-- Page 2 of 3QUESTION IIGavit is the life tenant of a sizable testamentary trust created by her deceased husband. The income of the trust is $100,000 a year. Gavit has more money than she needs, so she gives her daughter, D, a one-half interest in her life estate. Gavit also gives her nephew, N (a beginning law-student), a right to receive one-fourth of her retained share of the trust income, but only for the next three years. D, who doesn't need themoney
at least not immediately, gives her son, S (who hopes to start a business), a right to receive all of her
half share of the trust income, but for the next year only.Before receiving anything from the trust, D, N and S each sells his or her beneficial interest for cash toan unrelated investor, D for $450,000, N for $25,000, and S for $40,000.What are the tax consequences of these events to the several taxpayers? Explain briefly.QUESTION
(a) A has an adjusted basis for certain property of $100,000. At a time when the fair market value of the property is only $70,000 A sells the property to B (A's son) for
B subsequently resells the propertyto C, an unrelated investor, for $75,000.
property is non-depreciable (e.g., corporate
How much gain or loss, if any, does B realize for tax purposes?(b)Same facts, except that B subsequently resells the property To C for $45,000. B's gain or loss, if any?(c)Same facts, except that B pledges the property for a bank loan of $60,000 shortly after buying itfrom A, and subsequently resells the property to C for $45,000 cash subject to the $60,000 indebtedness. B'sgain or loss, if any?Explain your answers briefly.QUESTION IVSailor Sam (as he called himself) for many years operated a little novelty shop near the waterfront. Hisspecialty, which sold very well to tourists, consisted of hand-made model schooners, fully rigged and with tinysailors on deck, which Sam somehow managed to fit inside a variety of whiskey bottles. Nobody could figureout how Sam did this trick, and on one occasion Hasbro Corporation, a major toy
offered Sam asubstantial sum if he would explain the process and show the company how it was done. Sam refused.