The FAQ appears to be wrong. Distributions from the estate to beneficiaries come first from the income received by the estate during the estate's tax year (Distributable Net Income or DNI). Any amount of taxable DNI required to be distributed currently (tier 1) plus any additional amounts of income actually distributed (tier 2) to beneficiaries are reported as an income distribution deduction on the estate's tax return and are reported via the Forms K-1 to beneficiaries for taxation on the beneficiaries' individual tax returns. The income is only taxed once, either on the estate's income tax return because income not required to be distributed was retained, or on the beneficiaries' tax returns because the income was distributed or required to be distributed.
