Attached is a list of various taxpayer situations relating to reporting of income for Federal income tax purposes. REQUIRED: For each of the attached situations, indicate the amount of income the indicated taxpayer must report with an appropriate explanation and calculation to show how you determined the amount to be reported. VARIOUS TAXPAYER SITUATIONS RELATING TO AMOUNT OF INCOME TO BE REPORTED BY TAXPAYER FOR CURRENT TAX YEAR (1) Arturo, a manager for Perfect Pizza Pies (PPP), dies in an accident on July 12. PPP pays his wife, Philemena, S600 in salary that had accrued before Arturo died. Arturo was covered by a $90,000 group term life insurance policy, which is also paid to Philemena. In addition, the board of directors of PPP authorizes payment of $6,000 to Philemena and S4,000 to their child in recognition of Arturo's years of loyal service and contributions to the success of the company. How much income must Philemena report from these payments on her current year tax return? (2) Hiram works for Private Corporation for 24 years. Private has a qualified, noncontributory pension plan that pays employees that have worked for the company for more than five years of service, $100 per month for each year of service to the company when they reach age 65. Hiram turns 65 in February of this year and retires in June. Payments from Private's plan begin in July. In preparing for his retirement, Hiram purchased an annuity 15 years ago for $26,000. The annuity pays $775 per month for life beginning at age 65. Hiram begins receiving the annuity payments in March. How much gross income does Hiram have to report from the receipt of the payments from Private and his annuity in the current year? (3) George is an employee of Competent Tax Preparation, Inc. All employees of Competent Tax are eligible for a 50 percent discount on the preparation of their income tax returns. George's tax return preparation would normally have cost $300, but he paid only $150 because of the discount. How much gross income must George report as a result of this discount? (4) Granada Company runs a nursery near its offices. Employees are allowed to leave their children at the nursery free of charge during working hours. Nonemployees may also use the facility at a cost of $300 per month per child. Rodolfo is an employee of Granada with two children who stay at Granada's facility while Rodolfo is at work. How much income must Rodolfo report for this fringe benefit? (5) Molly is a lawyer for a large law fim. The law firm pays Molly's annual license renewal fee of $400 and her $300 annual dues to the American Lawyers' Association. Molly also takes advantage of the law firm's educational assistance plan and receives payment for the $6,000 cost of taking two night school courses in consumer law. How much income must Molly report as a result of these benefits provided by the law firm? (6) Theresa is an employee of Hubbard Corporation with an annual salary of $60,000. Hubbard has a cafeteria plan that lets all employees select a total of 10 percent of their annual salary from a menu of nontaxable fringe benefits. Theresa selects medical insurance that costs the company $4,200, and $50,000 worth of group term life insurance that costs the company $1,000. She takes the remainder in cash. What is the effect of Hubbard's cafeteria plan on Theresa's gross income? VARIOUS TAXPAYER SITUATIONS RELATING TO AMOUNT OF INCOME TO BE REPORTED BY TAXPAYER (CONTINUED) FOR CURRENT TAX YEAR (7) In October, Elbert sells City of Norfolk bonds with a face value of $6,000 for $5,800. Elbert had purchased the bonds two years ago for $5,200, and had received $450 in interest on the bonds before he sold them. How much income must Elbert report related to these bonds? (8) Annie owns 1,000 shares of Turtle Company common stock for which she had paid $8,000 several years ago. Turtle declares and distributes a 20 percent stock dividend during the current year. On December 31, Turtle common stock is selling for $10 per share. How much income must Annie report in this situation
