ACCREDITED TEST BANK SOLUTION FOR
INTRODUCTION TO FEDERAL INCOME
TAXATION EXAM PREP 2026
◉ Darren purchased 100 shares of Blue stock at $4 per share in
2000. This week, Darren transferred those shares of Blue stock to
Samantha by gift at a time when the shares had a FMV or $7 per
share.
A. will Sam be required to include any amount in income on receipt
of the stock from Darren?
B. What is Sam's basis in the Blue stock?
C. If Sam sells the stock after one year of receipt for $8 per share,
what will be her amount realized? What about her gain realized? Her
gain recognized?
D. If Sam sells the stock after one year for $3 per share, what will be
her amount realized? What about her loss realized? Her loss
recognized? Answer: A. No
B. Her basis is $4
C. amount realized= $800
gain realized?= $400
gain recognized= $400
D. amount realized= $300
loss realized= $100
,loss recognized= $100
◉ Assume that Morgan purchased Greenacre in 2000 for $600,000.
Recently she transferred that land to Chase by gift at a time when
the land had a FMV of $400,000.
A. Will Chase be required to include any amount in income on
reciept of the land from Morgan?
B. If chase sells the land one year after receipt for $300,000, what
will be his amount realized? What about his loss realized? His loss
recognized?
C. If Chase sells the land one year after receipt for $750,000, what
will be his amount realized? His gain realized? His gain recognized?
D. If Chase sells the land one year after receipt for $500,000, what
will be the tax impact on him? Answer: A. No
Use FMV ($400,000) as basis because sold for less than FMV on date
of transfer.
B. $300,000 ($100,000) ($100,000)
C. Use donor's basis bc selling for more than donor's basis.
$750,000, 150,000 150,000
D. No tax consequences bc selling for in between originally basis and
FMV
◉ Franklin is an old man, but he has a very nice house and would
prefer to live out the rest of his years there instead of moving to a
nursing home. He promises James that if James will be his caretaker,
,he will leave the house to him in his will. If James does, in fact, take
care of Franklin until Franklin passes away and James recieves the
home pursuant to Franklin's will, must James include any amount in
his gross income as a result of recieving the house after Franklin's
death?. Answer: Yes because this is just compensation for taking
care of Franklin, not a true gift.
◉ Assume that Madison purchased blackacre for 100,000 in 1989.
IN 2010, she transferred that property by gift to Cooper at a time
when the FMV was $275,000. Cooper recently passed away, and
Fennimore inherited the property from Cooper. At the time
Fennimore inherited the property, it had a FMV of $350,000. What
was Cooper's basis in the property? What about Fennimore?.
Answer: Cooper had a basis equal to Madisons bc it was a gift=
100,000.
Fennimore had a basis of $350,000 bc that was the FMV at the time
of inheritance.
◉ Assume that Madison and Cooper purchased a house as
community property in 2000 for 800,000. Cooper passed away in
2015 at a time when the house at a FMV of 1,00,000. What is
Madison's basis in what would have been Cooper's half share? What
is Madisons basis in her half share?. Answer: 500,000 and 500,000.
Both shares step up to FMV.
◉ Percy purchased an original drawing by Vinci for 25,000 in 1990.
Assume that Percy transferred the property by gift to Shelly on Jan 1,
, 2015 when the property had a FMV of $95,000. On Sept. 5, 2015,
Shelly passed away and Percy inherited the property at a time when
its fair market value was 100,000. What was Percy's basis be?.
Answer: 25,000 because it reverts back to her original basis because
it was within 1 year.
◉ While shopping for groceries at Freds minimart, Elvia slipped on a
thin layer of olive oil and fell; apparantely, the person charged with
cleaning up a recent spill failed to do a thourough job. Eliva suffered
a factured hip and a sprained ankle. ASsume that Eliva and the
grocery store setled the incident out of court for 100,000, allocating
the entire dollar amount to compensatory damages for personal
physical injury.
A. if the IRs accepts the allocation, will Elivia have to include any of
this amount in her gross income?
B. If the parties had not allocated the dollar amount and the IRS
argues that a substantial percentage of the amount should have been
included in gross income, how would a court go about ascertaining
whether Eliva recieved any amount on account of personal injury or
physical sickness? Who would shoulder the burden of proof in that
context?. Answer: A. None, compensatory damages are not taxable.
B. The taxpayer has the burden of proof to show that the settlement
agreement references other promises, etc.
◉ After a fun day of shopping, Gary was driving home. While
stopped at a red light, he noticed a small truck approaching from
behind. Thanks to the truck driver's last minute application of the
INTRODUCTION TO FEDERAL INCOME
TAXATION EXAM PREP 2026
◉ Darren purchased 100 shares of Blue stock at $4 per share in
2000. This week, Darren transferred those shares of Blue stock to
Samantha by gift at a time when the shares had a FMV or $7 per
share.
A. will Sam be required to include any amount in income on receipt
of the stock from Darren?
B. What is Sam's basis in the Blue stock?
C. If Sam sells the stock after one year of receipt for $8 per share,
what will be her amount realized? What about her gain realized? Her
gain recognized?
D. If Sam sells the stock after one year for $3 per share, what will be
her amount realized? What about her loss realized? Her loss
recognized? Answer: A. No
B. Her basis is $4
C. amount realized= $800
gain realized?= $400
gain recognized= $400
D. amount realized= $300
loss realized= $100
,loss recognized= $100
◉ Assume that Morgan purchased Greenacre in 2000 for $600,000.
Recently she transferred that land to Chase by gift at a time when
the land had a FMV of $400,000.
A. Will Chase be required to include any amount in income on
reciept of the land from Morgan?
B. If chase sells the land one year after receipt for $300,000, what
will be his amount realized? What about his loss realized? His loss
recognized?
C. If Chase sells the land one year after receipt for $750,000, what
will be his amount realized? His gain realized? His gain recognized?
D. If Chase sells the land one year after receipt for $500,000, what
will be the tax impact on him? Answer: A. No
Use FMV ($400,000) as basis because sold for less than FMV on date
of transfer.
B. $300,000 ($100,000) ($100,000)
C. Use donor's basis bc selling for more than donor's basis.
$750,000, 150,000 150,000
D. No tax consequences bc selling for in between originally basis and
FMV
◉ Franklin is an old man, but he has a very nice house and would
prefer to live out the rest of his years there instead of moving to a
nursing home. He promises James that if James will be his caretaker,
,he will leave the house to him in his will. If James does, in fact, take
care of Franklin until Franklin passes away and James recieves the
home pursuant to Franklin's will, must James include any amount in
his gross income as a result of recieving the house after Franklin's
death?. Answer: Yes because this is just compensation for taking
care of Franklin, not a true gift.
◉ Assume that Madison purchased blackacre for 100,000 in 1989.
IN 2010, she transferred that property by gift to Cooper at a time
when the FMV was $275,000. Cooper recently passed away, and
Fennimore inherited the property from Cooper. At the time
Fennimore inherited the property, it had a FMV of $350,000. What
was Cooper's basis in the property? What about Fennimore?.
Answer: Cooper had a basis equal to Madisons bc it was a gift=
100,000.
Fennimore had a basis of $350,000 bc that was the FMV at the time
of inheritance.
◉ Assume that Madison and Cooper purchased a house as
community property in 2000 for 800,000. Cooper passed away in
2015 at a time when the house at a FMV of 1,00,000. What is
Madison's basis in what would have been Cooper's half share? What
is Madisons basis in her half share?. Answer: 500,000 and 500,000.
Both shares step up to FMV.
◉ Percy purchased an original drawing by Vinci for 25,000 in 1990.
Assume that Percy transferred the property by gift to Shelly on Jan 1,
, 2015 when the property had a FMV of $95,000. On Sept. 5, 2015,
Shelly passed away and Percy inherited the property at a time when
its fair market value was 100,000. What was Percy's basis be?.
Answer: 25,000 because it reverts back to her original basis because
it was within 1 year.
◉ While shopping for groceries at Freds minimart, Elvia slipped on a
thin layer of olive oil and fell; apparantely, the person charged with
cleaning up a recent spill failed to do a thourough job. Eliva suffered
a factured hip and a sprained ankle. ASsume that Eliva and the
grocery store setled the incident out of court for 100,000, allocating
the entire dollar amount to compensatory damages for personal
physical injury.
A. if the IRs accepts the allocation, will Elivia have to include any of
this amount in her gross income?
B. If the parties had not allocated the dollar amount and the IRS
argues that a substantial percentage of the amount should have been
included in gross income, how would a court go about ascertaining
whether Eliva recieved any amount on account of personal injury or
physical sickness? Who would shoulder the burden of proof in that
context?. Answer: A. None, compensatory damages are not taxable.
B. The taxpayer has the burden of proof to show that the settlement
agreement references other promises, etc.
◉ After a fun day of shopping, Gary was driving home. While
stopped at a red light, he noticed a small truck approaching from
behind. Thanks to the truck driver's last minute application of the
