1.As part of their divorce agreement, David must pay Michelle $4,000 per month. In five years, when their daughter attains age 18, the payments are reduced to $2,800 per month. How much of each monthly payment is deductible by David?

2.James and Ryann are good friends. They decide to open a sports equipment store together because of their love of the outdoors. They each own 50% in SportsCrazy, an S-Corp. Ryann manages the business full-time. James has a thriving tax practice and therefore does not participate in the operation of the business. Which of the following is TRUE?

A.Only the income distributed to Ryann is considered passive income.

B.Only the income distributed to James is considered passive income.

C.The income distributed to both Ryann and James is considered passive income.

D.The income distributed to both Ryann and James is considered active income.

3.Paul, David, Kristina, and Rachel are partners in MovieMakers, LLC. They all participate in the business to some extent and there are no other employees. Given the following activities, list the name(s) of all material participant(s).

Paul has a job outside of the business but does provide about 125 hours a year to help market the business.

David devotes all of his time to the business and generally devotes 60 hours per week to the business.

Kristina has materially participated in the business for the last 7 years; however, she only dedicated about 50 hours this year because she had a baby in Janyary.

Rachel devotes very little time to the business and only helps on an as-needed basis. She rarely helps more than 2 or 3 hours per month.

4.Kali is a 20 percent owner in CheerSquad, LLC, a local gym for middle school and high school cheerleaders. The gym provides private coaches to help young cheerleaders learn stunts and improve their overall cheer performance. Kali does not materially participate. Kali contributed $200,000 initially. During the prior years she has been allocated $200,000 in income and $300,000 in losses. After a freak accident during the current year in which one of the cheerleaders was critically injured doing a stunt, the business lost many customers. The business allocated a $150,000 loss to Kali for the current year. Kali has no other passive income or losses. What is Kali's suspended loss due to at-risk rules?