course income tax fundamenta lsolved questions

2B 1. Would the results to the taxpayers in the Cesarini case be different if, instead of discovering $4,467 in old currency the piano, they discovered that the piano, a Steinway, was the first Steinway piano ever built and it is worth $500,000? Yes; Cesarini articulates the tax consequences of finding a treasure trove: it is taxable in the year in which it is reduced to undisputed possession. Here, the higher than expected value of the item purchase itself does not constitute a treasure trove. Provided that this is an arms length transaction, TP would take a basis in the item equal to the purchase price and then upon sale of the item TP would recognize a capital gain. 2B 2. Winner attends the opening of a new department store. All persons attending are given free raffle tickets for a watch worth $200. Disregarding any possible application of I.R.C. § 74, must Winner include anything within gross income when she wins the watch in the raffle? Yes, $200 gross income b/c when the watch crossed the barrier of ownership TP clearly realized a $200 accession to wealth. 2B 3. Employee has worked for Employer's incorporated business for several years at a salary of $80,000 per year. Another company is attempting to hire Employee but Employer persuades Employee to agree to stay for at least two more years by giving Employee 2% of the company's stock, which is worth $100,000, and by buying Employee's spouse a new car worth $30,000. How much income does Employee realize from these transactions? The $100,000 worth of stock results in $100,000 gross income to Employee because when the stock crosses the barrier of ownership he clearly realizes a $100,000 accession to wealth. The $30,000 car also results in $30,000 gross income to Employee. Even though the car is given to Wife, it is given by Employer in compensation for Employee giving up HIS right to leave his job for another 2 years, so it is gross income to Employee. Moreover, Employee is really in control of the disposition of the car b/c he could have negotiated an alternative deal. He also has $80,000 from his salary. 2B 4. Insurance Adjuster refers clients to an auto repair firm that give Adjuster a kickback of 10% of billings on all referrals. (a) Does Adjuster have gross income? Yes 2B 4. Insurance Adjuster refers clients to an auto repair firm that give Adjuster a kickback of 10% of billings on all referrals. (b) Even if the arrangement violates local law? Yes, illegal income is still gross income. 2B 5. Owner agrees to rent Tenant her lake house for the summer for $4,000. (a) How much income does Owner realize if she agrees to charge only $1,000 if Tenant makes $3,000 worth of improvements to the house? $4,000 gross income $1,000 cash $3,000 in improvements that were agreed to be a substitute for rent. § 109 does not apply here, because the improvements were required as rent. See IRC § 109