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Seton Hall Accounting Gain or Loss Includible in Taxpayers Gross Income Question

Please determine the amount of gain or loss includible in the Taxpayers Gross Income in the following situations, as well as the character of that Gain or Loss. Cite the appropriate authority (authorities) for your answer.

3(a): What is the Amount Realized, Type and amount of Basis, Gain or Loss, and Character thereof:

(i) Tasha owns a clothing store, specializing in custom uniforms. She purchased 1000 pieces of red and black uniforms at wholesale for 2 dollars a unit to resell, and now three years later she has been unable to move them. Now that the next generation of uniforms has arrived, she marks the red and black ones down to .50 per unit and sells them to one buyer.

(ii) Will Riker received a cabin in the woods when his grandmother died. She had owned the cabin for 20 years and had purchased it for 5K. At her death, the property was valued at 50K. In six months, the property had doubled in value. This enterprising gentleman realized that the property had increased substantially in value and sold it for 100K.

3(b): To whom is the income allocated, why, and how much:

(iii) When Worf’s parent’s died, the made him the beneficiary of a trust which holds real estate as well as income producing assets. Worf assigns all the income to his son Alexander so that Alexander can use the funds to support himself while he studies at the academy. In 2011, Worf assigned 50K to Alexander, and in 2010 he assigned 32K to him.

(iv) As above, but instead of assigning the income, Worf distributes one of the rental properties to Alexander outright. Alexander collects the rent from the tenants and manages the properties. In 2011, his revenue less his costs was 50K, and in 2010 his revenue less his costs was 32K.

3(c): Is the following expense deductible:

(i) Data runs a computer servicing company. He purchases office supplies like paper, pens, invoice pads, coffee, break room materials, etc, monthly and expends all of them each month. His monthly costs are approximately 800.

(ii) LeForge is a grade school teacher and focuses on improving reading skills. He takes an additional 12 credits to obtain a certificate to allow him to fly twice as high with his students. The school commends him on taking the initiative to give back to the students.

(iii) Deanna is completing a degree in Psychology and Counseling. She is hired as an intern at Starfleet for the summer. Her supervisors very much like her work and extend an offer of full time employment, conditioned on her completion of her degree program and passing her boards. Deanna takes and pays for her final year of coursework as well as a course to prepare her for licensing exams.

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