Individual Taxation Paper 3


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


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.


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?


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


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?


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


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


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


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?


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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