Samantha and her son,Brent,are cash basis taxpayers.Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000.On the date of the gift,March 31,2011,the accrued interest on the bond was $100.On December 31,2011,Brent collected $400 interest on the bond.Brent must include in gross income the $300 interest earned after the date of the gift.

Question

Quizplus · Accepted Answer

As cash basis taxpayers, Samantha and Brent would only recognize income when it is received. In this case, Brent received $400 interest on the bond on December 31, 2011. However, since the gift was made on March 31, 2011, any interest accrued before that date would belong to Samantha, and any interest accrued after that date would belong to Brent. Since $100 of interest was accrued before the gift, Brent would only include the $300 interest earned after the date of the gift in his gross income.

Samantha and Her Son,Brent,are Cash Basis Taxpayers