A simple trust has the following receipts and expenditures for 2018. The trust instrument is silent with respect to capital gains, and state law concerning trust accounting income follows the Uniform Act. Assume the trustee's fee is charged equally to income and to principal. 

Corporate bond interest . . . . . . . . .  . . . . . . 40,000

Tax-exempt interest . . . . . .. . . . . . .. . . . . . . $9,000

Long-term capital gain . . . . . .. . . . . . .. . . . . 5,000

Trustee's fee . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000

Distribution to beneficiary . . . . . . . . . . . . .48,000

a. What is the trust's taxable income under the formula approach of Figure C:14-1?

b. What is the trust's tax liability?

Figure C:14-1:

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Tax on taxable income (using rates in Secs. 1(e) and 1(h)) Gross Income (same rules as for individuals) Minus Minus Deductions for expenses“ (interest, taxes, tax return preparation fees, trustee's fee, trade or business expenses, expenses related to production of income, depreciation, and charitable contributions) Credits Equals Net tax liability Minus Distribution deduction (maximum is Distributable Net Income [DNI] minus net tax-exempt income) Minus Exemption deduction Equals Taxable income