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Alice Johnson, Social Security number 222-23 -3334, is a
single taxpayer and is employed as a secretary by State University of Florida.
She has the following items pertaining to her income tax return for the current
year: • Received a $30,000 salary from her employer, who withheld $4,200
federal income tax. • Received a gift of 1,000 shares of Ace Corpo ration stock
with a $100,000 FMV from her mother. She also received $4,000 of cash dividends
from the Ace Corpo ration. The dividends are qualified dividends. • Received
$1,000 of interest income on bonds issued by the City of Tampa.
• Received a regular stock dividend (nontaxable under Sec.
305) of 50 shares of Ace Corpo ration stock with a $5,000 FMV.
• Alice’s employer paid $2,000 of medical and health insurance
premiums on her behalf.
• Received $13,000 alimony from her ex-husband. They
divorced in 2014.
• State University provided $60,000 of group term life
insurance. Alice is 42 years old and is not a key employee. The tab le in the
text is app licable.
• Received a $1,000 cash award from her employer for being
designated the Secretary of the Year.
• Total itemized deductions are $10,000. Complete Form 1040
and accompanying schedules for Alice Johnson ‘s 2018 return.

Able Corporation is a closely held company engaged in the
manufacture and retail sales of automotive parts. Able maintains a qualified
pension plan for its employees but has not offered nontaxable fringe benefits.
You are a tax consu ltant for the company who has been asked to prepare
suggestions for the adoption of an employee fringe benefit plan. Your
discussions with the client’s chief financial officer reveal the following :
• Employees currently pay their own premiums for medical and
health insurance.
• No group term life insurance is provided.
• The company owns a vacant building that could easily be
converted to a parking garage.
• Many of the employees purchase automobile parts from the
company’s retail outlets and pay retail price.
• The president of the corporation would like to provide a
dependent care assistance program under Sec. 129 for its employees.
Required : Prepare a client memo that recommends the
adoption of an employee fringe benefit program. Your recommendations should
discuss the pros and cons of different types of nontaxable fringe benefits.

Ann is a graduate economics student at State University.
State University awarded her a $1,000 scholarship. In addition, Ann works as a
half-time teaching assistant in the Economics Department at State University.
She is paid $7,000 per year and her tuition is waived. The salary is equa l to
that paid other part -time instructors. Her tuition wou ld be $8,000 were it
not for the waiver. Ann paid $500 for her books and supplies and she incurred
living expenses of $7,400. Determine how much gross income Ann must report. A
partial list of research sources is
• Sec. 117(d)
• Prop. Reg. 1.117 -6(d)(5)

Kim leased an office building to USA Corporation under a
ten-year lease specifying that at the end of the lease USA had to return the
building to its original condition if any modifications were made. USA changed
the interior of the building, and at the end of the lease USA paid Kim $30,000
instead of making the required repairs. Does Kim have to include the payment in
gross income?
A partial list of research sources is
• Sec. 109
• Boston Fish Market Corp., 57 T.C. 884 (1972)
• Sirbo Holdings Inc. v. CIR, 31 AITR 2d 73-1005, 73-1 USTC
‘l[9312 (2nd Cir., 1973)

Bold Corporation paid $25 to each full-time employee at
year-end in recognition of the holidays. Bold Corporation is interested in
whether the amounts are taxable income to its employees, and whether the
company can deduct the amounts. A partial list of research sources is
• Secs. 74(c), 102, 132(c), and 274(6)
• Reg. Sec. 1.132 -6(e)(1)
• Hallmark Cards, Inc. v. U.S., 9 AITR 2d 391, 62-1 USTC
‘l[9162 (DC-Mo, 1961).
• Rev. Ru!. 59-58, 1959-1 CB 17.

In 2009, Ellen purchased a house for $150,000 to use as her
personal residence. She paid $30,000 and borrowed $120,000 from the local
savings and loan company. In 2011 she paid $20,000 to add a room to the house.
In 2013 she paid $2,400 to have the house painted and $1,200 for builtin
bookshelves. As of January 1 of the current year, she has reduced the $120,000
mortgage to $108,300. What is her basis for the house?

Sergio owns 200 shares of Palm Corporation common stock,
purchased during the prior year: 100 shares on July 5, for $9,000; and 100
shares on October 15, for $12,000. When Sergio sells 50 shares for $8,000 on
July 18 of the current year, he does not identify the particular shares sold.
Determine the amount and character of the gain.

Jim inherits stock (a capital asset) from his brother, who
died in March of 2019, when the property had a $15.3 million FMV. This property
is the only property included in his brother ‘s gross estate and there is a
taxable estate. The FMV of the property as of the alternate valuation date was
$14.9 million.
a. Why might the executor of the brother’s estate elect to
use the alternate valuation date to value the property?
b. Why might Jim prefer the executor to use FMV at time of
the death to value the property?
c. If the marginal estate tax rate is 40 % and Jim’s
marginal income tax rate is 24% and his rate on ANCG is 15%, which value should
the executor use?

Martha owns 500 shares of Columbus Corporation common stock
at the beginning of the year with a basis of $82,500. During the year, Columbus
declares and pays a 10% nontaxable stock dividend. What is her basis for each
of the 50 shares received?

Mario owns 2,000 shares of Nevada Corporation common stock
at the beginning of the year. His basis for the stock is $38,880. During the
year, Nevada declares and pays a stock dividend. After the dividend, Mario’s
basis for each share of stock owned is $18. What is the percentage dividend
paid by Nevada?