Assignment Part I:
Problem 1: What is the alternative maximum tax (AMT)?
Problem 2: What itemized deductions are allowable to individuals in computing AMT?
Problem 3: How is personal property placed in service after 1998 and deprecated under the 200 percent declining balance method for regular tax purposes treated as a tax- preference item under the AMT?
Problem 4:
a. What is the tax rate if an individual taxpayer is subject to the AMT?
b. What is the tax rate if a corporation is subject to the AMT?
Problem 5: Explain the adjusted current earnings (ACE) adjustment that affects the calculation of the corporate AMT.
Assignment Part II:
Problem 1: What is the general rule for income taxation of the life insurance death benefits received in each of the following ways?
a. in a lump sum
b. under' the interest option
c. under one of the installment options
Problem 2: Assume the same facts as question 2 except that Sue died on December 1 of last year. Explain how the annual payments to her surviving spouse will be taxed.
Problem 3: Jan purchases a $100,000 whole cite policy, 'Dividends are used to purchase paid-up additional insurance, Twenty years later, Jan surrenders the policy for $53,000 which includes the cash value of the paid-up additions. Her total annual premium has been $2,300 including $40 a year for waiver of premium and $20 a year for accidental death benefits, Compute her taxable gain.
Problem 4: Explain the income taxation of payments to a contingent beneficiary upon the death of the primary payee who was receiving guaranteed payments under a life income settlement option.
Problem 5: The Glimmer corporation is the owner of a policy on the life of Richards its president. The corporation pays premiums and is named as beneficiary, as these premiums deducible by the Glimmer corporation? Explain.
Problem 6: Explain the income tax consequences of transferring the life insurance policy of polices in each of the following situations.
a. Ralph takes; out a policy on his own life, He later assign, the policy to the Bull corporation for which he worked as an account executive. He receives the cash value of the policy as consideration.
b. Leonard is a partner in the L&M partnership. The partnership owns a policy on Leonard's life that it no longer needs. It sells the policy on Leonard's life that it no longer needs. It sells the policy to Leonard for its current value.
c. Sharon gives a policy on her life to her son, who later sells it to Sharon's friend Bonnie. Sharon's business provides a market for almost 100 percent of the products of Bonnie's company, and Bonnie rears a financial setback at Sharon's death.
d. Quint and Clint own 100 percent of the stock of the QC Corporation. The corporation currently owns a policy on each of their lives For personal reasons, Quint and Clint purchase the policies on their own lives from the corporation and enter into a buy-sell agreement on a cross-purchase basis.
Quint and Clint trade policies so that each shareholder holds a policy' on the other's life in order to fund the buy-sell agreement, What are the exceptions to the transfer-for-value rule'?
Problem 7:
a. Explain the concept of insurable interest.
b. What effect does a lack of insurable interest at the time a policy is issued have on the taxation of proceeds?
c. What effects does a lack of insurable interest at the time a policy matures have on the taxation of proceeds?
Problem 8: If a corporation's shareholders are not employees, how will the payment of premiums on a life insurance policy by the corporation be treated for income tax purpose if
a. the shareholders are beneficiaries?
b. the shareholders are both beneficiaries and owners of the policy?
Problem 9: What are the requirement that must exist for premium payments by one spouse or former spouse for life insurance owned by and benefiting the other spouse to be deductible as alimony by the payer -spouse and taxable to the payee-spouse? Explain
Problem 10: How is the taxable economic benefit under a basic spoil-dollar plan calculated?
Problem 11: Five years ago, the Husky Corporation bought a policy on the life of its president, Teddy. Husky does not, have insurance policies or annuities covering the lives of any other offices or stockholders. Husky borrows $50000 from the policy on teddy's life. Will Husky be permitted to deduct interest payments on this loan?
Assignment Part 3:
Problem 1: Explain how withdrawals and loans from insurance policies that classifies as modified endowment contracts are taxed.
Problem 2: What is the result when there is a "material change" to a life insurance policy?
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