Federal Taxation 2013 7th Edition Pratt

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Gross Income: Inclusions and Exclusions

Solutions to Problem Materials

DISCUSSION QUESTIONS

6-1

a. False. Receipts are included in gross income unless specifically listed as

excludable. [See p. 6-2 and §61(a).] It is the taxpayer's responsibility to prove
that a particular type of income is excluded and to cite the specific authority
providing the exclusions.

b. False. Tax returns show that (1) gross receipts except those that are entirely
excludable (nontaxable) (2) less excludable portion (3) equals gross income.
(See p. 6-2.) Many receipts, such as refunds for state taxes not previously
deducted, will not appear on the tax return.

c. True. As long as the municipal bond carries tax-exempt status, (i.e., it is issued
by a state, a territory, a U.S. possession or any of their political subdivisions
and is not an industrial development or arbitrage bond) the interest income is
excludable (nontaxable) by individuals and corporations. [See Example 4, p.
6-7 and § 103(a)(1).]

6-2 For C to evaluate which investment would produce a greater after-tax return, she
must have knowledge of the interest rate of the state bond, estimate the expected
rate of return of anticipated dividends from H, Inc., know her marginal tax rate,
estimate future proceeds from the sale of the investments, and select a discount
rate to determine the present value of the expected future cash flows. (See
Example 4 and p. 6-7.)
6-3

a. The after-tax return will be higher if the taxpayer invests in the State of
Kentucky bonds. (See Exhibit 6-2 and Example 4 and pp. 6-7 and 6-8.)

Corporate Bonds 7% State Bonds 3%

Annual interest income $ 70.00 $ 30

Federal income tax—35% (24.50) (0)

After-tax income $ 45.50 $ 30

After-tax rate of return 4.55% 3.0%

b. The after-tax return will be higher if the taxpayer invests in the corporate
bonds.

Corporate Bonds 7% State Bonds 3%

Annual interest income $ 70.00 $ 30

Federal income tax—15% (10.50) (0)

After-tax income $ 59.50 $ 30

After-tax rate of return 5.95% 3.0%

6-4

a. False. Currently, qualified dividends are taxed at the same rates as long-term
capital gains: 0 percent if an individual taxpayer is in the 15 percent or lower
bracket; otherwise at a maximum rate of 15 percent. This special treatment is
schedule to expire after 2012. (See p. 6-4.)

b. False. The treatment of a distribution to a shareholder with respect to stock

depends on a corporation's earnings and profits. While earnings and profits are
similar to retained earnings, the two are not necessarily the same. (See p. 6-5.)

c. True. A distribution is first treated as dividend to the extent of the distributing

corporation's earnings and profit. The amount of the distribution in excess of
earnings and profits is treated as nontaxable to the extent of the shareholder's
stock basis. Such distributions reduce the shareholder's stock basis. Once the
basis of the stock is fully recovered and has been reduced to zero, any excess
is treated as gain from the sale of stock. (See Example 1 and p. 6-4.)

d. True. Distributions from a mutual fund (a regulated investment company)

reflect the composition of the fund's income. If the fund has long-term capital
gains, the distributions to shareholders reflect a prorata portion of such gains.
 (See p. 6-5.)

e. False. Interest on federal securities is fully taxable for federal income tax
purposes. Most states exempt federal interest from state taxation. Interest on
obligations of state and local governments is tax-exempt. (See p. 6-7 and
Chapter 5.)

f. False. This is a disproportionate distributions. Since some shareholders elect

to take stock and others take cash those who take stock see an increase in
their interest relative to those who take cash. (See p. 6-6.)

6-5

a. Taxable. There are two potential exclusions for lodging. The first is Section
119 that provides an exclusion for the value of meals and lodging if (1) it is
provided for the employer's convenience (substantial noncompensatory
business purpose exists); (2) it is provided on the employer's business
premises and (3) in the case of lodging, the employee is required to occupy
the quarters in order to properly perform his or her employment duties.
Section 119 would not apply in this instance because the employer does not
appear to have a good business purpose for providing the lodging. (See p. 6-
26.)

The lodging could possibly be excluded under § 132 as a no-additional cost

fringe benefit. In this case, there is no substantial additional cost as a result of the
employee's usage so it would appear to qualify. However, the exclusion is limited
to services sold in the normal course of business in which the employee works.
The value of the lodging is taxable because R works for another line of business,
the real estate agency, not the hotel business. (See p. 6-31.)

However, it may be nontaxable under a rather obscure exception. If Z, Inc.,

provided substantially all employees these benefits on 1/1/84, regardless of the
employees' line of business and elects to continue this benefit, it must pay a
nondeductible 30 percent excise tax levied on the following [(total value of the
exclusion of these services + employee discounts) — 1% total compensation].
(see Reg § 1.132-4(g) and reference to § 4977 and footnote 68 on p. 6-31.)

b. Nontaxable. R would have the value of the lodging excluded as a no-

additional-cost service. The exclusion would apply to the value of the lodging
for himself, his spouse, and his dependent children because he works in his
employer's hotel business. (See p. 6-31.)

c. Nontaxable. The value of the lodging may be excluded as a no-additional-cost

service. Employees identified with more than one line of business may
exclude the benefits received from all of them. (The exclusion extends to
benefits provided under a written reciprocal agreement by another employer
that is in the same line of business.) [See p. 6-30 and Reg. § 1.132-
4T(a)(1)(iv)(A).]
6-6

a. 1. Parking provided by the employer is a deductible business expense for the

employer and nontaxable income (i.e., up to $240 per month for 2012) for the
employee. (See p. 6-32.)

2. When the employee pays the fee, it is a nondeductible personal expense.

b. 1. Health insurance premiums are a deductible employee-related expense for

the employer. The employee does not have taxable income except when
reimbursement of medical expenses exceeds expenses incurred or the
employee receives a tax benefit from a prior year's deduction. [See Example
22, p. 6-24, and §§ 105(b), 106, and 213.]

2. The premiums are deductible as an itemized deduction when the employee

pays for them. Reimbursement in a subsequent year is taxable income only to
the extent the taxpayer received a tax benefit from the deduction. Excess
reimbursements are not taxable when the employee pays the premiums.

c. 1. Disability income premiums represent nontaxable income for the employee,

but proceeds received from an employer-provided plan are taxable, except in
the case of total and permanent disability under the age of 65. Limitations are
imposed on the amount excludable in this circumstance. The cost of the
premiums is deductible by the employer. (See pp. 6-25 and 6-26 and § 105.)

2. Employee-paid premiums are a nondeductible personal expense but any

income from the plan is fully excluded. [See Example 25, p. 6-26, and §
104(a)(3).]

d. 1. Meals provided by an employer when the employee must remain on the

premises are nontaxable income to the employee and a deductible expense for
the employer. (See pp. 6-26 through 6-27.)

2. Employee-paid meals are a nondeductible personal expense even if eaten on

the premises at the convenience of the employer.

6-7

a. Employer-provided meals and lodging are nontaxable income to the employee

if three conditions are met. They must be provided for the employer's
convenience, they must be supplied on the employer's business premises and,
in the case of lodging, the employee is required to occupy the quarters in order
to perform employment duties. (See Example 26 and pp. 6-26 through 6-27,
and § 119.)

b. 1. Camp Counselor—on call 24 hours a day to supervise campers

2. Ski Resort Doctor—on call 24 hours a day for medical emergencies

 3. Construction Worker—employed at remote job site

4. Cruise Ship Captain—responsible for ship's safety

5. Sorority Housemother—presence required to perform duties

6. Bodyguard—presence necessary for employer's protection

7. State Governor—residence in governor's mansion part of position

8. Cemetery Caretaker—on premises for security measures

9. Zoo Veterinarian—on call 24 hours a day for animal care

10. Flight attendant—working on flights during meals

11. Gas Station attendant—one person on duty to wait on customers

12. Food-server—required to work during normal meal periods

6-8 Employee benefits that would serve either employers or society at large should be
considered. Some possibilities are discussed below.

1. Allow employees to take up to 40 hours a year in time off paid by the

employer for the explicit purpose of donating that time to qualified charities.
This would be nontaxable income. The charitable organization would verify to
the employer that the employee did volunteer services. This would increase
charity by the private sector, reducing part of the burden carried by the
government.

2. Many employees incur large clothing expenses to present themselves in a

manner preferred by their employers yet cannot deduct any of these expenses
unless the clothing qualifies as uniforms. The issuance of a stipulated clothing
allowance, deductible by the employer and excludable by the employee,
would help alleviate this condition.

3. Provisions could be made where an employee could exclude from income the
receipt of a sizeable cash benefit to quit smoking. The employer would benefit
by an improved atmosphere on the premises, the probably increased longevity
and health of the employee, and a tax-deductible expense. Other incentives for
health improvements such as weight loss for obese persons could also be
included.

4. An excludable employee benefit that would serve to reduce urban traffic

congestion and corresponding air pollution would be to encourage the use of
public transportation for commuting to work. Although businesses currently
may provide transportation in a commuter highway vehicle, this would carry
the idea further and utilize existing facilities. Employees would have
 nontaxable income equal to the employer's reimbursement of documented
expenditures for traveling to and from work on city buses, subways, and
commuter trains. Some employers would benefit by reduced costs involved in
providing employee parking.

6-9 Gifts of income-producing property to family members who are at least 19 years
old (or 24 if a full-time student) and have lower marginal tax rates will produce a
reduction of the family's total income tax liability. Although the transferor has no
deduction and the transferee has no taxable income on the amount of the gift, the
savings of taxes on the property's income could be substantial. [See p. 6-35, §
102(a), and Reg. § 1.102-1.]

6-10

a. Payments that represent alimony are deductible for A.G.I. by the payor and
taxable income to the payee. Child support payments are nondeductible
personal expenses and nontaxable income to the recipient. [See Example 33,
pp. 6-35 through 6-40, and §§ 71(a) and 215(a).]

b. For payments to qualify as child support, they must be a specific fixed

amount, paid solely for the support of minor children (under age 21), and
payable by decree, instrument, or agreement. If all three requirements are not
met, the payments are treated as alimony with no part considered to be child
support. In the current arrangement, the entire amount would be deductible by
the husband and taxable income for the wife. (See Example 38, and p. 6-39.)

c. Many divorce agreements require that (1) periodic cash payments be made by
one party to the other and (2) title to specified assets be transferred from one
party to the other. Tax implications of cash payments are given in b above.
When title to assets is transferred, (1) the recipient has no taxable income and
the bases in the assets (or portion of an asset) not previously owned transfers
with the property, and (2) neither party recognizes any gain or loss. These
varying tax results allow for considerable tax-planning when negotiation is
possible. For discussion purposes, it is assumed the husband's marginal tax
rate is 28 percent and the wife's is 15 percent after changes to the agreement
made below. (See Example 62 and p. 6-56.)

1. One possible option is to increase the amount of the periodic payment and
allocate most or all of it to alimony rather than child support. All of it is
treated as alimony if no specific dollar amount is assigned to child care.
This benefits both the husband and wife because every $100 of alimony
has an after-tax cost to the husband of $72 and an after-tax benefit to the
wife of $85. In contrast, his after-tax cost of $85 of child care is $85 and
her benefit is $85. Thus, her situation remains the same and he saves $13
with the change.

2. Another available option is to transfer title of more income-producing

 property to the wife and decrease periodic payments. In this situation, the
taxable income from the property is taxed at the wife's lower marginal
rate. This achieves the same tax effect as alternative (1) above. Of course,
the property transferred should have taxable income and not be tax-exempt
or tax-deferred.

3. Any property to be sold should be transferred to the party with the lower
marginal tax rate (and possibly to one of the children).

6-11

a. The DRA, as amended by the TRA of 1986, included a provision to

discourage excessive amounts from being treated as alimony in the early
years. Accordingly, under the front loading rules, alimony must be recaptured
in the third year if alimony payments decreased by more than $15,000 during
the three-year period. The recapture for the second year is $10,000 ($25,000
paid in the second year – $0 paid in the third year – $15,000). The recapture
for the first year is $2,500 [$25,000 paid in the first year – ($25,000 paid in
the second year – $10,000 excess from the first calculation = $15,000 + $0
paid in the third year = $15,000/2 = $7,500 average for the two years) –
$15,000]. H's deduction for A.G.I. and W's taxable income are $25,000 for the
first year and $25,000 for the second year. In the third year, the recaptures
exceed payments; thus, H's taxable income and W's deduction for A.G.I. is
$12,500 ($10,000 + $2,500).

b. The payment schedule could be restructured so that the $50,000 payments

could be paid equally over the three years.

c. W could minimize her taxable income by requiring the $50,000 to be paid in

the first year.

(See Examples 36 and 37 and pp. 6-37 through 6-39.)

6-12

a. The value of the prizes may be less than their selling price if the property won
has no resale market or is nontransferable. The Tax Court has estimated the
value of such prizes to be what the particular winner could and would pay for
similar goods. Even if the prize can be sold, an argument could be made
against the IRS's assigned retail selling price. Many items have a list selling
price but are readily attainable at show-room stores or discount marts at
reduced prices. The value designated should not exceed what a prudent
shopper would pay for the prizes. (See p. 6-42.)

b. Prizes and awards that are made in recognition of the recipients' achievement
in religious, charitable, scientific, educational, artistic, literary, or civic work
are excluded if (1) the recipients were selected without any direct action on
their part to enter the contest, (2) they are not required to perform substantial
 future services as a condition of receiving the prize or award, and (3) they
designate the payor to give the award to a governmental unit or tax-exempt
organization. [See Example 43 and p. 6-45 and § 74(b).]

6-13 Prior to the TRA of 1986, recipients may have qualified for a limited exclusion.
However, amounts received after 1986 generally will be included in taxable
income unless the recipient designates that the payor give the award to a
governmental unit or to a tax-exempt organization. [See Example 43 and p. 6-45
and §§117 and 74(b).]

6-14 The amounts withdrawn from a § 529 plan are nontaxable if they are used for
qualified education expenses as defined in § 529(e)(3). Qualified education
expenses include tuition, fees, books, supplies, equipment, and room and board
for students who are at least half-time that are "required for the enrollment or
attendance of a designated beneficiary." (In addition, expenses for special needs
services for a special needs beneficiary also qualify.) The amounts paid for
tuition, fees and books clearly qualify since they meet the letter of the statute. The
costs of the appliances, furniture and bedding do not qualify since they are not
"required" for enrollment. The major issue is whether the computer can be
considered equipment and whether it is "required" for enrollment. Under a special
rule contained in § 529(e)(3)(A)(iii), purchases of computers for 2009 and 2010
were considered qualified higher education expenses. However, this rule was not
extended. Consequently, for 2012 and future years, the issue, once again, is
whether the computer is required for enrollment. This issue was addressed in
James M. Gorski, et ux. v. Commissioner, TC Summary Opinion 2005-112, a case
involving application of the 10% early withdrawal penalty to use of distributions
that are not used for qualified education expenses.

In Gorski, the taxpayer had withdrawn amounts used for purchase of a

computer for the taxpayer's daughter who was attending Miami of Ohio. The
court acknowledged that "neither the Internal Revenue Code nor the applicable
regulations provide specific guidance on whether a computer is a qualified higher
education expense." It said the real issue was whether it was "necessary" for their
daughter's attendance at the university. According to the court,
"[N]otwithstanding the absence of documentation from Miami University stating
that it requires students to purchase a computer, it cannot be said from this record
that a computer was required for Kathleen's enrollment in classes." The court
explained that the school did not require students to have a computer; in fact, it
provided a limited number of computers for students to use in the library. Second,
the Gorskis admitted that Kathleen was not enrolled in any classes that required
her to have her own computer. Thus, having a personal computer was more of a
convenience than a requirement. It should also be noted that the court said that the
$400 the Gorskis spent on books for their daughter was disallowed in part because
they did not have all of the receipts to prove they had spent this money. In
addition, none of the books were required her enrollment or for any specific class.
Thus a dictionary might be a handy thing to have, but if it is not a requirement of
admission, it is not a "qualified higher education expense." (See. pp. 6-15 and 6-
 16.)

6-15

a. When no amount is specifically assigned to a non-competition agreement, the

entire amount is for goodwill. Thus, the allocation as stated would result in
$40,000 capital gain to the seller and a deductible business expense
(amortized ratably over a period of 15 years) to the purchaser. (See Example
50 and p. 6-48.)

b. Because amounts assigned to a non-competition clause are included in

ordinary income, the seller may be reducing his tax liability with the current
arrangement (where all of the $40,000 is considered to be goodwill).

c. Effective for acquisitions after August 10, 1993 all "Section 197 intangibles"
must be amortized over 15 years. The taxpayer must use the 15-year period
even if the useful life is actually more or less than 15 years. Section 197
intangibles include, among others, goodwill and covenants not to compete.
Consequently, the buyer would be indifferent. (See p. 6-48.)

6-16

a. V will have taxable income of $530,000 if the court awards the amounts and
specifications as requested. The $500,000 award for personal injury due to
slander is not for physical injury or sickness and therefore, represents taxable
income. The award for psychiatric care will reduce any itemized medical
deductions but could be taxable as a reimbursement if V received a tax benefit
for them in a prior year. The award for lost wages is considered to be for back
pay and thus is included in gross income. (See p. 6-42.)

b. Unfortunately, V no longer has much leeway. After the 1996 legislation,

amounts received for non-physical injuries (except for amounts paid for
medical care) are taxable.

PROBLEMS

6-17

a. $22,200. Gross income for proprietorships, partnerships, and corporations is

total revenues plus net sales less cost of goods sold. (See p. 6-48.)

$21,000 + $3,000 – $1,800 = $22,200

b. $6,000. Total rents received are included in gross income. Expenses incurred
for rental property are deductions allowed to arrive at A.G.I. (See pp. 3-18 and
3-19 and Example 8 in Chapter 4 and p. 4-8.)

c. $15,000. A taxpayer is denied deductions for amounts withheld for social

 security or federal income taxes. Health insurance premiums are only
deductible as itemized deductions. The employer's share of social security
taxes is considered nontaxable income to the employee.

6-18

a. Z will have taxable dividend income on his joint return of $330. Basis remains
unchanged at $6,000.

(See pp. 6-4 and 6-5.)

b. Because it is a return of capital, the full $330 is excluded from gross income.
Basis is reduced to $5,670 ($6,000 – $330) and the basis of each share is
$113.40 ($5,670 = 50). [See Example 1, pp. 6-4 and 6-5,
and§§301(c)(3)and316(a).]

6-19

a. Assuming A did not have the right to receive cash or other assets in lieu of the
stock, she has no taxable income. Her $12,000 basis is allocated among the
total 110 shares of common stock for a $109.09 per-share basis ($12,000 =
110 shares). [See Example 2, p. 6-6, and §§ 305(a) and 307(a).]

b. The stock dividend does not result in any taxable income. The original basis
of the common stock is allocated over both the preferred stock and the
common stock based on their relative fair market values. The preferred stock
will have a total basis of $779.22, or a $77.92 per-share basis. [($1,000 fair
market value preferred/the total fair market value $1,000 + $14,400) ×
$12,000 basis = $779.22 preferred basis.] The common stock will have a total
basis of $11,220.78 ($12,000 – $779.22) or a $112.21 per-share basis
($11,220.78 = 100 shares). This is again assuming A did not have the right to
receive cash or other assets in lieu of the stock. [See Example 3, p. 6-6, and §§
305(a) and 305(b)(5).]

6-20

a. Distribution $40,000

Dividend (taxable):

Current E&P $10,000

Accumulated E&P 20,000

Return of investment (nontaxable) 10,000

Total $40,000
 b. Sales price $ 36,000

Original cost of stock $ 25,000

Less return of investment (10,000) (15,000)

Long-term capital gain $ 21,000

[See Example 1, pp. 6-4 through 6-5, and § 316(a).]

6-21

Interest:

Interest on U.S. Treasury bond $ 900

Corporate bonds 1,100

Gain on sale of tax-exempt City of Maryville bonds 300

Bank savings account 200

Personal loan 500

Life insurance 2,500*

Taxable interest $5,500

*The interest portion of the $7,500 received from the insurance company is
computed as follows:

Amount received currently $ 7,500

Less: return of capital ($50,000 = 10 years) (5,000)

Taxable interest $ 2,500

Interest received from state or municipal bonds, except industrial development or

arbitrage bonds, is fully excluded from gross income. However, gain or loss is
recognized on the sale of such bonds. [See Example 4, pp. 6-7 and 6-8, and §
103(a)(1). Note that interest paid on federal securities such U.S. Treasury Bonds
are fully taxable for federal income tax purposes. In addition, special rules apply
to Series EE savings bonds issued by the Federal government. (See p. 6-9 and
Chapter 5.)

6-22

a. H and W may exclude $1,200 [60% the interest ($4,000 – $1,000) = $5,000 ×
$2,000]. The interest exclusion applies only to the extent that the proceeds of
 the bond redemption are used to pay for qualified education expenses. These
include tuition but not room and board. In addition, any qualifying expenses
must be reduced by any scholarship received or employer assistance. (See
Example 6 and p. 6-9.)

b. It would appear that D should not have withdrawn. A technical reading of the
Code implies that the exclusion is only available to the extent the bond
proceeds are actually used for education expenses in the year of the
redemption. Because no qualified educational expenses were paid, no
exclusion is allowed. (See pp. 6-9 through 6-10.)

c. The exclusion would not be available because S is not a dependent at the time
the bonds are redeemed. He is not a qualifying child since he fails the age test
(not less than 19 or less than 24 and a full-time student). Similarly, he does
not qualify as a dependent under the qualifying relative test because his gross
income exceeds the amount of personal exemption and he is at least 24 years
old. (See p. 6-10.)

d. The exclusion is phased out once a married couple's A.G.I. in the year of the
redemption exceeds certain thresholds. For 2012, the phase-out begins at
$109,250 and is complete when A.G.I. exceeds $139,250. In effect, the
taxpayer loses about 3.33% for each $1,000 over the threshold. Therefore, the
exclusion equals $50 (i.e., $110,000 – $109,250 = $750 / $30,000 = 2.5% ×
$2,000 = $50). The amount taxable is $1,950 ($2,000 – $50 = $1,950.) (See §
135(b)(2) and Form 8815 Example 7 and p. 6-9.) Note that the phase- out
percentage is rounded to at least three decimals.

e. No exclusion. The exclusion is available only if the bonds were issued to

someone who was 24 years of age at the time they were issued. Note that
without this rule, the income limitation could be circumvented by gifting the
bonds to a low-income child or gifting cash and having the child purchase the
bonds. (See p. 6-10.)

6-23

a. Part of the annuity is a nontaxable return of capital, and the remainder is

interest income. To calculate the portion that is a return of capital on a lifetime
annuity, a multiple corresponding to the annuitant's age is derived from Table
V, Reg § 1.72-9. (See partial reproduction, p. 6-14.) Since P was 65 when the
annuity payments began, his return of capital on the annuity is $2,000,
calculated as follows:

The interest on the annuity is the remaining $3,000. [See Example 12 pp. 6-12
 through 6-13, and § 72(b).]

b. The exclusion ratio as determined at age 65 remains constant and is applied to

P's annuity payments as long as he continues to receive them, until payments
are made for the expected 20.0 years. Therefore, of the $5,000 P will receive
in year five, $2,000 will be a return of the capital and $3,000 will continue to
be taxable. [See Example 12, p. 6-13, and § 72(b).]

c. P's taxable income from the annuity will be the entire $5,000 received. After
20 years, the entire $40,000 investment will have been recovered ($2,000 × 20
= $40,000). [See Example 12, p. 6-13, and § 72(b).]

d. If P lives only 15 years, the total amount he excludes is $30,000 ($2,000 × 15

= $30,000), and the unrecovered amount of $10,000 ($40,000 – $30,000) is
allowed as a deduction on P's final tax return.

[See Example 12, p. 6-13, and § 72(b).]

e. Investments that are not from after-tax funds are ignored in determining P's
basis in the investment. Therefore, P's basis is limited to $12,000.

Thus, P has taxable income of $4,400 ($5,000 – $600 = $4,400).

6-24

a. The nontaxable portion of each $1,500 monthly payment to A is computed as

follows:

Therefore, of the first 260 payments A receives, $1,350 ($1,500 – $150) will
be included in gross income each month.

b. After 260 annuity payments have been made, any additional payments will be
fully taxable. This is true because A will have recovered his investment of
$39,000 in full (i.e., 260 months × $150 = $39,000). (See Example 13, pp. 6-
13 and 6-14.)

6-25

a. Cash withdrawals, including loans, before the annuity starting date are
normally taxable to the extent of the earnings accumulated in the account.
Amounts in excess of the earnings are treated as a nontaxable return of capital
 until the taxpayer’s cost has been completely recovered. If Lois, withdraws
$10,000 from her annuity account that has accumulated earnings of $4,000,
$4,000 would be taxable and the remaining $6,000 would be a nontaxable
return of her investment. In addition, she would be assessed a penalty of 10
percent of the income or $400 (10% × $4,000 deferred income) since she has
not reached age 59½. In addition, she should determine whether there are any
other penalties charged by the vendor for withdrawals before the starting date.

b. The result would be the same as in (a) above. Loans are treated the same as
withdrawals.

c. If Lois is 63 when she takes the withdrawal the outcome would be somewhat
different since the withdrawal occurs after the starting date, age 60, and she
has reached age 59½. Withdrawals of a single sum (other than as an annuity)
after the annuity starting date are generally in the same manner as early
withdrawals (taxable to the extent of accumulated earnings), assuming it is an
annuity for which simplified treatment is required. However, there is no
penalty. If she fully surrendered her annuity any time, the amount received is
tax free to the extent of any cost not previously recovered tax free.

(See IRS Publication 975 pp. 11 and 12 (2011), Example 9, and p. 6-11.)

6-26

a. None of the $20,000 distribution is included in either Z's or the parent's gross
income. (See Example 15 and pp. 6-15 and 6-16.)

b. The earnings portion of the "nonqualified" withdrawal is subject to income tax

and an additional 10 percent penalty tax. Thus, Z's parents must include
$20,000 in their gross income (i.e., total proceeds received of $80,000 less
total contributions of $60,000). (See p. 6-16.)

6-27

a. Without an election, the taxable gift is $32,000 ($45,000 – $13,000 annual

exclusion in 2012). (See p. 6-16.)

b. If the election is made, V is treated as making $9,000 in gifts ($45,000 / 5 =

$9,000) to W in 2012–2016. Assuming no other gifts are made by V to W in
these five years, the $9,000 gifts are offset by the $13,000 annual exclusion
(2012) and consequently no gift tax will be paid in 2012 through 2016. (See
Example 16 and p. 6-17.)

c. In 2012, 2013, 2014 and the year of death, V may exclude $9,000 annually or
a total of $39,000. The remaining $9,000 will be included in V's gross estate.
(See p. 6-17.)

6-28 As a general rule, life insurance proceeds received by a beneficiary on account of

 the insured's death are excluded. If the beneficiary takes the life insurance
proceeds in installments, the portion representing the life insurance is nontaxable
but any excess (e.g., investment earnings while the proceeds are left with the
insurance company) are taxable. Each installment represents a prorata portion of
the insurance. In this case, there are five installments of $5,200 so each
installment represents $4,000 ($20,000 proceeds / 5 installments) of nontaxable
life insurance and the remaining $1,200 is taxable. Alternatively, the exclusion
can be computed as follows:

(See Example 40 and p. 6-41.)

6-29 As a general rule, social security benefits are nontaxable. However, if the
taxpayer's modified A.G.I. (including half of the social security benefits received)
exceeds certain thresholds, up to 85 percent of the benefits could be taxable.

a. Taxable interest $12,000

Dividend income 10,000

A.G.I. $22,000

Taxable social security benefits:

A.G.I. $22,000

Plus: Tax-exempt interest 8,000

½ of social security benefits 3,600

Modified AGI $33,600

X's taxable social security is $3,600 computed as follows:

Step 1 Amount Lesser of

50% × social security of $7,200 $3,600

Or

50% × ($33,600 – $25,000 = $8,600) $4,300

Step 1 amount $3,600

Step 2 Amount Lesser of

Another random document with
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Fig. 80.—Dorsal view of male Diastylis
stygia, × 12. A, 2nd antenna; Ab.6, 6th
abdominal appendage. (After Sars.)

Order II. Cumacea.[96]

The Cumacea are a group of small marine animals rarely attaining

an inch in length, which agree with the Mysidacea in the characters
noted above as diagnostic of the Division Peracarida; they possess,
however, in addition a number of peculiar properties, and Sars
believes them to be of a primitive nature showing relationship to
Nebalia, and possibly to an ancestral Zoaea-like form. They follow a
habit similar to that of the Mysidacea, being caught either in the
surface-plankton or in great depths, many of the deep-sea forms
being blind. They are, however, not true plankton forms, and they
appear to attain a greater development both in point of variety and
size in the seas of the northern hemisphere. The thoracic limbs may
be biramous, but there is a tendency among many of the genera to
lose the exopodites of some of the thoracic legs, an exopodite never
being present on the last few thoracic limbs of the female and on the
last in the male. In the Cumidae the four posterior pairs in both sexes
have no exopodites. The first three thoracic appendages following the
maxillae are distinguished as maxillipedes; they are uniramous, and
the first pair carries an epipodite and a large gill upon the basal
joints. Pleopods are only developed in the male sex.
The flagellum of the second antennae in the male may be
enormously elongated, as in the Atlantic deep-sea species shown in
Fig. 80, so as to exceed in length the rest of the body.
Fam. 1. Cumidae.—No sharp demarcation between thorax and
abdomen. Four posterior pairs of legs in both sexes without
exopodites. Male with five well-developed pleopods in addition to the
uropods. Telson wanting. Cuma, Cyclaspis, etc.
Fam. 2. Lampropidae.—Body-form resembles that of Cumidae.
All the thoracic limbs except the last have exopodites. The male has
three pairs of pleopods. Telson present. Lamprops, Platyaspis, etc.
Fam. 3. Leuconidae.—Body-form similar to above. Male has
only two pairs of pleopods. Mouth-parts peculiar, much less setose
than in other families. Telson absent. Leucon, Eudorella.
Fam. 4. Diastylidae.—Anterior part of thorax sharply marked
off from posterior part. Male has two pairs of pleopods. Telson
present. Diastylis (Fig. 80). D. goodsiri from the Arctic ocean
measures over an inch in length.
Fam. 5. Pseudocumidae.—Rather similar to Diastylidae, but
differ in reduced size of telson and presence of exopodites on third
and fourth thoracic legs of female. This family is represented by
three very similar marine forms of the genus Pseudocuma; but, as
Sars has shown,[97] the Caspian Sea contains thirteen peculiar
species, only one of which can be referred to the genus Pseudocuma,
while the rest may be partitioned among four genera, Pterocuma,
Stenocuma, Caspiocuma, Schizorhynchus.

Order III. Isopoda.

The Isopoda and the Amphipoda are frequently classed together as

Arthrostraca or Edriophthalmata, owing to a number of features
which they share in common, as, for instance, the sessile eyes which
distinguish them from the podophthalmatous Schizopoda and
Decapoda, the absence of a carapace, and the thoracic limbs which
are uniramous throughout their whole existence. For the rest, in the
presence of brood-plates and the other diagnostic characters, they
are plainly allied to the other Peracarida, and an easy transition is
effected from the Mysidacea to the Isopoda through the Chelifera or
Anisopoda. Only one thoracic segment is usually fused with the head,
the appendage of this segment being the maxillipede; in the Chelifera
among Isopoda, and the Caprellidae among Amphipoda, two
thoracic segments are fused with the head.
The Isopoda are distinguished from the Amphipoda by the dorso-
ventral flattening of the body, as opposed to the lateral flattening in
the Amphipoda, by the posterior position of the heart, and by the
branchial organs being situated on the abdominal instead of on the
thoracic limbs.
The Isopoda, following Sars’[98] classification, fall into six sub-
orders—the Chelifera, Flabellifera, Valvifera, Asellota, Oniscoida,
and Epicarida,—to which must be added the Phreatoicidea.
 Sub-Order 1. Chelifera.

The Chelifera, including the families (1) Apseudidae and (2)

Tanaidae, are interesting in that they afford a transition between
the ordinary Isopods and the Mysidacea. The important features in
which they resemble the Mysidacea are, first, the fusion of the first
two thoracic segments with the head, with the coincident formation
of a kind of carapace in which the respiratory functions are
discharged by a pair of branchial lamellae attached to the
maxillipedes; and, second, the presence of very small exopodites on
the first two thoracic appendages of the Apseudidae.
The second pair of thoracic limbs, i.e. the pair behind the
maxillipedes, are developed both in the Apseudidae and Tanaidae
into a pair of powerful chelae, and these frequently show marked
sexual differences, being much more highly developed in the males
than in the females. The biramous and flattened pleopods are purely
natatory in function, and the uropods or pleopods of the sixth pair
are terminal in position and slender.
Both families, of which the Apseudidae contain the larger forms,
sometimes attaining to an inch in length, are littoral in habit, or
occur in sand and ooze at considerable depths, many of the genera
being blind. Many Tanaids (e.g. Leptochelia, Tanais, Heterotanais,
etc.) live in the algal growths of the littoral zone, and being highly
heliotropic they are easy to collect if a basinful of algae is placed in a
strong light. The females carry the eggs about with them in a brood-
pouch formed, as is usual in the Peracarida, by lamellae produced
from the bases of the thoracic limbs. The males on coming to
maturity do not appear to grow any more, or to take food, their
mouth-parts frequently degenerating and the alimentary canal being
devoid of food. They are thus in the position of insects which do not
moult after coming to maturity; and, as in Insects, the males are apt
to show a kind of high and low dimorphism—certain of the males
being small with secondary sexual characters little different from
those of the females, while others are large with these characters
highly developed. Fritz Müller, in his Facts for Darwin, observes
that in a Brazilian species of Leptochelia, apparently identical with
the European L. dubia, the males occur under two totally distinct
forms—one in which the chelae are greatly developed, and another in
which the chelae resemble those
of the female, but the antennae in
this form are provided with far
longer and more numerous
sensory hairs than in the first
form. Müller suggested that these
two varieties were produced by
natural selection, the characters
of the one form compensating for
the absence of the characters of
the other. A general consideration
of the sexual dimorphism in the
Tanaidae[99] lends some support
to this view, since the smaller
species with feeble chelae do
appear to be compensated by a
greater development of sensory
hairs on the antennae, but the
specific differences are so difficult
to appreciate in the Tanaidae that
it is possible that the two forms of
the male in Müller’s supposed
single species really belonged to
two separate species.
 Fig. 81.—Apseudes spinosus, ♂, × 15. A,
1st antenna; Ab, 6th abdominal
appendage; T, 2nd thoracic appendage.
(After Sars.)

Sub-Order 2. Flabellifera.

The Flabellifera include a number of rather heterogeneous families

which resemble one another, however, in the uropods being lateral
and not terminal, and being expanded together with the telson to
form a caudal fan for swimming. The pleopods are sometimes
natatory and sometimes branchial in function. Some of the families
are parasitic or semi-parasitic in habit.
Fam. 1. Anthuridae.—These are elongated cylindrical creatures
found in mud and among weeds upon the sea-bottom; their mouth-
parts are evidently intended for piercing and sucking, but whether
they are parasitic at certain periods on other animals is not exactly
known. Anthura, Paranthura, Cruregens.
Fam. 2. Gnathiidae.[100]—These forms appear to be related to
the Anthuridae; they are ectoparasitic on various kinds of fish during
larval life, but on assuming the adult state they do not feed any more,
subsisting merely on the nourishment amassed during the larval
periods. The larvae themselves are continually leaving their hosts,
and can be taken in great numbers living freely among weeds on the
sea-bottom. The larvae, together with the adults of Gnathia
maxillaris, are extremely abundant among the roots of the sea-weed
Poseidonia cavolinii in the Bay of Naples. The young larvae hatch
out from the body of the female in the state shown in Fig. 82, A. This
minute larva fixes upon a fish, and after a time it is transformed into
the so-called Praniza larva (B), in which the gut is so distended with
the fluid sucked from the host that the segmentation in the hind part
of the thorax is entirely lost. When this larva moults it may, however,
reacquire temporarily its segmentation. After a certain period of this
parasitic mode of life the Praniza finally abandons its host, and
becomes transformed into the adult male or female. This may take
place at very different stages in the growth of the larva, the range of
variation in size of the adults being 1–8 mm., and it must be
 remembered that when once the
adult condition is assumed
growth entirely ceases. What it is
that determines the stage of
growth in each individual when it
shall be transformed into the
adult is not known. The males
and females differ from one
another so extraordinarily that it
was for long denied that they
were both derived from the
Praniza larvae. This is
nevertheless the case. The change
from the Praniza to the female
(Fig. 82, C) is not very great. The
ovary absorbs all the
nourishment in the gut and
comes to occupy the whole of the
body, all the other organs
degenerating, including the
alimentary canal and mouth-
Fig. 82.—Gnathia maxillaris. A, parts. Indeed, only the limbs with
Segmented larva, × 10; B, Praniza their muscles and the nervous
larva, × 5; C, gravid female, × 5; D, system remain. The change to the
male, × 5.
male (D) is more radical. The
food is here stored in the liver,
which increases in the male just as the ovary does in the female. The
segmentation is reacquired, and the massive square head is formed
from the hinder part of the head in the Praniza, the anterior portion
with its stylet-like appendages being thrown away. The powerful
nippers of the male are not formed inside the cases of the old
styliform mandibles, but are independent and possibly not
homologous organs. The meaning of the marked sexual dimorphism
and the use of the males’ nippers are not in the least known, though
the animals are easy to keep under observation. In captivity the
males never take the slightest notice of either larval or adult females.
Fam. 3. Cymothoidae.[101]—This is a group of parasites more
completely parasitic than the foregoing, but their outer organisation
does not differ greatly from an ordinary Isopodan form. A great
many very similar species are known which infest the gill-chambers,
mouths, and skin of various fishes. The chief interest that attaches to
them is found in the fact that a number of them, and perhaps all, are
hermaphrodite, each individual acting as a male when free-
swimming and young, and then subsequently settling down and
becoming female. This condition is exactly the same as that
occurring universally in the great group of parasitic Isopoda, the
Epicarida, to be considered later. There is no evidence that the
Cymothoidae are phyletically related to the Epicarida, so that the
similar sexual organisation appears to be due to convergence
resulting from similar conditions of life. The general question of
hermaphroditism in the Crustacea has been shortly discussed on pp.
105–106. Cymothoa.
Fam. 4. Cirolanidae.—In this family is placed the largest Isopod
known—the deep-sea Bathynomus giganteus, found in the Gulf of
Mexico and the Indian Ocean, sometimes measuring a foot long by
four inches broad. A common small littoral form is Cirolana.
Fam. 5. Serolidae.[102]—The genus Serolis comprises flattened
forms bearing a curious resemblance to Trilobites, which Milne
Edwards considered more than superficial. The genus is confined to
the littoral and deep waters of the southern hemisphere.
Fam. 6. Sphaeromidae.[103]—These are flattened, broad-bodied
forms, most commonly met with in the Mediterranean and warmer
seas. Without being actually parasitic, they are frequently found as
scavengers in decaying material, and they show some relationship to
the parasitic Cymothoidae. In some of the genera, e.g. Cymodoce, the
ovigerous female shows a degenerate condition of the mouth-parts,
while the maxillipedes undergo an enlargement, and are used for
causing a current through the brood-chamber.

Sub-Order 3. Valvifera.

The Valvifera, illustrated by the Idotheidae and Arcturidae, are

characterised by the uropods being turned back and expanded to
form folding doors covering up the delicate pleopods, which are
mostly respiratory in function, though the anterior pairs may serve
as swimming organs. Arcturus is a typically deep sea genus, many
species, remarkably furnished
with spiny processes, having been
taken by the Challenger in the
southern hemisphere. The
Idotheidae are more littoral
forms, several species of Idothea
being commonly met with off the
British coasts, occasionally
penetrating into brackish or even
fresh water.

Fig. 83.—Munnopsis typica

(Munnopsidae), ♂ , × 2. A, 2nd
antenna; Ab, abdomen; T, 5th thoracic
appendage or 4th leg. (After Sars.)

Sub-Order 4. Asellota.

In this group the abdominal segments are fused dorsally to form a

shield-like caudal region; the pleopods are respiratory in function
and reduced in numbers, the first pair being often expanded and
produced backwards to form an operculum covering the rest. Several
of the Asellota are fresh-water, Asellus aquaticus (Asellidae) being
extremely abundant all over Europe in weed-grown ditches, the mud
of slowly-moving streams, and even on the shores of large lakes.
They are mostly sluggish in habit, but the marine Munnopsidae
(Fig. 83, Munnopsis) are expert swimmers, the swimming organs
being fashioned by the expansion and elongation of the thoracic legs.

Sub-Order 5. Oniscoida.
 The Oniscoida[104] are terrestrial forms in which the abdomen is
fully segmented, the pleopods are respiratory, their endopodites
being delicate branchiae, while their exopodites are plate-like and
form protective opercula for the gills, and the uropods are biramous
and not expanded. The epimera of the segments are greatly
produced. The terrestrial Isopods, although air-breathers,[105] are
dependent on moisture, and are only found in damp situations. It
seems probable that they have been derived from marine Isopods,
since the more generalised of them, e.g., Ligia (Fig. 84), common on
the English coasts, are only found in damp caves and crannies in the
rocks.

Fig. 84.—Ligia oceanica, ventral and dorsal views, × 1. (From

original drawings prepared for Professor Weldon.)

The related Ligidium is found far inland, but always in the

neighbourhood of water. These two genera may be distinguished by
the numerous joints in the flagellum of the second antennae, the
flagellum being in all cases the portion of the antenna succeeding the
long fifth joint. Philoscia muscorum occurs usually near the coast,
but it is also found inland in England under trees in damp moss. This
genus and the common Oniscus, found in woods, are distinguished
by the presence of three joints in the flagellum of the second
antenna. Philoscia can be distinguished from Oniscus by its
narrower body and the pretty marbled appearance of its back. The
genus Trichoniscus has four joints in the flagellum; various species
are found in woods. In Porcellio and Armadillidium there are only
two joints in the flagellum, while Armadillidium, the common
garden wood-louse, can be distinguished from all others by the
flattened shape of the uropods, and the habit of rolling up into a ball
like an Armadillo.
There is also a very peculiar species, Platyarthrus hoffmannseggii,
which occurs in England and Northern Europe, and always lives in
ants’ nests. It is supposed that they serve as scavengers for the ants,
which tend them carefully, and evidently treat them as domestic
animals of some kind. The small creature is quite white and blind,
and has exceedingly short antennae.

Sub-Order 6. Epicarida.

The Epicarida include an immense number of Isopods, parasitic

upon other Crustacea. In the adult state they become greatly
deformed, and offer very few characters of classificatory value, but
they all pass through certain highly characteristic larval stages which
are essentially similar in the different families. All the species are
protandric hermaphrodites, each individual being male while in a
larval state, and then losing its male organisation and becoming
female as the parasitic habit is assumed.
Two series of families are recognised according to the larval stages
passed through, the Cryptoniscina, in which the adult male
organisation is assumed in the Cryptoniscus stage, and the female
condition is imposed directly upon this form, and the Bopyrina, in
which the Cryptoniscus passes into a further larval stage, the
Bopyrus, which performs the function of the male, and upon which
the female organisation is imposed as the parasitic habit is assumed.
The following is a list of the Epicarida with the Crustacea which
serve as their hosts[106]:—
 Microniscidae on Copepoda.
Cryptoniscidae on Ostracoda.
Liriopsidae on Rhizocephala.
Cryptoniscina Hemioniscidae on Cirripedia.
Cabiropsidae on Isopoda.
Podasconidae on Amphipoda.
Asconiscidae on Schizopoda.

Dajidae
Phryxidae
Bopyrina on Decapoda
Bopyridae
Entoniscidae
In all cases the first larval form
which hatches out from the
maternal brood-pouch is called
the Epicaridian larva (Fig. 85).
This little larva has two pairs of
antennae, a pair of curious frontal
processes, and a pair of
mandibles. The other mouth-
parts are missing; there are only
six thoracic limbs, but the full
complement of six biramous
pleopods are present, and at the
end of the body there may be a
long tube of unknown function.
Fig. 85.—Epicaridian larva, probably As a type of the
belonging to one of the Cryptoniscina. Cryptoniscina we may take the
A, 2nd antenna; Ab, abdominal Liriopsidae,[107] parasitic on the
appendages; T, thoracic appendages. Rhizocephala, which are, of
(From Bonnier, after Hansen.)
course, themselves parasitic on
the Decapoda, the whole
association forming a very remarkable study in Carcinology.
Almost every species of the Rhizocephala is subject to the attacks
of Liriopsids, the latter fixing either on the Rhizocephala themselves,
or else on the Decapod host at a point near the fixation of the
Rhizocephalous parasite. An exceedingly common Liriopsid is
Danalia curvata, parasitic on Sacculina neglecta, which is itself
parasitic on the spider-crab, Inachus mauritanicus, at Naples. The
adult Danalia is a mere curved bag full of eggs or developing
embryos, and without any other recognisable organs except two pairs
of spermathecae upon the ventral surface where the spermatozoa
derived from the larval males are stored.
In Fig. 86 is represented a
female of Inachus mauritanicus
which carried upon it two
Sacculinae and a Danalia
curvata, and upon the latter are
seen two minute larval males in
the act of fertilising the adult
Danalia. The eggs develop into
the Epicaridian stage, after which
the larva passes into the
Cryptoniscus stage (Fig. 87). In Fig. 86.—Inachus mauritanicus, ♀, × 1,
this larval form the segments are carrying two Sacculina neglecta (a, b),
clearly delimited; the only mouth- and a Danalia curvata (c), the latter
bearing two dwarf males.
parts present are the mandibles,
but there are seven pairs of
thoracic limbs and the full number of pleopods. This Cryptoniscus
stage is found in all the Epicarida, and only differs in detail in the
various families.
In the Cryptoniscina the Cryptoniscus larva is the male, and at this
stage possesses a pair of large testes in the thorax. The ovaries are
also present at this stage as very small bodies applied to the anterior
ends of the testes. The larval males in this state seek out adult fixed
Danaliae and fertilise them; and, when this is accomplished, they
themselves become fixed to the host and begin to develop into the
adult female condition. The limbs are all lost, and out of the mouth
grows a long proboscis (Fig. 88, P), which penetrates the tissues of
the host. The ovaries begin to grow, and a remarkable process of
absorption in the testes takes place. These organs, when fixation
occurs, are never empty of spermatozoa, and are frequently crammed
with them. After fixation some large cells at the interior borders of
the testes begin to feed upon the remains of these organs and to grow
enormously in size and to multiply by amitosis. These phagocytes, as
they really are, attain an enormous size, but they are doomed to
 degeneration, the chromatin
becoming dispersed through the
cytoplasm, and the nuclei
dividing first by amitosis and
then breaking up and
disappearing. As the parasite
grows, the heart at the posterior
end of the body ceases to beat;
the ovaries increase enormously
at the expense of the alimentary
canal, and on the ventral surface
two pairs of spermathecae are
invaginated ready to receive the
spermatozoa of a larval male. In
the adult condition, after
fertilisation has taken place and
the ovaries occupy almost the
whole of the body, the remains of
the phagocytic cells can be seen
on the dorsal surface in a
degenerate state. They evidently
are not used as food, and their
sole function is to make away
with the male organisation when
it has become useless.[108]
In the series Bopyrina, after
Fig. 87.—Ventral view of Cryptoniscus the free-living Epicaridian and
larva of Danalia curvata, ♂, × 25. Cryptoniscus stages, a further
larval state is assumed, called the
Bopyrus, which is the functional
male, and, after performing this function, passes on to the adult
female condition.
The family Bopyridae is parasitic in the branchial chamber of
Decapoda, especially Macrura and Anomura. When one of these
Decapods is infested with an adult Bopyrid the gill-chamber in which
it is situated is greatly swollen, as shown in Fig. 90. A very common
Bopyrid is Bopyrus fougerouxi, parasitic in the gill-chambers of
Palaemon serratus. The Bopyrus larva or functional male has the
 appearance shown in Fig. 91. It
differs from the Cryptoniscus
stage in possessing a rudimentary
pair of anterior thoracic limbs
and seven pairs normally
developed, while the abdominal
limbs are plate-like and branchial
in function. The male can often be
found attached to the female
beneath the last pair of
incubatory lamellae.
Fig. 88.—Side view of Danalia curvata, The adult female condition,
× 15, shortly after fixation and loss of which is assumed after the
larval appendages. A, Alimentary canal; Bopyrid stage is passed through,
E, eye; H, heart; N, phagocytic cells; O,
ovary; P, proboscis.
is illustrated in Fig. 92. The body
acquires a remarkable
asymmetry, due to the unequal
pressure exerted by the walls of
the gill-chamber. The antennae
and mandibles (Fig. 92, B) are
entirely covered up by the largely
expanded maxillipedes; maxillae
are, as usual, entirely absent.
Very large lamellae grow out from
the bases of the thoracic limbs to
form a brood-pouch, and in this
manner the adult condition is
attained.
The final complication in the
life-histories of these Isopoda is
reached by the family
Entoniscidae, which are
parasitic when adult inside the Fig. 89.—Optical section (dorsal view)
thoracic cavity of Brachyura and of Danalia curvata, in the same stage
Paguridae. The cephalothorax of as Fig. 88. A, Alimentary canal; Ec,
ectoderm; H, heart; N, phagocytic cells;
a Carcinus maenas, which O, ovaries; P, proboscis.
contains an adult Portunion
maenadis (P), is shown in Fig. 93.
 The parasite is of a reddish colour
when alive.

Fig. 90.—Galathea intermedia, with a

Pleurocrypta microbranchiata under
its left branchiostegite (B), × 1. (After
Sars.)
Fig. 91.—Ventral view of male Bopyrus
fougerouxi, × 30. A, 1st and 2nd
antennae; T, 8th (last) thoracic
appendage. (After Bonnier.)
 Fig. 92.—Bopyrus fougerouxi. A, Ventral
view of female carrying a male (M)
between her abdominal appendages, × 8;
B, ventral view of part of head of female,
the maxillipedes and the left mandible
having been removed. A.1, A.2, 1st and
2nd antennae; M, male; Mn, right
mandible; Mx, left maxillipede; O,
oostegite; T, left 4th thoracic appendage
or 3rd leg. (After Bonnier.)

The Entoniscidae pass through a free living Epicaridian and

Cryptoniscus stage, and become adult males in the Bopyrus stage. It
is stated, however, by Giard and Bonnier[109] that these individuals,
which actually function as males, never grow up into adult females,
though all the adult females have
passed through a male stage in
which the male genital ducts are
not formed. The
hermaphroditism, therefore, in
these animals at any rate is
absolutely useless from a
reproductive point of view, and
this justifies our looking for some
other explanation of it, such as
was suggested on p. 105.

Fig. 93.—Cephalothorax of Carcinus

maenas, seen from the ventral side,
containing a parasitic Portunion
maenadis (P), × ½. (After Bonnier.)

Fig. 94.—Portunion maenadis, ♀:—A, Young, × 10; B, older, × 5;

C, adult, before the eggs are laid, × 3. A, 2nd antenna; Ab,
abdomen; B, anterior lobe of brood-pouch; B′, its lateral lobe; H,
head; 1, 2, 1st and 2nd incubatory lamellae (oostegites). (After
Giard and Bonnier.)
 The Bopyrus fixes in the gill-chamber of the host and becomes
converted into the adult female by a series of transformations. As
these changes take place it invaginates the wall of the gill-chamber
and pushes its way into the thoracic cavity of the crab, though it lies
all the time enveloped in the invaginated wall of the gill-chamber,
and not free in the body-cavity of the crab. The transformations
which it undergoes are shown in Fig. 94. The body first assumes a
grub-like appearance (A), and two pairs of incubatory lamellae (1, 2)
grow out from the first and second thoracic segments. In the next
stage (B) these lamellae assume gigantic proportions, and four pairs
of branchiae grow out from the abdominal segments (Ab). In the
final stage (C) the incubatory lamellae have further increased in size,
and constitute the main bulk of the body; the enormous mass of eggs
is passed into the incubatory pouch, and all that remains of the rest
of the body is the small head (H) and the abdomen (Ab), furnished
with its branchiae. Communication with the external world is kept
up through an aperture which leads from the brood-pouch into the
gill-chamber of the host, and through this aperture the young are
hatched out when they are developed sufficiently.
The presence of these parasites, although they are never in actual
contact with the internal organs of the crab, calls forth the same
phenomenon of parasitic castration as was observed in the
Rhizocephala. A remarkable association is also found to exist
between the Entoniscidae and Rhizocephala, of such a kind that, on
the whole, a crab infested with a Rhizocephalan is more likely to
harbour an Entoniscid than one without. The explanation of this
association is probably that a crab with a Sacculina inside it is
prevented from moulting as often as an uninfected crab, and, in
consequence, the larval stages of the Entoniscid in the crab’s gill-
chamber are more safely passed through.

Sub-Order 7. Phreatoicidea.[110]

The members of this sub-order, although agreeing with the

Isopoda in the essentials of their anatomy, resemble the Amphipoda
in being rather laterally compressed, and in having the hand of the
first free thoracic limb enlarged and subchelate. The abdomen is
greatly produced laterally by expansions of the segments. In fact, the
shape of the body and of the limbs is very Amphipodan.—
Phreatoicus from New Zealand, Southern Australia, and Tasmania.
Phreatoicopsis,[111] a very large form from Gippsland, Victoria. Only
one family exists, Phreatoicidae.

Order IV. Amphipoda.

In this order the body is flattened laterally, the heart is anterior in

position, and the branchial organs are attached to the thoracic limbs.
There are three well defined sub-orders, (i.) the Crevettina,
including a vast assemblage of very similar animals, of which the
common Gammarus and Orchestia may serve as examples; (ii.) the
Laemodipoda or Caprellids, and (iii.) the Hyperina.
We cannot do more than touch on the organisation of these sub-
orders.

Sub-Order 1. Crevettina.

In this sub-order only one thoracic segment is fused with the head;
the basal joints of the thoracic limbs are expanded to form broad
lateral plates, and the abdomen is well developed, with six pairs of
pleopods, the last three pairs being always turned backwards, and
stiffened to act as uropods.
This group has numerous fresh-water representatives, e.g.
Gammarus of several species, the blind well-shrimp Niphargus, and
the S. American Hyalella; but the vast majority of the species are
marine, and are found especially in the littoral zone wherever the
rocks are covered with a rich growth of algae, Polyzoa, etc. The
Talitridae or “Sand-hoppers” have deserted the waters and live
entirely in the sand and under rocks on the shore, and one common
European species, Orchestia gammarellus, penetrates far inland,
and may be found in gardens where the soil is moist many miles
from the sea.
The Rev. T. R. R. Stebbing, in his standard work[112] on this group,
recognises forty-one families, and more than 1000 species, so that