1.. Clyde, a bachelor, earned a gross salary of $600,000 last year. After deductible expenses, his taxable income was $500,000 last year; this put him in the imaginary 40% Federal Income Tax bracket, in the sense that his last dollar of additional income was taxable at a rate of 40%. His Federal Income Tax was $200,000. If during the last year Clydes employer had also paid Clydes Federal Income Tax liability of $200,000:

a. What would have been Clydes gross income for the year?

b. How much Federal Income Tax would Clyde be liable for as a result of the employers paying the $200,000 tax?

2. Clyde has been having trouble paying off his bills. He owes the First Federal Bank $100,000, but the bank said it would settle for $80,000 if Clyde would just go away and never use the banks services again. He agreed.

a. How much income, if any, must Clyde report on this transaction?

b. Is your answer consistent with the Haig-Simons definition of income?

3. Clyde borrowed $40,000 from the Friendly Bank to pay his Visa bill. To do so, he signed a promissory note in favor of the bank. Clyde does not plan to repay the bank. How much income does Clyde have as a result of getting the loan proceeds?

4. Clyde learned that the Friendly Bank sold his $40,000 debt to The Bank of Bahrain. Clyde got wind of the deal and bought the note for $38,000 from The Bank of Bahrain. He still owed $40,000 on the note. How much income, if any, does he have when he buys back the note?

NOTE: to consider Zarin and Daehler cases

NOTE: to consider Discharge of Debt and Discounts