Determine gross income and dependency exemptions

Question 1:
Under the rules applicable after 2004, determine how many dependency exemptions would be available in each of the following independent situations. Specify whether any such exemptions would come under the qualifying child or the qualifying relative category :
a. Richard maintains a household that includes a cousin (age 12), a niece (age 18), and a son (age 20). The cousin and niece are full-time students, and the son is unemployed. Richard furnishes all of their support.
b. Minerva provides all of the support of a family friend's son (age 18) who lives with her. She also furnishes most of the support of her stepmother who does not live with her.
c. Raul, a U.S. citizen, lives in Costa Rica. Raul's household includes an adopted
daughter, Helena, who is age 9 and a citizen of Costa Rica. Raul provides all of
Helena's support.
d. Maxine maintains a household that includes her ex-husband, her mother-in-law, and her brother-in-law (age 23 and a full-time student). Maxine provides more than half of all of their support. Maxine is single and was divorced several years ago.

Question 2:
During the year, Wilbur received the following in connection with his father's estate:
• His father's will named Wilbur as the executor of the estate. He received $7,500 for serving as executor.
• Wilbur was also a beneficiary of his father's estate and received real estate that was included in the estate at a value of $100,000 that his father had purchased for $30,000.
• Wilbur was the beneficiary of one of his father's life insurance policies. He elected to collect the proceeds of the $100,000 policy in four installments of $30,000 each. Each $30,000 payment consists of principal and interest. He collected $30,000 this year.
Determine the effect on Wilbur's gross income.

Question 3:
Determine the effect on gross income in each of the following cases:
a. Eloise received $150,000 in settlement of a sex discrimination case against her former employer.
b. Nell received $10,000 for damages to her personal reputation. She also received $40,000 punitive damages.
c. Orange Corporation, an accrual basis taxpayer, received $50,000 from a lawsuit filed against its auditor who overcharged for services rendered in a previous year.
d. Beth received $10,000 compensatory damages and $30,000 punitive damages in a lawsuit she filed against a tanning parlor for severe burns she received from using its tanning equipment.
e. Joanne received compensatory damages of $75,000 and punitive damages of $300,000 from a cosmetic surgeon who botched her nose job.

Attached file(s):

Taxation Study Guide.doc  View File