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,September 30,2010,the accrued interest on the bond was $150.On December 31,2010,Brent collected $300 interest on the bond.Samantha is taxed on the $150 accrued interest,and Brent must include in gross income the $150 interest earned after the date of the gift.

Question

Quizplus · Accepted Answer

Samantha is responsible for paying taxes on the accrued interest that accrued before the date of the gift. Brent, as the recipient of the gift, must include in his gross income the interest earned on the bond after the date of the gift, which in this case is $150 that was collected on December 31, 2010. This is because Brent is the legal owner of the bond and is responsible for paying taxes on the income earned on it. Therefore, both Samantha and Brent are responsible for paying taxes on the income generated by the bond during the relevant tax year.

Samantha and Her Son,Brent,are Cash Basis Taxpayers