Case #1: 20 points A couple named Harriet and Walter were divorced in 2015. During their marriage they owned a house together. Harriet continued to live in the house because of the poor state of the housing market in the town in which they live. At the end of 2015, Harriet and Walter decided to continue living in that same house together (not as a couple, just friends) until they can sell the house for a reasonable amount. Walter moved back in and occupied one side of the house and Harriet continued to live in the other side. They continued to live together in this manner for the entire year in 2016. The terms of the divorce require Walter to pay Harriet $60,000 per year in alimony, which he paid as required. Question: What is the impact of this $60,000 payment on Walter’s tax return for his 2016 FOrm 1040? To answer this question, use the Internal Revenue Code. You may refer to the textbook but you may not base your answer on the textbook — you must reference the IRC section. What keywords did you use in your search to derive this answer?
Case #2 30 points Fred borrowed $7,500 from his friend, Jason and had some difficulty repaying the loan as promised. Finally, Fred decided on a creative way to resolve the debt. He transferred a life insurance policy that he owned (on himself) to Jason. Face value on the policy was $125,000. At the time of the transfer the instrument had a cash surrender of $7,500. After the transfer Jason changed the beneficiary on the policy and named himself. Throughout the years, Jason continued to make payments (premiums). At the time of Fred’s death, Jason had made $12,500 in premium payments in total. Jason collected the face amount of $125,000 upon the death of his friend, Fred. (Hint: What is Jason’s “basis” in this policy?) Question: What impact does this whole transaction have on Jason’s taxes, if any? To answer this question, use the Internal Revenue Code. You may refer to the textbook but you may not base your answer on the textbook — you must reference the IRC section. What keywords did you use in your search to derive this answer?
Case #3 – 20 points Jessica is 49 years of age. She has been saving for retirement for many years and has fairly large balance in her IRA. Amanda, Jessica’s daughter who is in her senior year of high school, has been notified that she has been accepted to Rice University. Jessica had expected Amanda to go to a state university and was not prepared for the tuition costs associated with Rice. After some thought, she has decided that the only thing she can do is to take approximately $ 20,000 per year from her retirement plan. Question: What are the tax consequences to Jessica for the withdrawals from her IRA? To answer this question, use the Internal Revenue Code. You may refer to the textbook but you may not base your answer on the textbook — you must reference the IRC section. What keywords did you use in your search to derive this answer?
Case #4 — 30 points A full-time professor at California State University, Dr. Irene Adler, teaches courses on production, both for small and big-screen. In her 3,000-square foot home she has a room that is solely used for business purposes where she and her students watch and analyze student-created films as part of the university’s graduate program requirements. Though Dr. Adler has on-campus office space, that office is equipped only with office chairs and a small television, whereas her home office has a very large flat screen and much more comfortable seating. Question: What impact, if any, might this room at home have on Dr. Adler’s personal income tax situation? Discuss any possible allowed or
disallowed deduction(s).
