Specific Rules Flashcards
True or false: Unless otherwise provided in the written agreement, alimony is deductible to the receiving spouse and taxable to the paying spouse.
False.
Taxable to the receiving, deductible to the paying.
Can alimony be based on a verbal promise?
No. Must be in the written divorce or separation agreement.
Parties to an alimony agreement can/cannot be members of the same household.
Cannot
True or false: liability to may alimony payments continues after death and is paid to the estate.
False. The liability must cease at or before death.
Payments of alimony must be in the form of _______
cash or cash equivalent
How does child support differ from alimony with respect to taxes?
It is non-taxable and non-deductible whereas alimony is taxable to the receiving, deductible to the paying.
How might child support appear in disguise on an exam?
An alleged alimony payment might contain a clause reducing alimony on a contingency related to a child.
Tiger agrees to pay Elin $1m per year until the youngest child turns 21. At that time, the payments reduce to $700k. How much of this yearly payment should be considered child support? How much alimony?
$300k.
$700k
Where total payments for alimony and child support fall short, the payments are considered first to meet _________ obligation.
Child support.
You appear on Survivor and win the grand prize of $1m plus a trip to Hawaii worth $6k. Are none, one, or both of these prizes included in your gross income? Explain.
Both
Gross income includes the value of cash, property, or services received as a prize, award, or windfall.
Are home run baseballs (e.g., Bonds’ record-breaking) counted toward gross income if you catch them?
Yes
What is wrong with the argument that a home run baseball should not count as income when caught because it’s value is not yet realized?
Realization only applies to assets you already own.
You catch a home run baseball worth $3m and pay the appropriate taxes. You sell it the next year for $3m. How much in taxes?
$0.
The basis in the ball is $3m.
Imagine the instead of catching Bonds’ record-breaking HR, you buy it for $1 at a flea market. It is later discovered that the ball you bought was indeed the record-breaker and is worth $3m. Any taxable income upon this discovery? Explain.
No, not until realization event. This is a bargain purchase. The basis is $1.
Gambling winnings are included in gross income. Unless the TP is actively engaged in the trade or business of gambling, gambling losses for the taxable year may be use . . . .
Only to the extent of gains (i.e., can only reduce gains by losses, no deductions).
