FEDERAL INCOME TAXATION OF INDIVIDUALS HANDOUT PROBLEM 3 Name Section Problem (10 points). Attached is a list of various taxpayer situations relating to reporting of income for Federal income tax purposes. REQUIRED: Using the attached answer sheet, for each of the situations provided, 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. \begin{tabular}{|c|c|} \hline & VARIOUSTAXPAYERSITUATIONSRELATINGTOAMOUNTOFINCOMETOBEREPORTEDBYTAXPAYERFORCURRENTTAXYEAR \\ \hline (1) & Malagiveshulalessonsatalocalbar.Duringthecurrentyear,shereceives$9,000insalaryand$8,000intips.Inaddition,sheengagesinillegalbehavior,forwhichshereceives$10,000.HowmuchincomemustMalareportfortheyear? \\ \hline (2) & OnJanuary1.Fernandoowns8%bondswitha$10,000facevalue.ThebondspayinterestannuallyonDecember31.OnSeptember30.FernandomakesabonafidegiftofthebondstoLinda.Howmuchincome,ifany,mustFernandoreportonthesebondsfortheyear? \\ \hline (3) & Parisownsaqualifiedannuitythatcost$52,000.Underthecontract,whenshereachesage65,shewillreceive$500permonthuntilshedies.Paristurns65onJune1,2021andreceivesherfirstpaymentonJune3,2021.Atthetimeshebeginstoreceivepayments,herremaininglifeexpectancybasedonIRStablesis260months.HowmuchgrossincomewillParisreportfromtheannuitypaymentsin2021? \\ \hline (4) & For$400,Larrypurchasesanoldcarthatisbadlyinneedofrepair.Heworksonthecarfor3monthsandspends$600onpartstorestoreit.LarryssonJeremiahneeds$2,500topayhiscollegetuition.LarrygivesthecartoJeremiah,whosellsitfor$2,500andusesthemoneytopayhistuition.HowmuchincomeorlosswouldLarryreportfortaxpurposesinthissituation? \\ \hline (5) & PettyCorporationownsagourmetrestaurant.Therestaurantneedstoremodelitskitchenbutisshortofcash.DennisownsTerrysRestaurantSupplywhichprovidessuppliestorestaurants.ThemanagerofPettymakesadealwithDennistohaveTerrysdothekitchenremodeling,inexchangeforwhichPettywillcaterTerryscompanypicnic.TerrysdoestheremodelingandPettycatersthepicnic.ItcostsPetty$800tocaterthepicnic,ajobforwhichitwouldhavecharged$1,500.HowmuchincomeshouldbereportedbyPettyforthisarrangement? \\ \hline (6) & Johnisunemployed.Duringthecurrentyearhereceives$4,000inunemploymentbenefits.Becausetheunemploymenthereceivesisnotenoughtoliveon,Johnsellsdrugstosupporthimself.Histotalrevenuefortheyearis$120,000.Thecostofthedrugsis$60,000. \\ \hline (7) & Elroyisretired.Duringthecurrentyear,hereceives$10,000inSocialSecuritybenefits.Healsoreceives$6,000incashdividendsonstocksthatheownedand$8,000ininterestonqualifiedstateandlocalgovernmentbonds.AssumingthatElroyissingle,whatishisgrossincome? \\ \hline (8) & HermanandRosearearetiredcouplewhoreceive$10,000inSocialSecuritybenefitsduringthecurrentyear.Theyalsoreceive$3,000ininterestontheirsavingsaccountandtaxablepensionpaymentsof$28,000.Whatamountofgrossincomeshouldtheyreportfortheyear? \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|c|}{ANSWERSTOVARIOUSTAXPAYERSITUATIONSRELATINGTOAMOUNTOFGROSSINCOMETOBEREPORTEDBYTAXPAYER(CONTINUED)FORCURENTTAXYEAR} \\ \hline Item & AmountofIncomeToBeReported & Explanation \\ \hline(5) & & \\ \hline (6) & & \\ \hline(7) & & \\ & & \\ \hline \end{tabular}