Individual Taxation Paper 1


Fuller was the owner and beneficiary of a $200,000 life insurance policy on a parent. Fuller sold the policy to Decker, for $25,000. Decker paid a total of $40,000 in premiums. Upon the death of the parent, what amount must Decker include in gross income?


Seymour Thomas named his wife, Penelope, the beneficiary of a $100,000 (face amount) insurance policy on his life. The policy provided that upon his death, the proceeds would be paid to Penelope with interest over her present life expectancy, which was calculated at twenty-five years. Seymour died during 2013, and Penelope received a payment of $5,200 from the insurance company. What amount should she include in her gross income for 2013?


Under a “cafeteria plan” maintained by an employer,


David Autrey was covered by an $80,000 group-term life insurance policy of which his wife was the beneficiary. Autrey’s employer paid the entire cost of the policy, for which the uniform annual premium was $8 per $1,000 of coverage. Autrey died during 2013, and his wife was paid the $80,000 proceeds of the insurance policy. What amount of group-term life insurance proceeds must be included in gross income by Autrey’s widow?


Howard O’Brien, an employee of Ogden Corporation, died on June 30, 2012. During July, Ogden made employee death payments (which do not represent the proceeds of life insurance) of $10,000 to his widow, and $10,000 to his fifteen-year-old son. What amounts should be included in gross income by the widow and son in their respective tax returns for 2012?
Widow . . . . Son


John Budd files a joint return with his wife. Budd’s employer pays 100% of the cost of all employees’ group-term life insurance under a qualified plan. Under this plan, the maximum amount of tax-free coverage that may be provided for Budd by his employer is


During the current year Hal Leff sustained a serious injury in the course of his employment. As a result of this injury, Hal received the following payments during the year:
Workers’ compensation $2,400
Reimbursement from his employer’s accident and health plan for medical expenses paid by Hal and not deducted by him 1,800
Damages for physical injuries 8,000
The amount to be included in Hal’s gross income for the current year should be


James Martin received the following compensation and fringe benefits from his employer during 2012:
Salary $50,000
Year-end bonus 10,000
Medical insurance premiums paid by employer 1,000
Reimbursement of qualified moving expenses 5,000
What amount of the preceding payments should be included in Martin’s 2012 gross income?


On February 1, 2013, Hall learned that he was bequeathed 500 shares of common stock under his father’s will. Hall’s father had paid $2,500 for the stock in 2008. Fair market value of the stock on February 1, 2013, the date of his father’s death, was $4,000 and had increased to $5,500 six months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, 2013, the date that the executor distributed the stock to him. How much income should Hall include in his 2013 individual income tax return for the inheritance of the 500 shares of stock that he received from his father’s estate?


In 2012, Gail Judd received the following dividends from
Benefit Life Insurance Co., on Gail’s life insurance policy (Total dividends received have not yet exceeded accumulated premiums paid) $100
Safe National Bank, on bank’s common stock 300
Roe Mfg. Corp., a Delaware corporation, on preferred stock 500
What amount of dividend income should Gail report in her 2012 income tax return?


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