Question 1. Which of the following is nota requirement for an alimony deduction?

1. Which of the following is nota requirement for an alimony deduction?

a. The payments must be in cash.

b. The payments must cease upon the death of the payee.

c. The payments must extend over at least three years.

d. The payor and payee must not live in the same household at the time of the payments.

e. All of the above are requirements for an alimony deduction.

2. Tim and Janet were divorced. Their only marital property was a personal residence with a value of $120,000 and cost of $50,000. Under the terms of the divorce agreement, Janet would receive the house and Janet would pay Tim $15,000 each year for 5 years, or until Tim’s death, whichever should occur first. Tim and Janet lived apart when the payments were made to Tim. The divorce agreement did not contain the word “alimony.”

a. Tim must recognize a $35,000 [$60,000 – 1/2($50,000)] gain on the sale of his interest in the house.

b. Tim does not recognize any income from the above transactions.

c. Janet is not allowed any alimony deductions.

d. Janet is allowed to deduct $15,000 each year for alimony paid.

e. None of the above.

3. Thelma and Mitch were divorced. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years, or until Thelma’s death, whichever should occur first. Thelma and Mitch lived apart when the payments were made by Mitch. Mitch paid the $600,000 to Thelma over the six­year period. The divorce agreement did not contain the word “alimony.” Then, Mitch sold the stocks for $1,300,000. Mitch’s recognized gain from the sale is:

a. $0.

b. $1,000,000 ($1,300,000 – $300,000).

c. $700,000 ($1,300,000 – $600,000).

d. $300,000 ($1,300,000 – $1,000,000).

e. None of the above.

4. The alimony recapture rules are intended to:

a. Assist former spouses in collecting alimony when the other spouse moves to another state.

b. Prevent tax deductions for property divisions.

c. Reduce the net cash outflow for the payor.

d. Distinguish child support payments from alimony.

e. None of the above.

5. The alimony rules:

a. Are based on the principle that the person who earns the income should pay the tax.

b. Permit tax deductions for property divisions.

c. Look to state law to determine the definition of alimony.

d. Distinguish child support payments from alimony.

e. None of the above.

6. Under the terms of a divorce agreement, Kim was to pay her husband Tom $7,000 per month in alimony. Kim’s payments will be reduced to $3,000 per month when their 9 year-old son becomes 21. The husband has custody of their son. For a twelve-month period, Kim can deduct from gross income (and Tom must include in gross income):

a. $60,000.

b. $48,000.

c. $36,000.

d. $0.

e. None of the above.

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