Alicia Florric (Alicia) worked for seven years as an assistant for Will Gardner (Will), an art dealer who operated his business as a sole proprietorship. Will paid Alicia a modest salary of $40,000 and a year-end bonus based on performance. Because Alicia had helped Will complete a major sale in 2011, on December 31, 2011, Will paid her a cash bonus of $5,000 and gave her a painting by Kalinda (a well-known artist) that ordinarily sells for $10,000. As with all of Will's inventory, though, Will had acquired the painting for 30% less than the price at which he ordinarily sells it to customers. Alicia was very happy working for Will.

In early January, 2012, Alicia had more reason to be happy when she had an unexpected reconciliation with her wealthy father, Peter Florrick (Peter).

(Their relationship had been rocky for many years, but neither of them could remember why.) To express his joy at their reconciliation, on January 15, 2012,

Peter gave to Alicia 900 shares of stock in Kresteva Corporation, a publicly traded company. The aggregate fair market value of the stock on the date of the transfer was $4,500. Peter had bought the stock ten years ago for $70 per share.

Alicia's happiness was short-lived, however. On February 1, 2012, she was summarily dismissed from her employment. Alicia brought and won a successful suit against Will. The court entered judgment against Will and awarded Alicia $20,000 for sexual harassment and $35,000 in punitive damages.

After the lawsuit, Alicia wanted to rid herself of any reminders of her employment with Will. First Alicia sold the Kalinda painting for $15,000.

Then Alicia gratuitously assigned to her father the right to collect on the judgment against Will.

To help her recover from the stress of the lawsuit, Alicia decided to treat herself to 10 days at a luxurious and relaxing spa. To finance the spa trip, Alicia sold all of the Kresteva stock for its then fair market value of $5,400. Alicia ended the year 2012 in a fairly good place. (Explanations needed).

• What is Alicia's gross income in 2011? - Why it is not an employee achievement award because for an employee achievement award, there has to be a ceremony/dinner for the employee. So, the painting does count in her income in its entirety.
• • $45,000
   
  • $55,000
   
  • $52,000
   
  • $50,000
   
  • $40,000
 
• What is Alicia's basis in the Kalinda painting? - Whatever she includes in her income is her basis.
• • $10,000
   
  • $7,000
   
  • $5,000
   
  • $0
   
  • $15,000
 
• What are some of the tax consequences of the transfer of stock to Alicia from her father, Peter? - It is a gift here, so any answer that says "include income is wrong."
  • Alicia must include the fair market value of the stock in her income. Peter realizes a loss on the transfer.
  • Alicia can exclude the value of the stock from her income. Peter realizes a loss on the transfer.
    • There is a loss. The value $63,000 - $4,500. That is the loss = $58,500 for Peter.
  • Alicia must include the adjusted basis Peter had in the stock in her income. Peter realizes a loss.
  • Alicia can exclude the value of the stock from her income.
  • Alicia must include the adjusted basis Peter had in the stock in her income.
• What are the tax consequences to Alicia on the sale of the Kalinda painting?
• • Alicia has no gain or loss.
   
  • Alicia has a gain of $15,000.
   
  • Alicia has a gain of $10,000.
   
  • Alicia has a gain of $8,000.
   
  • Alicia has a gain of $5,000.
 
• What are the tax consequences to Alicia on the sale of the Kresteva stock? - Gain basis and Loss Basis, so that there aren't built-in loss given, The loss basis is going to the fair market value. The gain basis is going to be $63,000. The loss basis is the fair market value at the time of the gift. So, it is $4,500 and $63,000. When she sells it, you use one of those numbers to determine. The rule is if you have two different basis, any number between FMV at the time of the gift and when you sell it. Anything between those two numbers is not going to create a gain or a loss. If you create a negative number, you do not have a gain. If you create a negative number, you do not have a loss.
• • Alicia recognizes a $57,600 loss.
   
  • Alicia recognizes a $900 gain.
   
  • Alicia recognizes a $5,4000 gain.
   
  • Alicia recognizes no gain and no loss.
   
  • None of the above.
 
• What is Alicia's gross income for 2012? - Sale of painting, sale of stock, and a lawsuit. It has to be a physical injury for it to be excluded from income.
  • $75,400.
  • $55,400.
  • $60,000.
  • $60,900.
  • $2,400.