1. As a general rule:
a. The assignee of income from property must pay the tax on the income.
b. Income from property is taxed to the person who collects the income.
c. Income from services is always taxed to the person who receives the income.
d. Income from property is taxed to the person who owns the property.
e. None of the above.
2. During 2011, Beatrice sold the following assets: business equipment for a $2,000 ordinary loss, stock investment for a $6,000 capital loss, and her principal residence for a $5,000 loss. Presuming adequate income, how much of these losses may Beatrice claim on her 2011 return?
a. $2,000.
b. $5,000.
c. $10,000.
d. $13,000.
e. None of the above.
3. Matt bought land from Jordan for $100,000. Matt paid $20,000 cash and gave Jordan an 8% note for $80,000. The note was to be paid over a five-year period. When the balance on the note was $55,000, Jordan began having financial difficulties. To accelerate her cash inflows, Jordan agreed to accept $40,000 cash from Matt in final payment of the note principal.
a. Matt must recognize $15,000 income and must reduce his cost basis in the land to $85,000.
b. Matt is not required to recognize income, since he made a gift to Jordan when he paid the debt before it was due.
c. Matt is not required to recognize income, but must reduce his cost basis in the land to $85,000.
d. Jordan must recognize income from discharge of the debt.
e. None of the above.
4. Isaac purchased a tract of land for $150,000 in 2004 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $300,000. Highway engineers surveyed the property and indicated that he would probably get $250,000. The highway project was abandoned in 2011 and the value of the land fell to $100,000 (land was not sold though). What is the amount of loss Isaac can claim in 2011?
a. $0.
b. $50,000.
c. $100,000.
d. $150,000.
e. None of the above.
5. Iris gives her son stock with a basis in her hands of $300,000 and a fair market value of $250,000. No gift tax is paid. Son subsequently sells the stock for $270,000. What is his recognized gain or loss?
a. $0.
b. ($30,000).
c. ($50,000).
d. $20,000.
e. None of the above.
Question 6, Parts (a) through (e) (Fill in the blank)
Please type your answers to questions 7-11 on the solutions page at the end of this document.
6. Poor borrowed $10,000 from Rich several years ago. What are Poor's tax consequences if Poor pays off the so-far-undiminished debt with:
(a) A settlement of $7,000 of cash? Poor's gross income: $____________.
(b) A painting with a basis and fair market value of $8,000? Poor's gross income: $____________.
(c) Services, in the form of remodeling Rich's office, which are worth $10,000? Poor's gross income: $____________.
(d) Services that are worth $8,000? Poor's gross income: $____________.
(e) Same as (a), above, except that Poor's Employer makes the $7,000 payment to Rich, renouncing any claim to repayment by Poor. Poor's gross income: $____________.
Instructions: You must cite all relevant legal authority (i.e., Code, Regs, Rev. Rulings, or Court Cases; NOT a textbook or any other sources) and keep your answers short - no more than 100 words per question part.
7. Five years ago, on an "antiquing" trip to a rural part of the country, Jill bought a dresser for $1,000. At the beginning of this year, Jill was taking the dresser to an appraiser, and in the process of moving the dresser she noticed that it had a secret compartment in one of the drawers; this secret compartment contained a gold coin. The appraiser valued the dresser at $1,500 and the gold coin at $500.
a. How do these events affect Jill's taxable income at the end of the year?
Note from Ronnie: #7a might be related to Eisner vs. Macomber or Helvering vs. Brown (but maybe not)
8. In an attempt to take advantage of a real estate investment opportunity, Mark "Moneybags" Coban purchased a piece of land for $100,000. Mark's investment strategy did not work out as he had hoped, and a year later the land had a fair market value of $90,000. At that time, Mark gave the land as a gift to his adult daughter, Carmen. What are the tax implications to Carmen in the following scenarios:
a. In the following year, Carmen sells the land for $110,000?
b. In the following year, Carmen sells the land for $85,000?
c. In the following year, Carmen sells the land for $95,000?
Note from Ronnie: #8 might be related to Taft vs. Bowers
9. Debra is thinking about opening up her own law firm, but she will need some capital to get the practice off the ground. She goes to a bank and borrows $100,000. The loan agreement's terms include a 30 year maturity (she will have to pay the loan back in 30 years), and an annual interest rate of 7%. Assume that 2 years later the interest rate environment changes and rates increase to 10%. The bank now decides it would rather have $75,000 to lend out at 10% than a $100,000 loan on which it only collects 7%. So, the bank notifies Debra that if she pays back $75,000 immediately, they will forgive her $100,000 loan.
a. What are the tax implications to Debra if she accepts the bank's offer?
10. Executive has a salaried position with Hi Rolling Corporation under which she earns $300,000 each calendar year.
a. Who is taxed if Executive, at the beginning of the year, directs that $70,000 of her salary be paid to her aged parents?
11. Taxpayer lives with her husband and children in City and works there. If her employer sends her to Metro (where she maintains an apartment) on business for three days and two nights each week and if Taxpayer is not reimbursed for her expenses.
a. According to Rosenspan v. United States (438 F.2d 905 (2d Cir. 1971), for purposes of I.R.C Sec. 162, is her home in City or Metro? Why?
b. Can she deduct all her expenses for meals and lodging?