Reference no: EM132636811

ACC 380 Tax Treatment of Individuals and Property - DePaul University

Problems Narrative Explanation

Chapter - Gross Income

Question 1. Determine the taxpayer's (1) economic and (2) gross income for tax purposes from the following events.

a. Zeus employment contract as chief executive of a large corporation was terminated, and he was paid $500,000 not to work for a competitor of the corporation for five years.

b. Sally, a ten year old girl, was paid $5,000 for appearing in a television commercial. Her parents put the funds in a savings account for her education.

c. Val found a suitcase that contained $100,000. She could not determine who the owner was, thus kept the $100,000

d. Larry spent $1,000 to raise veggies that he and his family consumed. The cost of the veggies in the store would have been $2,500. Is his saving from raising his own veggies of $1,500 income?

e. Lucky purchased a lottery ticket for $5 and received $750,000 from the State of Illinois.

f. Otis purchased an automobile for $1,500 when its value was $3,500. The seller needed the money.

Question 2. Determine the taxpayers' gross income for tax purposes in each of the following situation:

a. Deb, a cash basis taxpayer, traded a corporate bond with accrued interest of $300 for a corporate stock with a fair market value of $12,000 at the time of the exchange. Deb's cost of the bond was $10,000. The value of the stock has decreased to $11,000 by the end of the year.

b. Deb needed $10,000 to make a down payment on her house. She instructed her broker to sell some stock to raise the $10,000. Deb's cost of the stock was $3,000. Based on her broker's advice, instead of selling the stock, she borrowed the $10,000 using the stock as collateral for the debt.

c. Deb was the highest grossing sales person for her company and was awarded 2 tickets to an all-expense paid trip to the 2020 Summer Olympics in Japan. The fair market value of the trip is $20,000 on the day she was notified of the prize. The Summer Olympics have been cancelled and Deb has left the company and forfeited the prize.

Chapter - Gross Income: Exclusions

Question 3. Determine the gross income of the beneficiaries in the following cases:

g. Justin's employer was downsizing and offered employees an amount equal to one year's salary if the employees would voluntarily retire.

h. Trina contracted a disease and was unable to work for six months. Because of her dire circumstances, her employer paid her one-half of her regular salary why she was away. Fortunately for Trina, she had purchased a disability program that would provide for the other half of her salary.

i. Coral Corporation collected $1,000,000 on a key person life insurance policy when its chief executive died. The corporation had paid premiums on the policy of $77,000, which were not deducted by the company.

j. Juan collected $40,000 on a life insurance policy when his wife, Leona, died in 2017. The insurance policy was provided by Juan's employer, and the premiums were paid as part of a group term life insurance program. In addition, Juan collected $3,500 of accrued salary owed to Leona at the time of her death.

k. Harold sued his employer after his employer decided his services were no longer needed. Harold alleged that he was fired because he was not tall, dark and handsome, but rather older, shorter and clearly not handsome.

As Harold was leaving the employers place of business, he fell and broke his arm and received $100,000 of workers compensation. He was successful in his lawsuit and was awarded $500,000 of compensatory damages for loss or income, pain and suffering. He also received $400,000 as punitive damages since the company has a history of discrimination against older workers.

Question 4. Sparrow Corporation would like you to review its employee fringe benefits program with regard to the tax consequences of the plan for the company's president (Polly) who also is the majority shareholder

a. The company has a qualified retirement plan. The company pays the cost of employees attending a retirement planning seminar. The employee must within 10 years of retirement, and the cost of the seminar is $1,500 per employee.

b. The company owns a parking garage that is used by customers, employees and the general public. Only the general public is required to pay for the parking. The charge to the general public would be $300 per month or $3600 per year.

c. The company owns a condominium at the beach, which is used to entertain customers. Employees are allowed to use the facility without charge when the company has no scheduled events. Polly used the facility for 10 days during the year. Her use had a rental value of $1,000.

d. The company is in the household moving business. Employees are allowed to ship goods without charge whenever there is excess space on a truck. Polly purchased a dining room suite for her daughter. Company trucks delivered the furniture to the daughter. Normal freight charges would have been $750.

Chapter - Property Transaction

Question 5. Ronda inherits 1,000 shares of Walgreen's stock from her aunt in 2019. According to the information received from the executor of her aunt's estate, Ronda's adjusted basis for the stock is $75,000.

Thor, Ronda's fiancé receives 1,000 shares of Walgreen's stock from his uncle as a gift in 2019. His uncle tells Thor that his adjusted basis for the Walgreen's stock is $7,000.

What could cause the substantial difference in the adjusted basis for Rhonda' and Thor's respective 1,000 shares of Walgreen's stock?

Explain in detail and reference and explain tax issue.

Question 6. Micah owns land that she acquired three years ago as an investment for $250,000. Because the land has not appreciated in value as she anticipated, she sells it to her brother, Moses, for its fair market value of $180,000. Moses sell the land two years later for $240,000

a. Explain why Micah's realized loss of $70,000 ($180,000 - $250,000) is disallowed at the time of the sale to her brother.

b. Explain why Moses records neither a recognized gain or recognized loss on the subsequent sale of his land.

c. How does the related party disallowance rule affect the total gain or loss recognized by the family unit.

d. How could Micah have avoided the loss disallowance on her sale of the land.