Leo's Salary		200,000
Grace's Partnership Income		37,500
Joint investment income
	Interest income	5,000
	Dividend income	10,000	Cannot transfer $6,000 to sister
	Net long-term capital gains	2,000	*
	Annuity Income	5,969
Leo's award		0
	TOTAL INCOME	260,469
Adjustments for AGI
	Alimony paid	19,200	((3,600 - 2,000)*12)
	ADJUSTED GROSS INCOME	241,269
*	Short-term
	Hayes Corporation		-2000
	Long-term
	Messing Enterprises	9,000
	Connick Ltd	-5,000
	Net Long-term Gain		4,000
	Net long-term gain		2000

Leo's Salary		200,000
Grace's Partnership Income		37,500
Joint investment income
	Interest income	5,000
	Dividend income	10,000	Cannot transfer $6,000 to sister
	Net long-term capital gains	2,000	*
	Annuity Income	5,969
Leo's award		0
	TOTAL INCOME	260,469
Adjustments for AGI
	Alimony paid	19,200	((3,600 - 2,000)*12)
	ADJUSTED GROSS INCOME	241,269
*	Short-term
	Hayes Corporation		-2000
	Long-term
	Messing Enterprises	9,000
	Connick Ltd	-5,000
	Net Long-term Gain		4,000
	Net long-term gain		2000

Leos employer, NY Presbyterian Hospital, provides the following benefits:

Life insurance equal to one times an employees salary or $50,000 whichever is higher.

Family health and accident insurance that costs the hospital $1500 per month.

Payment of Leos medical license annual renewal fee of $500.

A matching employer contribution of up to 6% into the hospitals qualified pension plan. Leo contributes 6% of his salary to the pension plan through salary deduction.

The hospital provides a free meal in the hospital cafeteria for all employees who work a shift in excess of eight hours. The value of the free meals that Leo received during the year was $1,200.

The hospital provides parking for the physicians at the hospitals parking garage. The fee for parking is $300 per month.

Sadly, during the year Graces grandmother passed away leaving Grace $500,000 in cash and her summer home in the Hamptons valued at $1.5 million. Grace was also the beneficiary of her grandmother s life insurance policy that had a $250,000 face value.

Grace invested the $500,000 inheritance in NY/NJ Port Authority municipal bonds. During the current year, she received $40,000 in interest from the bonds.

While coming out of surgery late one night at the hospital, Leo slipped on a puddle of water on the floor, fell down the stairs and was knocked unconscious. He was unable to work while he was recovering from his injuries that included a massive concussion and multiple lacerations requiring stitches. The hospitals workers compensation policy paid him $25,000. The hospital also paid him an additional $10,000 during his recovery to compensate him for lost income. His medical costs due to his injuries totaled $3,000 of which 80% were reimbursed by the hospitals health and accident policy.

Leos former classmate from Johns Hopkins, Jack, is a physician at Newark General. Jack has always been envious of Leos success and the two have been rivals since their medical school days. Jack leaks information to the NY Daily News that Leo has a drinking problem and implies that he may have been intoxicated that night and performed surgery while under the influence. Scandal ensues and Leo sues the NY Daily News for libel. He is awarded $500,000 in damages to his professional reputation.

Required:

1) Assess each situation and determine if it results in taxable income and how much. If you determine the income qualifies as an exclusion, then why?

2) Update Leo and Graces total income and AGI for any of the above.