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2001 Exam

2001 Exam

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Published by Yin Huang / 黄寅

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Published by: Yin Huang / 黄寅 on Nov 30, 2010
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FEDERAL INCOME TAXATIONL6256Spring 2001Professor ChirelsteinTime: 3 hoursInstructions: The exam consists of six (6) short-essay questions. Answer all of them (Question 5 has two parts) and explain your answer to each in NOT MORE than two reasonably brief paragraphs. Irrelevantcomments earn a downgrade! You may bring to the exam your paperback copy of Selected FederalTaxation: Statutes and Regulations, but nothing else. 1.Uncle promises to transfer 100 shares of stock to nephew Willie, age 16, if Willie refrains from smoking,drinking and spitting on the sidewalk until he reaches the age of 21. Uncle bought the stock for $5,000some years ago. On reaching his 21st birthday, Willie tells Uncle that he has refrained from doing thethings just named and Uncle hands over the stock, now worth $20,000. Willie waits a few days and sellsthe stock for $21,000.How should these events be treated for income tax purposes?2.Smith died owning Blackacre having a value of $100,000 but subject to a non-recourse mortgage of $115,000. Smith
s daughter, D, inherited the property subject to the mortgage. Years passed. D made payments on the mortgage reducing the unpaid principal balance to $105,000. She then sold the propertysubject to the mortgage (as reduced) receiving $5,000 cash from the buyer.How much gain or loss, if any, should D report on the sale?3.Higgle, Barter & Truck (HBT), a partnership, operates a large tire and auto parts store on premises leasedfrom Bluehill Shopping Center. A clause in HBT
s lease, which has eight years to run, prohibits Bluehillfrom renting shopping-center space to any competitive retailer. Bluehill now wants to rent substantialspace to Sears, a national chain which sells tires and auto parts along with other products. Bluehill offersto reduce HBT
s annual rent by 25% if HBT will waive the restriction on leasing to a competitor, butHBT refuses. Soon after, Sears itself enters into negotiations with HBT, as a result of which Sears offers,in exchange for the waiver, to pay HBT 10% of Sears
annual revenues from tire and auto part sales for the remaining term of HBT
s lease. HBT accepts.How should the affected parties treat Sears
annual payments for income tax purposes?

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