Individual Taxation Paper 4


Clark filed Form 1040EZ for the 2011 taxable year. In July 2012, Clark received a state income tax refund of $900, plus interest of $10, for overpayment of 2011 state income tax. What amount of the state tax refund and interest is taxable in Clark’s 2012 federal income tax return?


Hall, a divorced person and custodian of her twelve-year-old child, submitted the following information to the CPA who prepared her 2012 return:
The divorce agreement, executed in 2009, provides for Hall to receive $3,000 per month, of which $600 is designated as child support. After the child reaches age eighteen, the monthly payments are to be reduced to $2,400 and are to continue until remarriage or death. However, for the year 2012, Hall received a total of only $5,000 from her former husband. Hall paid an attorney $2,000 in 2012 in a suit to collect the alimony owed.
What amount should be reported in Hall’s 2012 return as alimony income?


Lee, an attorney, uses the cash receipts and disbursements method of reporting. In 2012, a client gave Lee 500 shares of a listed corporation’s stock in full satisfaction of a $10,000 legal fee the client owed to Lee. This stock had a fair market value of $8,000 on the date it was given to Lee. The client’s basis for this stock was $6,000. Lee sold the stock for cash in January 2013. In Lee’s 2012 income tax return, what amount of income should be reported in connection with the receipt of the stock?


In 2008, Ross was granted an incentive stock option (ISO) by her employer as part of an executive compensation package. Ross exercised the ISO in 2010 and sold the stock in 2012 at a gain. Ross was subject to regular tax for the year in which the


Ed and Ann Ross were divorced in January 2012. In accordance with the divorce decree, Ed transferred the title in their home to Ann in 2012. The home, which had a fair market value of $150,000, was subject to a $50,000 mortgage that had twenty more years to run. Monthly mortgage payments amount to $1,000. Under the terms of settlement, Ed is obligated to make the mortgage payments on the home for the full remaining twenty-year term of the indebtedness, regardless of how long Ann lives. Ed made twelve mortgage payments in 2012. What amount is taxable as alimony in Ann’s 2012 return?


Income in respect of a cash-basis decedent


The following information is available for Ann Drury for 2012:
Salary . . . . . . . . . . . . . . . . $36,000
Premiums paid by employer on group-term life insurance in excess of $50,000 . . . . .500
Proceeds from state lottery . . . . . . 5,000
How much should Drury report as gross income on her 2012 tax return?


Mr. and Mrs. Alvin Charak took a foster child, Robert, into their home in 2012. A state welfare agency paid the Charaks $3,900 during the year for related expenses. Actual expenses incurred by the Charaks during 2012 in caring for Robert amounted to $3,000. The remaining $900 was spent by the Charaks in 2012 towards their own personal expenses. How much of the foster child payments is taxable income to the Charaks in 2012?


Pierre, a headwaiter, received tips totaling $2,000 in December 2012. On January 5, 2013, Pierre reported this tip income to his employer in the required written statement. At what amount, and in which year, should this tip income be included in Pierre’s gross income?


With regard to the alimony deduction in connection with a 2013 divorce, which one of the following statements is correct?


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