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Question 1
Tim and Diane were divorced in the current year (Year 1). Under the divorce agreement, Diane is to receive $100,000 in the current year, $60,000 next year (Year 2) and nothing thereafter. The payments were to cease upon Dianes death or remarriage. How much, if any, should Tim have to claim as alimony recapture in Year 3?
Question 2
John, the majority shareholder in ABC, Inc., received an interest-free loan from the corporation. Which of the following is/are correct?
| | If the loan is classified as an employer-employee loan, the corporations taxable income will not be affected by the imputation of interest. |
| | If the loan is classified as a corporation-shareholder loan, the corporations taxable income will increase as a result of the imputation of interest. |
| | If John uses the funds to take a vacation, the imputation of interest will cause a net increase to his taxable income. |
Question 3
Assume the following payments meet the tax requirements for deductible alimony. Which of the following alimony payment streams will result in alimony recapture to the payor?
| | | Year 1 | Year 2 | Year 3 | | $100,000 | $120,000 | $150,000 | |
| | | Year 1 | Year 2 | Year 3 | | $0 | $10,000 | $50,000 | |
| | | Year 1 | Year 2 | Year 3 | | $50,000 | $40,000 | $30,000 | |
| | | Year 1 | Year 2 | Year 3 | | $60,000 | $45,000 | $25,000 | |
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Question 4
Nick and Kim are married and are trying to calculate their gross income for the current year. Which of the following items should they include in gross income? 1. Child support payments in the amount of $15,000 received from Kims ex-husband for the support of their minor child. 2. $1,200 in dividends received. 3. Unemployment benefits received in the amount of $800. 4. $3,000 that Kim earned selling homemade soaps.
Question 5
Ron and Bonnie were divorced. Their only marital property was a personal residence with a value of $300,000 and cost of $125,000. Under the terms of the divorce agreement, which did not include the word alimony, Bonnie would receive the house. She would pay Ron $20,000 each year for five years. If Ron died before the end of the five years, the payments were to be made to his estate. Bonnie and Ron lived apart when Ron received the payments.
| | Ron does not recognize any income from the above transaction. |
| | Ron must recognize a $87,500 [1/2 x ($300,000 - $125,000)] gain on the sale of his interest in the house. |
| | Bonnie can deduct $20,000 a year for alimony paid. |
| | Bonnie can deduct $25,000 as alimony paid. |
Question 6
Cinnamon, age 21 and a full time student for a degree at State University, is claimed as a dependent on her parents return. During the summer, she earned $5,600 from a part-time job. Her only other income consisted of $1,050 interest on a savings account. What is Cinnamons taxable income for the current year?
Question 7
Cate was recently diagnosed with lung cancer and has been certified by her doctor, on June 1st of the current year, as terminally ill. On July 1st of the current year, Cate sold her life insurance policy with a face value of $500,000 to a viatical settlement provider for $340,000. Assuming she paid $50,000 in premiums, how much of the $340,000 proceeds must she include in her gross income for the current year?
Question 8
Samantha is a licensed social worker who is enrolled in law school on a part-time basis. Last year, she spent $75,000 on tuition. Is any portion of her law school expense deductible?
| | Samantha can deduct $4,000 of the law school expenses regardless of whether she itemizes. |
| | Samantha can deduct $2,000 of the law school expenses if she uses itemized deductions. |
| | Samantha can deduct $4,000 of the law school expenses if she uses itemized deductions. |
Question 9
On January 1, Donald loaned his daughter, Ivanka, $90,000 to purchase a new personal residence. There were no other loans outstanding between Donald and Ivanka. Ivankas only income was $30,000 salary and $4,000 interest income. Donald had investment income of $200,000. Donald did not charge Ivanka interest. The relevant federal rate was 9%. For the current year:
| | Ivanka must recognize $8,100 (0.09 x $90,000) imputed interest income on the loan. |
| | Donald must recognize imputed interest income of $4,000. |
| | Donald must recognize imputed interest income of $8,100. |
| | Ivanka is allowed a deduction for imputed interest of $8,100. |
Question 10
With regard to the alimony deduction related to a post-1984 divorce, which one of the following statements is correct?
| | Alimony is deductible by the payor spouse, and includible by the payee spouse, to the extent that payment is contingent on the status of the divorced couple's children. |
| | The divorced couple may be members of the same household at the time alimony is paid, provided that the persons do not live as husband and wife. |
| | Alimony payments must terminate on the death of the payee spouse. |
| | Alimony may be paid either in cash or in property. |
