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Discharge of Debt. During bankruptcy, USA Corporation debt
was reduced from $780,000 to $400,000. USA Corporation’s assets are valued at
$500,000. USA’s NOL carryover was $400,000.
a. ls USA Corporation required to report any income from the
discharge of its debts?
b. Which tax attributes are reduced and by how much? Assume
USA does not make any special elections when reducing its attributes.

Discharge of Debt . Old Corporation has suffered losses for
several years, and its debts total $500,000; Old’s assets are valued at only
$380,000. Old’s creditors agree to reduceOld ‘s debts by one -half in order to
permit the corporation to continue to operate. Old’s NOL carryover is $150,000.
a. What impact does the reduction in debt have on Old’s NOL?
b. ls Old required to report any income?

Cafeteria Plan. Jangyoun is a married taxpayer with a
dependent 4-year-old daughter. His employer offers a cafeteria plan under which
he can choose to receive cash or, alternatively, choose from certain fringe
benefits. These benefits include health insurance that costs $9,000 and child
care that costs $2,600. Assume Jangyoun is in the 32 % tax bracket.
a. How much income tax will Jangyoun save if he chooses to
participate in the employer’s health insurance plan? Assume that he does not
have sufficient medical expenses to itemize his deductions.
b. Would you recommend that Jangyoun participate in the
employer’s health insurance plan if his wife’s employer already provides
comparab le health insurance coverage for the family?
c. Would you recommend that Jangyoun participate in the
employer-provided child care option if he has the alternative option of
claiming a child care credit of $480?

Exclusion of Gain from Small Busin ess Stock. In October
2010, Jose acquired 100% of Acorn Corporation common stock by transferring
property with an adjusted basis of $1,000,000 and fair market value of
$4,000,000. Acorn is a qualified small business corporation. On April 1, 2019,
Jose sells all of the Acorn Corporation common stock for $16,000,000.
a. What is the amount of gain that may be excluded from Jose
‘s gross income?
b. What would your answer be if the fair market value of the
Acorn stock were only $800,000 upon its issue?
c. What would your answer be if the stock were sold after
two years?
d. Can Jose avoid recognizing gain by purchasing replacement
stock?

Pat was divorced from her husband in 2012. During the
current year she received alimony of $18,000 and child support of $4,000 for
her 11-year-o ld son, who lives with her. Her former husband had asked her to
sign an agreement giving him the dependency exemption for the child but she
declined to do so. After the divorce she accepted a position as a teacher in
the loca l school district. During the current year she received a salary of
$32,000 . The school district paid her medical insurance premiums of $6,900 and
provided her with group term life insurance coverage of $40,000 . The premiums
attributable to her coverage equa led $160 . During her marriage, Pat’s parents
loaned her $8,000 to help with the down payment on her home. Her parents told
her this year that they understand her financial problems and that they were
cancelling the balance on the loan, which was $5,000. They did so because they
wanted to help their only daughter. Pat received dividends from National Motor
Company of $4,600 and interest on State of California bonds of $2,850. Pat had
itemized deductions of $9,600. Compute her taxable income for 2019 .

Sally owns a small C corporation that has provided health
insurance coverage for Sally and the company ‘s three other emp loyees. The
insurance coverage for Sally and the three employees is individual coverage,
not family coverage. Sally’s own family coverage is through a separate private
policy. She pays the premiums out of after-tax dollars. Sally’s salary is
$40,000 and the salary for the other three emp loyees averages $30,000. The
premiums on the health insurance policy average $5,000 per employee per year.
The provider recently informed Sally that the premiums will increase to $8,000
per employee. The spouses of her two married employees have coverage through
their employers. The third employee has announced that he will marry soon and
would very much like to have family health insurance coverage . The insurance
provider says that family coverage will approximately double the premiums.
Sally is finding the cost of providing medical insurance coverage particularly
burdensome for her small business. What planning suggestions can you offer?

Maria was planning to paint the interior of her apartment
over a three-day weekend . Her employer asked her to work all three days and
will pay her $600 overtime. She called a professiona l painter who offered to
do the job for $500. He is willing to use the paint she has already purchased.
Maria is in the 32 % tax bracket. Will she be better off financia lly to work
the overtime and pay the painter or to turn down the overtime and do the work
herself? What other factors should she consider?

Ellen is a single taxpayer who is considering two job
offers. Ellen considers both accounting firms to be equally desirable in terms
of the opportunities for long-term career growth . But the companies have
significantly different compensation and benefits packages. She has come to you
for a recommendation. Below is a summary of the benefits packages offered by
each firm. In addition to salary, Mahindra and Associates (a well-estab lished
public accounting firm with several offices and high-profile clients) also
offers several additional fringe benefits to its emp loyees. In particular,
Ellen believes that the high-quality health insurance coverage is an attractive
benefit. In addition, she believes that she will also take advantage of the
educationa l assistance that the firm provides, as she hopes to pursue an
additional gradu – ate degree. Below are the specifics of the compensation and
benefits:

Short Tax Fomt. A. J. Paige, Social Security number
111-22-3333, is the vice president of marketing (Australia) for Internationa l
Industries, Inc. (Ill). Ill is headquartered at 123 Main Street, Los Angeles,
California 92601. A. J., who is single, accepted the position and became a
resident of Australia on July 8 of last year. Her busines3s address is 242
Main, Wesrview, Australia. Westview is not designated as a high housing cost
city. A. J.’s visa permits her to stay in Australia indefinitely. Her only
trips to the United States in the current year were for vacations (August 2 to
16 and December 21 to 28). A. J.’s contract specifies that her appointment is
to last indefinitely, but states that Ill is to pay her $4,000 per year to
cover the cost of two vacation trips to the United States. Her salary is
$140,000, out of which she pays rent on an apartment of $34,000 per year. A. J.
has no family or residence in the United States. She paid an income tax in
Australia of $23,500. Complete a Form 2555 for 2018.