ED, AN EMPLOYEE OF THE NATURAL COLOR COMPANY, SUFFERED FROM A RARE DISEASE THAT WAS VERY EXPENSIVE TO TREAT.

30. LO.2, 5 Laura was recently diagnosed with cancer and has begun chemotherapy treatments.
A cancer specialist has stated that Laura has less than one year to live. She has incurred a lot of medical bills and other general living expenses and is in need of cash.
Therefore, she is considering selling stock that cost $35,000 and has a fair market value of $50,000. This amount would be sufficient to pay her medical bills. However, she has read about a company (the Vital Benefits Company) that would purchase her life insurance policy for $50,000. She has paid $30,000 in premiums on the policy.
a. Considering only the tax effects, would selling the stock or selling the life insurance policy result in more beneficial tax treatment?
b. Assume that Laura is a dependent child and that her mother owns the stock and the life insurance policy, which is on the mothers life. Which of the alternative means of raising the cash would result in more beneficial tax treatment?

31. LO.2 What is the taxpayers gross income in each of the following situations?
a. Darrin received a salary of $50,000 in 2013 from his employer, Green Construction.
b. In July 2013, Green gave Darrin an all-expense-paid trip to Las Vegas (value of $3,000) for exceeding his sales quota.
c. Megan received $10,000 from her employer to help her pay medical expenses not covered by insurance.
d. Blake received $15,000 from his deceased wifes employer “to help him in his time of greatest need.”
e. Clint collected $50,000 as the beneficiary of a group term life insurance policy when his wife died. The premiums on the policy were paid by his deceased wifes employer.

32. LO.2 Donald was killed in an accident while he was on the job in 2013. Darlene,
Donalds wife, received several payments as a result of Donalds death. What is Darlenes gross income from the items listed below?
a. Donalds employer paid Darlene an amount equal to Donalds three months salary ($60,000), which is what the employer does for all widows and widowers of deceased employees.
b. Donald had $20,000 in accrued salary that was paid to Darlene.
c. Donalds employer had provided Donald with group term life insurance of $480,000 (twice his annual salary), which was payable to his widow in a lump sum. Premiums on this policy totaling $12,500 had been included in Donalds gross income under § 79.

d. Donald had purchased a life insurance policy (premiums totaled $250,000) that paid $600,000 in the event of accidental death. The proceeds were payable to Darlene, who elected to receive installment payments as an annuity of $30,000 each year for a

25-year period. She received her first installment this year.

33. LO.2 Ray and Carin are partners in an accounting firm. The partners have entered into an arms length agreement requiring Ray to purchase Carins partnership interest from Carins estate if she dies before Ray. The price is set at 120% of the book value of
Carins partnership interest at the time of her death. Ray purchased an insurance policy on Carins life to fund this agreement. After Ray had paid $45,000 in premiums, Carin was killed in an automobile accident, and Ray collected $800,000 of life insurance proceeds.
Ray used the life insurance proceeds to purchase Carins partnership interest.
a. What amount should Ray include in his gross income from receiving the life insurance proceeds?
b. The insurance company paid Ray $16,000 interest on the life insurance proceeds during the period Carins estate was in administration. During this period, Ray had left the insurance proceeds with the insurance company. Is this interest taxable?
c. When Ray paid $800,000 for Carins partnership interest, priced as specified in the agreement, the fair market value of Carins interest was $1 million. How much should Ray include in his gross income from this bargain purchase?