Individual Taxation Paper 3

1

For the year ended December 31, 2012, Don Raff earned $1,000 interest at Ridge Savings Bank on a certificate of deposit scheduled to mature in 2013. In January 2013, before filing his 2012 income tax return, Raff incurred a forfeiture penalty of $500 for premature withdrawal of the funds. Raff should treat this $500 forfeiture penalty as a






2

Which payment(s) is (are) included in a recipient’s gross income?
I. Payment to a graduate assistant for a part-time teaching assignment at a university. Teaching is not a requirement toward obtaining the degree.
II. A grant to a Ph.D. candidate for his participation in a university-sponsored research project for the benefit of the university.






3

Majors, a candidate for a graduate degree, received the following scholarship awards from the university in 2013:
• $10,000 for tuition, fees, books, and supplies required for courses.
• $2,000 stipend for research services required by the scholarship.
What amount of the scholarship awards should Majors include as taxable income in 2013?






4

In July 1997, Dan Farley leased a building to Robert Shelter for a period of fifteen years at a monthly rental of $1,000 with no option to renew. At that time the building had a remaining estimated useful life of twenty years. Prior to taking possession of the building, Shelter made improvements at a cost of $18,000. These improvements had an estimated useful life of twenty years at the commencement of the lease period. The lease expired on June 30, 2012, at which point the improvements had a fair market value of $2,000. The amount that Farley, the landlord, should include in his gross income for 2012 is






5

Bob and Sue Stewart were divorced in 2010. Under the terms of their divorce decree, Bob paid alimony to Sue at the rate of $50,000 in 2010, $20,000 in 2011, and nothing in 2012. What amount of alimony recapture must be included in Bob’s gross income for 2012?






6

Which of the following conditions must be present in a divorce agreement for a payment to qualify as deductible alimony?
I. Payments must be in cash.
II. The payment must end at the recipient’s death






7

Darr, an employee of Sorce C corporation, is not a shareholder. Which of the following would be included in a taxpayer’s gross income?






8

With regard to the inclusion of social security benefits in gross income for the 2013 tax year, which of the following statements is correct?






9

Perle, a dentist, billed Wood $600 for dental services. Wood paid Perle $200 cash and built a bookcase for Perle’s office in full settlement of the bill. Wood sells comparable bookcases for $350. What amount should Perle include in taxable income as a result of this transaction?






10

John and Mary were divorced in 2011. The divorce decree provides that John pay alimony of $10,000 per year, to be reduced by 20% on their child’s 18th birthday. During 2012, John paid $7,000 directly to Mary and $3,000 to Spring College for Mary’s tuition. What amount of these payments should be reported as income in Mary’s 2012 income tax return?






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