Question 1

If a tax-exempt bond will yield approximately 0.65 (1 - 0.35) times the yield on a taxable bond of equal risk, who benefits from the tax exemption: the Federal government, the state and local governments who issue the bonds, or the investors?

Accepted Answer

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Question 2

Bob had a terminal illness and realized that he "can't take it with him." Therefore, he cashed in his insurance policy and received $120,000.He had paid $50,000 in premiums on the policy.He used the money to fulfill his lifelong ambitions of going to the Super Bowl, driving an expensive sports car, and vacationing in Bermuda.
Was Bob's behavior consistent with the Congressional intent in providing the tax exemption he was permitted to use?

Accepted Answer

The answer of Bob had a terminal illness and realized...

Question 3

Both Sally and Ed own property with a fair market value less than the amount of the outstanding mortgage on the property and also less than the original cost basis.Each of them was able to convince the mortgage holder to reduce the principal amount on the mortgage.Sally's mortgage is on her personal residence and Ed's mortgage is on rental property he owns.Both debts are recourse.
a.Each taxpayer's liabilities were reduced.Therefore, the net worth of each has increased as measured using the cost basis in the assets.Each taxpayer also
experienced a loss in the value of her or his assets.However, the losses were not realized (because each taxpayer still owns the property).Thus, each taxpayer had income from the reduction in debt but no recognized loss.Fortunately, the tax law in effect through 2017 allows the taxpayer whose property is a personal residence to exclude the income from debt discharge from gross income.The taxpayer who
a.Explain whether each of these individuals has realized income from the reduction in the debt.
b.Assume that under the current system of measuring income, each of these taxpayers realized
income from the reductions in the mortgages.Should either of these taxpayers be permitted
to exclude any of the debt discharge income?

Accepted Answer

The answer of Both Sally and Ed own property with...

Question 4

What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)

Accepted Answer

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Question 5

Carmen had worked for Sparrow Corporation for 30 years when she died of a heart attack at age 60.She was practically penniless at the time of her death, owed a $12,000 hospital bill, and had a disabled spouse.The company was very concerned about its public image, and rather than run the risk of embarrassment from one of its long-term employees dying and leaving her spouse with insufficient means, the board of directors agreed to pay Carmen's hospital bill and to give her spouse $6,000 per year for the rest of his life.Discuss both sides of the question of whether Carmen (or her estate) and her spouse realize any taxable income from these transactions.

Accepted Answer

The answer of Carmen had worked for Sparrow Corporation for...

Question 6

Gull Corporation was undergoing reorganization under the bankruptcy laws.Its shareholders, who had made loans of
$300,000 to the corporation, agreed to accept additional stock with a value of $200,000 instead of repayment on the debt.The Old Line Insurance Company, which had a $400,000 mortgage on the building, agreed to reduce the principal to $250,000.A trade creditor with a receivable of $150,000 from the company agreed to accept $70,000 in full payment for the debt incurred to purchase goods that were still on hand.Finally, the company transferred some equipment with an adjusted basis of $90,000 in satisfaction of a liability for $120,000.Compute the corporation's gross income and other adjustments necessary as a result of the above transactions.

Accepted Answer

The answer of Gull Corporation was undergoing reorganization under the...

Question 7

The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees.The CEO is concerned about retaining her talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.

Accepted Answer

The answer of The CEO of Cirtronics Inc., discovered that...

Question 8

Margaret is trying to decide whether to place funds in a qualified tuition program.Her son will be attending college in four years.She is in the 35% marginal tax bracket and she believes she can earn an 7% before tax return on alternative investments.Thus, $10,000 will accumulate to $11,948 (after-tax) in four years.Margaret expects tuition to increase at the rate of 5% each year to $12,155 in four years.Her son will be in the 12% marginal tax bracket in all relevant years.Given these assumptions, should Margaret participate in the qualified tuition program?

Accepted Answer

The answer of Margaret is trying to decide whether to...

Question 9

Ben was hospitalized for back problems.While he was away from the job, he collected his regular salary from an employer-sponsored income protection insurance policy.Ben's employer-sponsored hospitalization insurance policy also paid for 90% of his medical expenses.Ben also collected on an income protection policy that he had purchased.Which of these sources of income is/are taxable? Explain the basis for excluding any item or items.

Accepted Answer

The answer of Ben was hospitalized for back problems.While he...

Question 10

Employers can provide numerous benefits to their employees and the employees are permitted to exclude the value of these benefits from gross income.What are the effects of the exclusions on the following?
a.The benefit of an exclusion varies directly with the recipient's marginal tax rate.
Thus, individuals with the highest marginal tax rate enjoy the greatest benefit from
the exclusion and those taxpayers in the lowest marginal tax rate enjoy the least benefit.Also, the exclusions are generally available with the better-paying jobs.This also causes the tax system to be less progressive than were the exclusions
a.The progressiveness of the tax system.
b.The complexity of the tax system.

Accepted Answer

The answer of Employers can provide numerous benefits to their...

Question 11

The taxpayer was in the 35% marginal tax bracket in 2018 and deducted $15,000 in state income taxes as an itemized deduction that year.In 2019, he filed his 2018 state income tax return and received a $5,000 refund of state income taxes paid in 2018.His marginal tax rate in 2019 was 12%.What was the taxpayer's Federal tax benefit from the overpayment of his 2018 state income tax?

Accepted Answer

The answer of The taxpayer was in the 35% marginal...

Question 12

What Federal income tax benefits are provided for college students?

Accepted Answer

The answer of What Federal income tax benefits are provided...

Quiz 5: Gross Income: Exclusions

If a tax-exempt bond will yield approximately 0.65 (1 - 0.35) times the yield on a taxable bond of equal risk, who benefits from the tax exemption: the Federal government, the state and local governments who issue the bonds, or the investors?

What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)

The CEO of Cirtronics Inc., discovered that the company's competitor had adopted a cafeteria plan for its employees.The CEO is concerned about retaining her talented employees and would like you to provide a brief explanation as to why a cafeteria plan may be attractive to the company's employees.

What Federal income tax benefits are provided for college students?