Category: Writing

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?

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?

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?

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?

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?

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.

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?

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.

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)

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)