Fiduciary Accounting Income (FAI ) is unlike taxable income or GAAP income, which is why most trustees hire CPA to deal with 1041’s instead of tackling it themselves. Occasionally tax practitioners have difficulties with this concept as well.
Interest on a municipal bond is excluded from normal taxable income, only taxable at the state level. But for FAI it is included on the 1041 as income.
For a trust, FAI is the amount to be accumulated or distributed to the beneficiaries as directed by the trust document.