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Insurance Policy Dividends. Hank carries a $100,000
insurance policy on his life. Premiums paid over the years total $8,000. Dividends
on the policy have totaled $6,000. Hank has left the dividends on the policy
with the insurance company. During the current year, the insurance company
credited $600 of interest on the accumulated dividends to Hank’s account.
a. How much income is Hank obligated to report in connection
with the policy?
b. Would it make any difference if the accumulated dividends
equaled $9,000 instead of $6,000?

Prizes and Awards. For each of the following, indicate
whether the amount is taxable:
a. Peggy won $4,000 in the state lottery.
b. Jane won a $500 prize for her entry in a poetry contest.
c. Linda was awarded $2,000 when she was selected as
“Teacher of the Year” by the local school district.

Research Grant. Otto is a biology professor at State
University. The university gave Otto a sabbatical leave to study the surface of
the flatworm. During the year he received a salary of $50,000, which is less
than his regular salary of $56,000. Otto also received a grant to cover
expenses associated with the study. The grant was $2,000, as were his related
expenses. Otto also incurred memberships and ocher employment related expenses
totaling $1,000. How much must Otto include in gross income?

Employee Benefits. Ursula is employed by USA Corporation.
USA Corporation provides medical and health, disability, and group term life
insurance coverage for its employees. Premiums attributable ro Ursula were as
follows:
During the year, Ursula suffered a heart attack and
subsequently died. Before her death, Ursula collected $14,000 as a reimbursement
for medical expenses and $5,000 of disability income. Upon her death, Ursula’s
husband collected the $40,000 face value of the life insurance policy.
a. What amount can USA Corporation deduct for premiums
attributable ro Ursula?
b. How much must Ursula include in income relative to the
premiums paid?
c. How much must Ursula include in income relative to the
insurance benefits?
d. How much must Ursula’s widower include in income?

Croup Term Life Insurance. Data Corporation has four employees
and provides group term life insurance coverage for all four employees.
Coverage is nondiscriminatory and is as follows:
a. How much may Data Corporation deduct for group term life
insurance premiums? b. How much income must be reported by each employee?

Life Insurance Proceeds. Joe is the beneficiary of a life
insurance policy taken out by his father several years ago. Joe’s father dies,
and Joe has the option of receiving the $100,000 face value of the policy in
cash or receiving annual payments of $1,000 per month for the rest of his life.
Joe is now 65. Joe’s father paid $32,000 in premiums over the years.
a. How much must Joe include in gross income this year if he
accepts the $100,000 face amount?
b. Assume Joe elects to receive the annual payments. What is
his life expectancy?
c. What is his annual exclusion?
d. How much must he report as income each year?