Questions and Answers of Fundamentals Taxation 2019

Shreya and Kim were married in 2015, but they officially divorced in 2018. Kim was to pay $$10,000$ per month in alimony to Shreya and $$4,000$ per month in child support. In the current year,
Loris received her uncle’s vintage album collection as a gift. Her uncle paid $$8,300$ for the set. It now has a fair market value of $$11,000.$ What is Loris’s gain basis and loss basis?
Shelby inherited land from her grandmother worth $$82,000$ as of the date of death on August 15.Her grandmother had purchased the land for $$44,000$ twenty years ago. The value of the land as of
Garret was riding the public city bus to work. The bus caused a three-vehicle collision because the bus driver was texting while driving. Garret sued the bus company and was awarded $$1,000,000,$
Tanika passed away in the current year and her daughter, Shanika, received life insurance proceeds of $$500,000.$ Tanika had paid $$12,000$ in premiums on the life insurance policy to
Francesco owns a warehouse that is used in his auto parts store. The warehouse has a FMV of $$85,000,$ an adjusted basis of$$45,000,$ and an outstanding mortgage of $$55,000.$ Francesco is not
Todd has received the following payments in the current year:How much must Todd include in his income? Unemployment compensation Food stamps $12,000 $ 1,500 Lottery winnings $ 1,000 Gambling winnings
Delilah and her family competed on the game show, Family Feud. Her portion of the winnings was $$4,000$ cash and a car with a fair market value of $$32,000.$ Does Delilah have to include these
Fran frequently attends flea markets looking for good bargains. On a recent trip, she purchased a nightstand for $$25$ and an armoire for $$45.$ When she got them home and took a closer look, she
Sven was awarded a prestigious scientific prize for his contribution in developing a vaccine for COVID–19. The award was worth $$2,000,000.$ Sven was given the prize without any action on his
Elijah has played basketball his entire life, and his hard work paid off when he received a “full ride” scholarship to play at University of North Carolina. He received $50,000 for his first year
Sylvane enjoys gambling and visits casinos frequently. He won $$18,000$ and spent $$22,000$ this past year in Las Vegas. How much income must Sylvane report on his tax return?
Jenny and Donny were married in 2015 and have two children, Chase and Ruby. Donny filed for divorce in 2017 and the divorce was finalized in 2018. Donny has custody of the children and received the
Steve and Leslie have three children and were divorced in 2014. Leslie is the custodial parent. In the current year, Steve was required to pay per the divorce decree $$24,000$ in child support and
Myrtle had been sick for quite some time and she passed away in July. Her will indicated her beneficiaries are to receive the following:• Miriam, her daughter, will receive Myrtle’s home worth
Ichiro received stock as a gift from his uncle. The stock was worth $$5,000$ as of the date of the gift and his uncle had paid $$2,200$ for it several years ago. If Ichiro sells the stock for
Shaquille received artwork from his grandma as a gift on January 31.Grandma purchased the artwork for $$5,000$ and its fair market value on January 31 is $$8,500.$ What is Shaquille’s gain
Jerome received a home as a gift from his uncle on March 15, 2023. His uncle paid $$250,000$ and its fair market value on March 15 is $$400,000.$ Jerome’s uncle paid gift tax of $$10,000.$
Timiri received a diamond ring from her father as a gift on December 25.Her father paid $$6,250$ for the ring three years ago and its fair market value on December 25 is $$5,000.$ Assume her
Terry received a diamond necklace from her father as a gift on December 25.Her father paid $$5,750$ for the necklace three years ago and its fair market value on December 25 is $$4,500.$ Assume
Arjun died on April 3, Year 4 with a gross estate of $$11,500,000.$ In his will, he left his personal residence to his grandson. Arjun had originally purchased the home for $$172,000.$ Fair
Hazel died on February 22, Year 7 with a gross estate of $$5.6$ million. In her will, she left her vacation home in Florida to her daughter and her vacation home in South Carolina to her son. Hazel
Mitch is converting his personal use computer to 100% business use for use in his public accounting practice. The computer originally cost $$1,500$ and it is now worth $$700.$ What is Mitch’s
Grace has cared for her elderly grandmother for several years. On December 15, Year 12, Grace gave her grandmother stock currently valued at $$33,000$ Grace had purchased the stock on November 10,
Haruo has had a rough year. He was injured on the job and received worker’s compensation of $$5,000$ and he was also wrongfully incarcerated, later exonerated, and awarded $$100,000$ Haruo also
Devon was running by his house and was hit by a moving van. He received the following payments as a result of a lawsuit:• Compensatory damages of $650,000• Punitive damages of $750,000• Medical
Devon was running by his house and was hit by a moving van. He received the following payments as a result of a lawsuit: • Compensatory damages of $650,000• Punitive damages of $750,000•
Sylvia has worked as a waitress at an upscale restaurant for several years. A new general manager was hired six months ago and has acted inappropriately with Sylvia. Sylvia sued and won
Basma was put in a nursing home with advanced dementia in early March. The doctors at the nursing home have determined her to be chronically ill. The monthly care at the facility runs $$5,000$ per
Jade’s mother died in July and she had a $$600,000$ life insurance policy with Jade as the beneficiary. Jade would like to receive monthly payments over her life. In the IRS tables, she has a
Raelyn has been significantly affected by a downturn in the economy and has had several loans canceled or forgiven by the lender.• Credit card debt forgiven of $$14,000$• Auto loan forgiven of
Jeff has incurred substantial losses in his sole proprietorship as a travel agent. He recently filed for bankruptcy. As part of the bankruptcy process, $100,000 of Jeff’s debt is forgiven. Jeff has
Jackie’s Charhouse currently has business assets of $$125,000$ and business debts of $$265,000.$ Jackie does not file for bankruptcy, but through forgiveness she is able to reduce her debts by
Nicki and Lewis have five children and live comfortably in the suburbs of Chicago. Unfortunately, Lewis had an unexpected heart attack at age 49.He was on life support and lived for another seven
Tristan inherited $$2,000,000$ in 2008 when he was 25 years old. He married Tiffany later that year and they file as married filing jointly. The couple purchased a $$4,000,000$ home in 2008 and
Juan was selected for jury duty and served one day a week for 5 weeks on a grand jury. His jury duty pay was $75 per day.a. If Juan does not need to remit the jury duty pay to his employer, how does
Liam received the following payments in the current year:• Jury duty pay of $$250$ and he does not need to remit the pay to his employer• Temporary assistance for needy families (Welfare)
Rabbi Saul Solomon has accepted a position at a synagogue. His salary is $$60,000$ and he will also receive $$6,000$ for reimbursement for utilities and a $$12,000$ housing rental allowance.
Russell died on April 8, and at the time of his death he had earned but not received the following income:• $1,000 of accrued interest on a savings account• $2,850 of wages (received by his
Scarlett received the following payments in the current year:• $1,000 for tennis lessons provided to a friend• $20,000 from her grandmother as a gift• $100,000 inherited from her grandfather
Herbert would like to gift stock to his nephew who helps with yardwork and repairs around the house. Assume that Herbert owns the stocks below and needs advice on whether he should gift the stocks
Myrtle is an older adult and living in a nursing home. She owns the following assets:Myrtle plans to either gift the assets or leave the assets in her will to her children and grandchildren. What is
Eugenia has worked as a seamstress for the last 15 years. In 2023, she lost her job due to lingering effects from the COVID-19 virus and started receiving unemployment compensation in March. She was
Dee is a very good friend of yours and your tax client. She was wearing an expensive necklace when you were out for dinner recently. She mentioned that she had received some stock from her late aunt,
Susan has practiced as a CPA for over 30 years. Many of her clients are individuals who file as married filing jointly. Unfortunately, long-time clients Pam and Kevin are separating and planning to
For as long as there has been an estate tax, people have been trying to avoid it by making gifts. It makes sense to try and give everything away before you die to avoid having any estate tax
Magdalena was very close with her grandpa, Willie Makit, and was devastated when he died. Willie left Magdalena his New England cottage in his will. He had paid $$85,000$ for the cottage in 1975.
Porter received stock as a gift from his favorite aunt, Eltie. Aunt Eltie paid $$4,500$ for the stock six years ago. As of the date of the gift, it was worth $$8,800$.a. What is Porter’s
Sumner was born on December 28, 2004, and is not familiar with the tax law or what he should include on his tax return.Sumner attended University of North Alabama this fall. He plays for the Men’s
Frank and Dale Cumack are married and filing a joint income tax return. During the current year, Frank, age 63, was retired from government service and Dale, 55, was employed as a university
Provide three examples of items of income that are considered compensation.
Andy works at a fancy restaurant and earns a salary of $$55,000$. He also receives cash tips totaling $$6,500$ during the year that he did not report to his employer. Does Andy need to report the
Provide a definition of an employee fringe benefit.
Explain the discrimination rules as it pertains to employee fringe benefits.
Provide three examples of a nontaxable employee fringe benefit.
Your employer provides movie passes to a local movie theater every Christmas. The passes are worth $25. Is this taxable to the employees?
What can an employee exclude from income if he receives a safety or length of service award?
Describe an incentive stock option.
Describe a nonqualified stock option.
What are the benefits of an accountable plan?
What is the difference between a defined benefit plan and a defined contribution plan?
If your employer provides a retirement plan and has made all the contributions to your account, do you have basis in the account?
Provide two exceptions to the rule that states that premature distributions from an IRA are subject to a 10% penalty?
Explain the difference between the tax consequences of a withdrawal from a traditional IRA and a Roth IRA.
Are Social Security benefits taxable?
What is the foreign earned income exclusion?
Cedric works for his employer in the United States, France, and Sweden. Is Cedric taxed on his foreign earned income?
Which of the following forms will you receive at the end of the year from your employer to reflect your taxable wages and tips?a. Form W-4b. Form W-2c. Form W-9d. Form 1040
Which of the following is a taxable fringe benefit provided by your employer?a. Gym membership not on employer’s premisesb. Season tickets to the Chicago Cubsc. Below market interest rate loand.
Which of the following benefits paid by your employer is a nontaxable fringe benefit?a. Health insurance premiums paid by employerb. Group term life insurance under $50,000c. Employee educational
Which of the following needs to be included in income by an employee?a. Tip incomeb. Employee discount of 20%c. Health insurance premiums paid by employerd. Soft drinks and coffee provided by the
Which of the following is an example of a completely non-taxable fringe benefit for Lori, an employee of WORK, Inc.? WORK owns a division that operates an airline and another division that owns
Vet, Inc. provides an award to its employees who have achieved consecutive years of service of 5, 10, 15, 20, and 25 years through a qualified plan. All awards are given at the company picnic in
Which date does the employee recognize income for an incentive stock option?a. The date the stock option is grantedb. The date the stock option vestsc. The date the stock is exercisedd. The date the
The reimbursement of employee business expenses is not taxable to the employee if the employer has a:a. Plan that requires the employee to substantiate the expenses but does not require the return of
A taxpayer has until which date to make an IRA contribu-tion for the taxable year 2023?a. December 31, 2023b. March 15, 2024c. April 15, 2024d. October 15, 2024
Samuel contributed $$10,000$ a year to his retirement plan from his before-tax earnings (that is, the contribution was not included in his taxable wages). His employer contributed $$5,000$ a year
Which of the following is an exception for the 10% penalty on a premature distribution from a qualified plan?a. Taxpayer is 59½ years oldb. Taxpayer died during the yearc. Taxpayer is permanently
What is the maximum percentage of Social Security benefits received that can be taxed for federal income tax purposes?a. 0%b. 50%c. 85%d. 100%
Ethyl is 75 years old and collects $$17,000$ in Social Security benefits and $$10,000$ from her pension. How much Social Security benefit must Ethyl include in her taxable
Which form is used to claim the foreign earned income exclusion?a. Form 1040b. Form 2553c. Form 2555d. Form 1040F
Emelda mows neighbors’ lawns for $$3,200$ in the summer, shovels neighbors’ snow for $$2,300$ in the winter, and babysits the neighborhood kids for $$4,800$ year-round. At Christmas, she
Shaquille is a top executive at Go Karts International (GKI)and receives the following from GKI in the current year:Only the top five executives at GKI receive similar benefits, except the disability
Reva is employed by Clean Air, Inc. Clean Air grants Reva the option to purchase 1,000 shares of its stock when it is selling for $$135$ per share on March 10, Year 2.The exercise price is $$150$
Tyrone is a sales executive for a small company that does not have an accountable plan for reimbursing its employees for business expenses. Tyrone spends $$420$ on business expenses which he can
Bryn, age 35, has a traditional IRA with a fair market value of $$680,000$ and a basis of $$140,000.$ She has decided to convert her traditional IRA to a Roth IRA. What are the tax consequences?
Withdrawals from a traditional IRA may be subject to a penalty tax of 10%. Provide at least five exceptions to this rule.
Do taxpayers always have to pay tax on a Social Security distribution? Explain why or why not.
One of two tests need to be met for a qualifying individual to exclude foreign earned income. Describe the two tests.
Art enjoys going to the racetrack and betting on the horses.This year, he spent $$3,200$ placing bets and won $$5,000.$ How much income must Art report on his tax return?
Stacy won $$500,000$ from a scratch-off lottery ticket. The ticket cost $$10.$ How much is includible in Stacy’s income?
Chung was awarded the Nobel Peace Prize in the current year. Discuss whether this award is taxable to Chung.
Terry is an accomplished pianist and received a scholarship to attend Berklee College of Music in Boston. He received $$64,000$ to cover tuition and fees of $$45,000$ and room and board of
Distinguish an alimony payment from a child support payment for tax purposes. What requirements are needed for a payment to be considered alimony?
Shan and Bob are proceeding with a divorce and Shan will receive the family home, their mutual fund, Coca-Cola stock, their Honda Pilot, and a plot of land they purchased in 2014. Which of these
Tashi has a very generous aunt who gifts $$100,000$ in cash to her. Is the $$100,000$ gift taxable income to Tashi? Why or why not?
Tabitha received her grandmother’s home when her grand-mother died in October. Is the receipt of the home as an inheritance taxable to Tabitha? Why or why not?
Aki received a ham worth $25 from his employer at Christmastime.Is this taxable to Aki? Why or why not?
Define gain basis, loss basis, and depreciable basis when a person receives an asset as a gift.
Which dates are typically used to value an asset when an asset is received through inheritance?

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