(1)(d)]

STEP 3 ALLOCATION – SELECTED ITEMS

Item

P/I

Fla. Stat.

Assets rec’d i.v. from Grantor

Principal

§738.501(1)

Depreciation

Discretionary

§738.703(2); §738.403(2)

Dist of inc from another E/T

Income

§738.402

Dist of principal from another E/T

Principal

§738.402

Dividends

Income

§738.401(2), .401(4)

Estate/Gift Tax pd

Principal

§738.702(f)

Income Taxes – paid on an income asset

Income

§ 738.705(1)

Income Taxes – paid on a principal asset

Principal

§738.705(2)

Insurance proceeds – life or prop

Principal

§738.504(1)

Insurance proceeds – loss of use/inc/profits

Income

§738.504(2)

Interest – all other

Income

§738.503(1)

Interest – incr in bond val

Income

§738.503(3)

Investment advisory fees

50% Each

§738.701(1), §738.702(1)

“Liquidating asset” (e.g. IP rights)

10% I; 90% P

§738.603(2)

Money rec’d from an entity

Income

§738.401(2)

Options – purchased or sold

Principal

§738.607(3)

Proceeds from sale of a principal asset

Principal

§738.501(2)

Prop insurance prems

Income

§738.701(4)

Prop other than money

Principal

§738.401(3)(a)

Rent – no separate accting records

Income

§738.502

Rent – separate accting records

Discretionary

§738.403(2)

Retiremt accts

Principal

le needs of the biz
(a) Cash receipts d.n. have to come from rent
(2) Trustee may allocate remaining cash receipts to Income or Principal or both
c.FS §738.403(3): Applicable Biz Activities
(1) FS §738.403(3)(d): Mgmt of rental prop(s)
6. FS §738.703 – Transfer from income to principal for depreciation [DISCRETIONARY] a. FS §738.703(2): Trustee may transfer a reasonable amt of cash receipts from income to principal for depreciation
(1) FS §738.703(2)(c): If maintaining separate biz accting records, see FS §738.403 instead
b. FS §738.703(3): Amt of depreciation taken for tax purposes is presumed to be a reasonable amt

PROBLEM 1

Facts
· Irrevocable i.v. trust: inc to C for life, Rem to GC.
· C has present int and GC has future int.
· Approach: 738.103: FIRST: If t’ee, READ trust instrmt. Second: Discretion (which Calfee does not know the extent of-so Calfee shys away from this, b/c it could be dangerous). Third: Prin and Inc Act. Fourth: Default: Prin (which makes sense).
· Initial transfer:
IBM stock, AB $35,000, FMV $50,000
Residential rental prop, AB $370,000, FMV 600,000, purchase price $400,000
CD, AB $10,000, FMV $10,000, accrued but unpaid int $250
· Receipts:
Cash dividend, $500
Proceeds from sale of Intel stock, $60,000
Int on CB $1,500
Rents, $12,000
· Expenses:
Trustee’s commissions, $1,000
Depreciation on rental prop, $3,800

P1/Q1
Trust doc d.n. contain prov re: allocation of receipts & disbursemts. What amt is allocated to Income & Principal? How much $ is T’ee req’d to give to C?
Notes:
How transfer stock? Give legal title. How do that? Flip the certificate over and it says. But READ the certs-the front and the back! Sometimes they’re non-transferable.
How transfer stock from one brokerage firm to another? Call your broker and have the name of the acct. Another way: W/ companies, sometimes, they just hold the shares for you. Can buy and sell through the company. But the co never issued the shares.