Question

Fact Pattern –

South Florida CPAs, LLP is a boutique accounting firm in FL. You are currently employed as a tax consultant at South Florida CPAs and have many intriguing clients with interesting (and sometimes strange) circumstances. Because the 2019 tax filing deadline is rapidly approaching, you receive several phone calls from clients inquiring about the tax consequences of recent transactions and events. The second and third pages of this document contain a summary of these phone calls. Note: you will be expected to complete this project using current, post?Tax Cuts and Jobs Act (H.R.1) law. In other words, apply the “new” law to the fact patterns below. To the extent your conclusion is contingent on an unknown fact, you should discuss possible outcomes for different assumptions.

1) Ally is a graduate accounting student at the local university. She is the recipient of a $1,000 scholarship from the university. In addition, Ally works as a part-time teaching assistant in the school of accountancy. She is paid $7,000 per the calendar year and receives a tuition waiver covering 100 percent of her tuition. If not for the waiver, Ally would have paid $8,000 for tuition. Further, she paid $400 for books and supplies related to her coursework and incurred living expenses of $6,200. How much must gross income Ally report?

2) Candace found nearly $10,000 in cash inside the spare tire compartment of a used car she purchased at an auction in December of last year. She did not discover the money until February of the following year. The auctioneer has not asked about the vehicle, nor has anyone else stepped forward to claim the money. Must the cash be included in the discoverer’s gross income? If so, in what year must the income be recognized?

3) Irene contributes $275 towards a cause on a crowdfunding site to support victims of a recent hurricane. When the time comes to file her taxes, she wonders whether the contribution is deductible. Irene also contemplates whether the victims of the hurricane (i.e., the ultimate recipients of the contributions) will have to pay tax on the distribution of the funds from the crowdfunding effort. Is the contribution deductible for Irene, and are the proceeds included in gross income for the beneficiaries?

Answer 1

1)

Calculation of Gross Income of Ally
Particulars		Amount($)		Reason
Scholarship		0		Tax Free
Salary - Part time		7000		Taxable
Waiver - Tuition Fees		0		Tax free
Living Expenses		6200		Taxable
Gross Income		13200

Tax-Free:

If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax-free. Scholarships, fellowship grants, and other grants are tax-free if you meet the following conditions:

• You're a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and
• The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.

Taxable

You must include in gross income:

• Amounts used for incidental expenses, such as room and board, travel, and optional equipment.
• Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant. However, you don't need to include in gross income any amounts you receive for services that are required by the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

2)

Candace found nearly $10,000 in cash inside the spare tire compartment of a used car she purchased at an auction in December of last year. She did not discover the money until February of the following year.

Therefore Income Should be admitted in the following year because cash found only in the subsequent year

3) Amount Contributed to Support the Hurricane victims is deductible in the hands of donor and not taxable in the hands of beneficiary since contribution is made by donor for social benefit