$1.$ Fred specified in his will that his nephew John should serve as executor of Fred$$s estate. John received $$10,000$ for serving as executor. John inherited $$100,000$ of cash from his uncle as well. He also borrowed $$5,000$ when he bought a new car this year. Classify each of the amounts received by John using terminology covered in this chapter. Explain the rationale for each classification.

$2.$ Billy fell off a bar stool and hurt his back. As a result, he was unable to work for three months. He sued the bar owner and collected $$100,000$ for the physical injury and $$50,000$ for the loss of income. Billy also collected $$15,000$ from an income replacement insurance policy he purchased. Amber was away from work for three months following heart bypass surgery. Amber collected $$30,000$ under an income replacement insurance policy purchased by her employer. Are the amounts received by Billy and Amber treated the same under the tax law? Explain.

$3.$ Holly was injured while working in a factory and received $$12,000$ as workers$$ compensation while she was unable to work because of the injury. Jill, who was self$-$employed, was also injured and unable to work. Jill collected $$12,000$ on an insurance policy she had purchased to replace her loss of income while she was unable to work. How much are Holly and Jill each required to include in their gross income?

$4.$ Wilbur has been offered a job at a salary that would put him in the $24\%$ marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does not offer health insurance but has agreed to match the first offer on an after$-$tax and insurance basis. The cost of health insurance comparable to that provided by the other potential employer is $$9,000$ per year. How much more in salary must the second potential employer pay so that Wilbur$$s financial status will be the same under both offers?

$5.$ Leland pays premiums of $$5,000$ for an insurance policy in the face amount of $$25,000$ upon the life of Caleb and subsequently transfers the policy to Tyler for $$7,500.$ Over the years, Tyler pays subsequent premiums of $$1,500$ on the policy. Upon Caleb$$s death, Tyler receives the proceeds of $$25,000.$

$6.$ Decision Making

Planning

As a result of a cancer diagnosis in early $2023,$ Laura has begun chemotherapy treatments. A cancer specialist has stated that Laura has less than one year to live. She has incurred many medical bills and other general living expenses and is in need of cash. So she is considering selling stock that cost $$35,000$ and has a fair market value of $$50,000.$ This amount would be sufficient to pay her medical bills. However, she has read about a company $($the Vital Benefits Company$)$ that would purchase her life insurance policy for $$50,000.$ She has paid $$30,000$ in premiums on the policy.

A$.$ Considering only the tax effects, would selling the stock or selling the life insurance policy result in more beneficial tax treatment?

B$.$ Assume that Laura is a dependent child and that her mother owns the stock and the life insurance policy, which is on the mother$$s life. Which of the alternative means of raising the cash would result in more beneficial tax treatment?

$7.$ What is the taxpayer$$s gross income in each of the following situations?

a$.$ Darrin received a salary of $$50,000$ from his employer, Green Construction.

b$.$ In July, Green gave Darrin an all$-$expenses$-$paid trip to Las Vegas $($value of $$3,000)$ for exceeding his sales quota.

c$.$ Marta received $$10,000$ from her employer to help her pay medical expenses not covered by insurance.

d$.$ Blake received $$15,000$ from his deceased spouse$$s employer as compensation for a bonus earned prior to death.

e$.$ Clint collected $$50,000$ as the beneficiary of a group term life insurance policy when his wife died. The premiums on the policy were paid by his deceased wife$$s employer.