I need a USA tutor who is aware of Retirement planning and employee benefits.

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Part 1:

Read each statement below. Decide whether each statement is true or false.

Participants of a stock bonus plan sponsored by a C corporation must be given pass-through voting rights for the employer stock held by the plan.

Melissa is the sole shareholder of Cupcake Surprises, Inc. (CSI) and sells 25% of the company stock to an ESOP for $550,000. Melissa had an adjusted basis in the CSI stock of $100,000. Provided Melissa reinvests the $550,000 in qualified replacement securities, she will not be required to recognize any capital gain.

One disadvantage of an ESOP is that it may place an unnecessary cash flow burden on the plan sponsor.

Elizabeth, age 60, has been a participant in the ADM, Inc. ESOP for 22 years. The normal retirement age of the ESOP is 65 years old. If Elizabeth’s ESOP account balance is comprised of ADM stock valued at $4,000,000, and considering that Elizabeth has not elected to diversify any amount prior to the current year, ADM must allow Elizabeth to diversify at least $1,000,000 of her ESOP account balance.

A profit sharing plan is required to offer its participants, or the participant’s beneficiaries, a qualified preretirement survivor annuity (QPSA).

If Brad begins receiving distributions from a profit sharing plan calculated over his life expectancy at the age of 28, the distributions will be subject to income tax but will not subject to the 10% penalty.

Vicki has a vested account balance in her employer-sponsored profit sharing plan of $25,000. Upon her termination from the plan sponsor, she elected to take a full distribution from the plan. If Vicki does not rollover the entire $25,000 to an IRA (or other qualified plan) within 60 days she will only be subjected to tax on 80% of the distribution.

An individual has a vested account balance in his employer-sponsored profit sharing plan of $120,000. He would like to take a loan for the maximum amount permitted. The individual has not taken any other plan loans before. The maximum loan the individual can take is $50,000.

KDT, Inc. would like to establish a qualified retirement plan to benefit its 95 full-time employees. (KDT does not have any other employees.) KDT would like to fund the plan with cash each year and does not want to make contributions to the plan in years that the company does not have a profit. Given this information, and considering the employee census data, the best qualified retirement plan for KDT would be a cash balance pension plan.

An individually-designed qualified plan will generally cost more for a company to establish than a prototype plan.

Desk Town, Inc. has employees located in offices and stores in Houston, Philadelphia, and Buffalo. Desk Town would like to establish a qualified retirement plan for its employees in the Houston and Philadelphia offices only. It has already completed initial testing and has determined that its plan will meet the coverage tests while excluding Buffalo because none of the employees in the Buffalo office meet the eligibility requirements of the plan. However, Desk Town must still notify the employees located in the Desk Town Buffalo offices and stores of its establishment of the qualified retirement plan.

A plan sponsor has the right to terminate a qualified retirement plan when the plan sponsor no longer has the funds available to continue funding the plan at a reasonable level.

Mandy, a single 29 year old, has an AGI in 2012 of $52,000. She is eligible to defer to her 401(k) plan, but she has not deferred any compensation to the 401(k) plan for 2012. However, she did receive a qualified matching contribution of $200. Her maximum deductible contribution to an IRA for 2012 is $5,000.

An individual is considered an active participant in a defined contribution plan if the individual receives a qualified nonelective contribution from the plan sponsor so that the plan sponsor can meet the required ADP test. The individual need not make or receive any other allocations to the qualified plan for the year.

Robbie had been an active participant in a qualified plan for four years. His AGI exceeded the thresholds to make deductible IRA contributions for those years, but Robbie continued to make nondeductible IRA contributions totaling $9,000 (these were the only nondeductible contributions to the IRA - all other contributions were pre-tax). If Robbie were to take a distribution of $10,000 from his IRA, valued at $100,000, $900 would not be subjected to ordinary income tax.

Justine earns $22,000 as an employee of CHS Systems (CHS). Before filing its 2012 tax return, CHS decides to establish a SEP plan for its employees and contribute the maximum amount permissible for the benefit of each employee. In this case, Justine may receive a contribution of $11,500 to her SEP account.

Contributions to SIMPLE plans predominantly consist of employer contributions.

Rock, age 28, terminated employment with Stone Brothers on April 30, 2012. Before terminating employment Rock had earned $25,000 of compensation and deferred $6,000 to the SIMPLE sponsored by Stone Brothers. If during the remaining months of 2012 Rock earns $40,000 from his new employer who sponsors a 401(k) plan, Rock may defer up to $17,000 of the $40,000 of compensation to their 401(k) plan.

Otto is a participant in his employer-sponsored 401(k) plan during part of the year. Later in the year, Otto becomes a participant in his new employer’s 403(b) plan. Otto can defer an aggregate maximum of $17,000 (2012) (plus $5,500 if age 50 and over) to the 401(k) plan and the 403(b) plan.

Hank’s employer sponsors a 457(f) plan. Hank, age 41, earns $400,000 per year and defers $25,000 to the 457(f) plan each year. Although there is no limit on deferrals to an ineligible plan, only $17,000 of the deferral is protected by trust. The remaining $8,000 ($25,000 - $17,000) is the only amount subject to the employer’s creditors.

MULTIPLE CHOICE:

Circle your answer for each of the following questions. Multiple selections will be counted as incorrect answers.

Randy, age 63, is a participant in the stock bonus plan of XYZ, Inc., a closely held corporation. Randy received contributions in shares of XYZ stock to the stock bonus plan and XYZ, Inc. had the following income tax deductions:

Years	# of Shares	Value per Share (At Time of Contribution)
Year 1	100	$12
Year 2	125	$15
Year 3	150	$8
Year 4	200	$18
Year 5	400	$20
TOTAL	975	$14.60 Simple Average Price

Randy terminates employment in Year 6 and takes a distribution from the plan of 975 shares of XYZ, Inc., having a fair market value of $24,000. Which of the following correctly describes Randy’s tax consequences for Year 6 from this distribution if Randy does not sell the XYZ stock until Year 8?

Randy has ordinary income of $15,875 and long term capital gain of $8,125 in Year 6.

Randy has long term capital gain of $24,000 in Year 6.

Randy has ordinary income of $15,875 in Year 6.

Randy has a long term capital gain of $8,125 in Year 6.

Bobby owns Advertising Solutions, Inc. (ASI) and sells 100% of the company stock on July 1 of the current year to an ESOP for $3,000,000. Bobby had an adjusted basis in the ASI stock of $450,000. If Bobby reinvests in qualified replacement securities before the end of the current year, which of the following statements is true?

Bobby will not recognize long term capital gain or ordinary income in the current year.

Bobby must recognize $2,550,000 of long term capital gain in the current year.

Bobby must recognize $450,000 of ordinary income in the current year.

If Bobby dies before selling the qualified replacement securities, his heirs will have an adjusted taxable basis in the qualified replacement securities of $450,000, Bobby’s carryover adjusted basis.

Which of the following statements concerning stock bonus plans and ESOPs is(are) true?

1. They both give employees a stake in the company through stock ownership and allow taxes to be delayed on stock appreciation gains.

2. They both limit availability of retirement funds to employees if an employer’s stock falls drastically in value and create an administrative and cash-flow problem for employers by requiring them to offer a repurchase option (a.k.a. put option) if their stock is not readily tradable on an established market.

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.

Emily, age 58, has been a participant in the Icon, Inc. ESOP for fifteen years. She plans to retire at 65. At the end of this year, Emily’s entire account balance is comprised of Icon stock valued at $1,000,000. Emily believes that Icon has a bumpy future ahead and would like to diversify some of her ESOP investments. (She has not diversified any interest in ICON prior to this time.) How much must Icon allow Emily to diversify this year?

$250,000.

$500,000.

$750,000.

$1,000,000.

Which of the following qualified plan distributions will be subjected to a 10% early withdrawal penalty?

Lonnie, age 35, takes a $100,000 distribution from his profit sharing plan to pay for his son’s college tuition.

Carolyn, age 56, was terminated from UBEIT Corporation. Carolyn takes a $125,000 distribution from the UBEIT retirement plan to pay for living expenses.

Brad, age 47, takes a $1,000,000 distribution from his employer’s profit sharing plan. Six weeks after receiving the $800,000 check (reduced for 20% withholding), Brad deposited $1,000,000 into a new IRA account.

Tara, age 22, begins taking equal distributions over her life expectancy from her qualified plan. The annual distribution is $2,000.

Jason turned 70½ in November of this year. He was a participant in his employer’s profit sharing plan. His profit sharing plan had an account balance of $250,000 on December 31 of last year, and $200,000 on December 31 of the prior year. According to the Uniform Lifetime Table, the factors for ages 70, 71, and 72 are 27.4, 26.5, and 25.6 respectively. What is Jason’s required minimum distribution for this year?

$7,300.

$7,547.

$7,812.

$9,124.

Robin began taking required minimum distributions from her profit sharing plan in 2007. In 2010, Robin died after suffering a heart attack. She did not have a named beneficiary for her profit sharing plan. Which of the following statements is false?

Robin’s estate may take a full distribution of the profit sharing plan’s assets in the year of her death.

In the year of Robin’s death the minimum required distribution will be equal to the minimum required distribution had Robin not died.

Robin’s estate must take a distribution of the profit sharing plan account balance by the end of 2014.

The required minimum distribution for years subsequent to Robin’s death will be calculated utilizing the factor according to Robin’s age reduced by one in each succeeding year.

Thomas, age 55 and the owner of a computer repair shop, has come to you to establish a qualified plan. The repair shop, which employs mostly young employees, has had steady cash flows over the past few years, but Thomas foresees shaky cash flows in the future as new computer prices decline. Thomas would like to allocate as much of the plan contributions to himself as possible. He is the only employee whose compensation is in excess of $100,000. Which of the following qualified plans would you advise Thomas to establish?

Profit sharing plan.

Defined benefit pension plan.

Cash balance pension plan.

Money purchase pension plan (Integrated).

Which of the following statements regarding determination letters for qualified plans is true?

When a qualified plan is created, the plan sponsor must request a determination letter from the IRS.

An employer who adopts a prototype plan must request a determination letter from the IRS.

If a qualified plan is amended, the plan sponsor must request a determination letter from the Department of Labor.

A qualified plan which receives a favorable determination letter from the IRS may still be disqualified at a later date.

All of the following are acceptable reasons for an employer to terminate a qualified retirement plan except:

The employer is no longer in a financial position to make further plan contributions.

The employer no longer wants to maintain the plan because it must cover other employees other than just himself.

The plan benefits are not meaningful amounts, and participants are limited in their ability to make deductible IRA contributions.

To lower plan costs and ease administrative complexity, the employer wants to switch plan designs.

Perry operates In-N-Out Pharmacy, a sole proprietorship. In-N-Out sponsors a profit sharing plan. Perry had net income of $205,000 and paid self employment taxes of $30,000 during the year. If Perry makes a 15% of salary contribution on behalf of all of his employees to the profit sharing plan, how much is the contribution to the profit sharing plan on behalf of Perry?

$22,820.

$24,776.

$28,500.

$30,750.

Eric, age 53, had the following items of income:

· Investment returns as a limited partner in a partnership of $1,200.

· Unemployment compensation of $350.

· Income from a law practice of $600.

· Deferred compensation from a former employer of $14,000.

· Alimony of $750.

· Wages of $1,000.

What is the maximum contribution Eric can make to an IRA in 2012?

$2,350.

$2,700.

$5,000.

$6,000.

Charles, a single 29 year old, deferred 2% of his salary, or $2,000, into a 401(k) plan sponsored by his employer during 2012. What is the maximum deductible IRA contribution Charles can make during 2012?

$0.

$1,000.

$4,000.

$5,000.

At the age of 57, James converted his traditional IRA, valued at $45,000, to a Roth IRA. At age 60, James took a distribution from this Roth IRA of $100,000 to buy a new car for his daughter for college. Which of the following statements is true with regards to the distribution from the Roth IRA?

$100,000 will be subject to ordinary income tax.

$55,000 will be subject to ordinary income tax.

$55,000 will not be subject to ordinary income tax or penalty.

$55,000 will be subject to ordinary income tax and penalty.

Corey, age 54 and single, has compensation this year of $85,000. His employer does not sponsor a qualified plan, so Corey would like to contribute to a Roth IRA. What is Corey’s maximum contribution for this year to the Roth IRA?

$0.

$5,000.

$6,000.

$21,250.

Which of the following statements is(are) true?

1. A SEP requires the plan sponsor to provide at least a 100% match up to 3% of all employee deferrals.

2. A SEP plan can be established by employers who employ more than 100 employees who earn $5,000 or more during the preceding calendar year.

3. SIMPLEs can be either contributory or noncontributory plans, whereas SEP plans are always noncontributory.

4. An employer who wants to share the responsibility of retirement plan funding should establish a SIMPLE rather than a SEP.

4 only.

2 and 3.

1, 2, and 4.

2, 3, and 4.

Which of the following statements regarding a SEP is true?

1. The maximum contribution to a SEP is the lesser of 100% of compensation or $50,000 for 2012.

2. A SEP is appropriate for an employer with many part-time employees who want to limit coverage under the SEP.

3. Contributions to a SEP must vest at least as rapidly as a 5 year cliff vesting schedule or 2 to 6 year graduated vesting schedule.

4. If a partnership makes a flat percentage contribution equal to 25% of all employees’ salary for the year to a SEP, a partner earning $100,000 during the year would receive a $25,000 contribution.

4 only.

1 and 3.

1 and 4.

None of the statements are true.

Jennifer, age 54, earns $125,000 annually from ABC Incorporated. ABC sponsors a SIMPLE, and matches all employee deferrals 100% up to a 3% contribution. Assuming Jennifer defers the maximum to her SIMPLE, what is the total contribution to the account in 2012 including both employee and employer contributions?

$13,750.

$14,250.

$17,750.

$20,000.

Which of the following statement(s) regarding 403(b) plans is true?

1. Assets within a 403(b) plan may be invested in individual securities.

2. A 403(b) plan usually provides a 3 to 7 year graduated vesting schedule.

3. A 403(b) plan must pass the ACP test if it is an ERISA plan.

4. In certain situations, a participant of a 403(b) plan can defer an additional $15,000 as a catch up to the 403(b) plan.

4 only.

1 and 2.

3 and 4.

2, 3, and 4.

Which of the following statements regarding 457 plans is(are) true?

1. An individual who defers $17,000 to his 403(b) plan during 2012 can also defer $17,000 to a 457 plan during 2012 (salary and plan permitting).

2. A 457 plan allows an executive of a tax-exempt entity to defer compensation into an ERISA protected trust.

3. In the final three years before normal retirement age, a participant of a government sponsored 457 plan may be able to defer $34,000 (2012) for the plan year.

1 only.

2 only.

1 and 3.

2 and 3.

41. Which of the following is an example of a qualified retirement plan?

(a) Rabbi trust.

(b) 401(k) plan.

(d) ESPP.

42. John has been employed by Phone Services, Inc. for 13 years, and currently earns $450,000 per

year. John saves $40,000 per year. He plans to pay off his home at retirement and live debt

free. He currently spends $80,000 per year on his mortgage. What do you expect John’s wage

replacement ratio to be based on the above information?

(a) 65.68%.

(b) 70.41%.

(d) 91.11%.

43. Which of the following factors may affect a retirement plan?

1. Career earnings.

2. Retirement life expectancy.

3. Mortality.

4. Savings rate.

(a) 1 and 2.

(b) 2 and 3.

(d) All of the above.

44. Christian wants to retire in 15 years when he turns 65. Christian wants to have enough money

to replace 75% of his current income less what he expects to receive from Social Security at the

beginning of each year. He expects to receive $18,000 per year from Social Security in today’s

dollars. Christian is aggressive and wants to assume an 8% annual investment rate of return

and that inflation will be 3% per year. Based on his family history, Christian expects that he

will live to be 95 years old. If Christian currently earns $80,000 per year and he expects his

raises to equal the inflation rate, how much does he need at retirement to fulfill his retirement

goals?

(a) $1,022,807.

(b) $1,072,458.

(d) $1,583,152.

45. Which of the following vesting schedules may a non-top-heavy profit sharing plan use?

1. 2 to 6 year graduated.

2. 3-year cliff.

3. 1 to 4 year graduated.

4. 3 to 7 year cliff.

(a) 1 only.

(b) 2 and 3.

(d) 1, 2, 3, and 4.

46. Jason, age 52, is a highly compensated employee who earns $300,000 per year and is a

participant in his employer’s 401(k). His employer also made a 20% profit sharing plan

contribution during the year. Ignoring the ADP test requirements, what is the maximum

amount that Jason can defer under the 401(k) during 2012?

(a) $0.

(b) $5,500.

(d) $20,500.

47. Randy, age 63, is a participant in a stock bonus plan sponsored by XYZ, Inc., a closely held

corporation. Randy’s account was credited with contributions in shares of XYZ stock to the

stock bonus plan and XYZ Inc. had the following income tax deductions:

Years # of Shares Deduction per Share (At Time of Contribution)

Year 1 100 $12

Year 2 125 $15

Year 3 150 $8

Year 4 200 $18

Year 5 400 $20

TOTAL 975 Simple Average Price $14.75

Randy terminates employment in August of Year 6 and takes a distribution from the plan

consisting of 975 shares of XYZ, Inc., having a fair market value of $24,000. If Randy sells the

stock for $40,000 six months after receiving the distribution, which of the following statements

are true?

1. Randy has ordinary income of $14,382 in year 6.

2. Randy has long term capital gain of $24,000 in year 6.

3. Randy has long term capital gain of $8,125 in year 6.

4. Randy has a short term capital gain of $16,000 in year 7.

(a) 1 only.

(b) 4 only.

(d) 2 and 4.

48. Alicia owns Advertising Solutions, Inc. (ASI) and sells 100% of the company stock on January

2 of this year to an ESOP for $2,000,000. Alicia had an adjusted basis in the ASI stock of

$150,000. She purchased the stock on July 3, 2001. Which of the following statement(s) are

true?

1. Alicia will not recognize long term capital gain or ordinary income this year if she

reinvests the proceeds of the sale in qualified replacement securities within 12 months.

2. Alicia must recognize $1,850,000 of long term capital gain at the time of the sale to the

ESOP.

3. If Alicia dies before selling the qualified replacement securities when the fair market value

of those qualified replacement securities is $4,000,000, her heirs will have an adjusted

basis in the qualified replacement securities of $2,150,000.

(a) 1 only.

(b) 2 only.

(d) None of these statements are true.

49.Which of the following qualified plan distributions are subject to a 10% early withdrawal

penalty?

1. Carolyn, age 56, currently employed by UBEIT Corporation, takes a $125,000

distribution from the UBEIT 401(k) plan.

2. Brad, age 60, takes a $1,000,000 distribution from his employer’s profit sharing plan.

Ten days after receiving the $800,000 check (reduced for 20% withholding), Brad

deposited the $800,000 into a new IRA account.

3. Tara, age 22, withdraws $2,000 of her contributions from her 401(k).

(a) 1 only.

(b) 3 only.

(d) 1 and 3.

50. In August of this year, Paul turned 71. He was a participant in his former employer’s profit

sharing plan. His profit sharing plan had an account balance of $600,000 on December 31 of

this year, and $450,000 on December 31 of last year. According to the Uniform Lifetime

Table the factors for ages 70, 71, and 72 are 27.4, 26.5, and 25.6 respectively. What is the

amount of Paul’s first required minimum distribution for this year?

(a) $16,423.

(b) $16,981.

(d) $22,641.

51. George, age 60, is a member of We Work, LLC. We Work sponsors a profit sharing plan.

George’s portion of the net income was $200,000 and one-half of his self employment taxes

were $8,258 for this year. If We Work makes a 25% of salary contribution on behalf of all of

its employees to the profit sharing plan, how much is the contribution to the profit sharing

plan on behalf of George?

(a) $38,348.

(b) $42,000.

(d) $50,000.

52. Justin, age 42, had the following items of income:

Earnings as a general partner in a partnership of $400.

Workers compensation of $600.

Gambling losses of $200.

Distribution from profit sharing plan of $1,500.

Wages from an S Corp of $2,000.

Income from Municipal Bond Portfolio of $100,000.

Justin also contributed $1,000 to his Roth IRA during the year. What is the maximum deduction

Justin can take for a traditional IRA contribution for this year?

(a) $1,000.

(b) $1,400.

(d) $5,000.

53. Shawn, a married 29 year old, deferred 10% of his salary, or $10,000, into a 401(k) plan

sponsored by his employer this year. His wife was unemployed all year and did not receive

unemployment compensation. Assuming Shawn has no other income, what is the maximum

contribution Shawn’s wife can make to her Roth IRA for this year?

(a) $0.

(b) $1,000.

(d) $6,000.

54. Maxine, age 35, earns $200,000 annually from ABC Incorporated. ABC sponsors a SIMPLE,

and matches all employee deferrals 100% up to a 3% contribution. What is the maximum

employee deferral contribution to Maxine’s SIMPLE account for this year?

(a) $6,000.

(b) $11,500.

(d) $20,000.

55. Which of the followings statement(s) regarding 403(b) plans is true?

1. Assets within a 403(b) plan may be invested in annuities.

2. Assets within a 403(b) plan may be invested in mutual funds.

3. All 403(b) plans must pass the ADP test.

4. In certain situations, a participant of a 403(b) plan can defer an additional $25,000

(catch up) to a 403(b) plan in a single plan year.

(a) 1 only.

(b) 1 and 2.

(d) 1, 2, and 4.

56. Vance has a vested account balance in his employer-sponsored qualified profit sharing plan of

$40,000. He has two years of service with his employer and the plan follows the least generous

graduated vesting schedule permitted for a profit sharing plan under PPA 2006. If Vance has

an outstanding loan balance within the prior 12 months of $15,000, what is the maximum

loan Vance could take from this qualified plan, assuming the plan permitted loans?

(a) $5,000.

(b) $20,000.

(d) $50,000.

57. RCM Incorporated sponsors a qualified plan that requires employees to meet one year of

service and to be 21 years old before being considered eligible to enter the plan. Which of the

following employees are not eligible?

1. Donald, age 18, who has worked full-time with the company for 3 years.

2. Rachel, age 22, who has worked full-time with the company for 6 months.

3. Randy, age 62, who has worked 500 hours per year for the past 6 years.

4. Theodore, age 35, who has worked full-time with the company for 10 years.

(a) 4 only.

(b) 1 and 2.

(d) 1, 2, and 3.

58. Bank Corp has a defined benefit plan with 60 employees. What is the minimum number of

employees the defined benefit plan must cover to conform with the requirements set forth by

the IRC?

(a) 24.

(b) 30.

(d)50.

59. Margaret earned $4,000 during January of this year. She was unemployed for February and

March, and during April she earned an additional $3,000. She did not work again until

December, during which time she earned $1,200. How many quarters of coverage has

Margaret earned for Social Security during this year?

(a) 1.

(b) 3.

(d) 7.

60.

Which of the following statements is true?

(a) Social Security payments are not adjusted for inflation.

(b) A worker’s average indexed monthly earnings (AIME) will be their Social Security benefit

at retirement.

age of 66.

(d) A 70 year old worker will have their Social Security benefits reduced based on earnings

from their current employment.

61. A single individual has an adjusted gross income of $28,000, no tax-exempt interest, and Social

Security benefits of $14,000. How much of this individual’s Social Security benefits is subject

to income tax?

(a) $5,000.

(b) $5,350.

(d) $11,900.

62. Which of the following situations might convince an employer to choose a nonqualified

retirement plan over a qualified profit-sharing plan?

(a) The employer, a closely held C Corporation, is in the 15% income tax bracket and the sole

owner of the employer is in the 35% income tax bracket.

(b) The employer only wants to meet the organization’s objectives of attracting executives,

retaining executives, and providing for a graceful transition in company leadership. The

employer is not concerned with providing retirement benefits to the rank and file

employees.

(d) All of the above.

63. Which of the following statements concerning rabbi trusts is(are) correct?

(a) A rabbi trust is a trust established and sometimes funded by the employer that is subject to

the claims of the employer’s creditors, but any funds in the trust cannot generally be used

by or revert back to the employer.

(b) A rabbi trust calls for an irrevocable contribution from the employer to finance promises

under a nonqualified plan, and funds held within the trust cannot be reached by the

employer’s creditors.

(d) All of the above are correct.

64. Jackie receives incentive stock options (ISOs) with an exercise price equal to the FMV at the

date of the grant of $22. Jackie exercises these options 3 years from the date of the grant when

the FMV of the stock is $30. Jackie then sells the stock 3 years after exercising for $35. Which

of the following statements is (are) true?

1. At the date of grant, Jackie will have ordinary income equal to $22.

2. At the date of exercise, Jackie will have W-2 income of $8.

3. At the date of sale, Jackie will have long-term capital gain of $13.

4. Jackie’s employer will not have a tax deduction related to the grant, exercise or sale of

this ISO by Jackie.

(a) 3 only.

(b) 3 and 4.

(d) 1, 2, and 4.

65. Marguerite received nonqualified stock options (NQSOs) with an exercise price equal to the

FMV at the date of the grant of $22. Marguerite exercises the options 3 years after the grant

date when the FMV of the stock was $30. Marguerite then sells the stock 3 years after

exercising for $35. Which of the following statements are true?

1. At the date of the grant, Marguerite will have ordinary income of $22.

2. At the date of exercise, Marguerite will have W-2 income of $8.

3. At the date of sale, Marguerite will have long term capital gain of $5.

4. Marguerite’s employer will have a deductible expense in relation to this option of $22.

(a) 3 only.

(b) 2 and 3.

(d) 1, 2, 3, and 4.

66. Which of the following statements concerning tax considerations of nonqualified retirement

plans is (are) correct?

1. Under IRS regulations an amount becomes currently taxable to an executive even before

it is actually received if it has been “constructively received.”

2. Distributions from nonqualified retirement plans are generally subject to payroll taxes.

(a) 1 only.

(b) 2 only.

(d) Neither 1 nor 2.

67. James is employed by a large corporation with 400 employees. The corporation provides its

employees with a no-cost gym membership at the local public YMCAs. The cost of the

membership is $60/month which is completely paid for by James’ employer for all employees.

How much, if any, must James include in his yearly gross income related to this fringe benefit?

(a) $0.

(b) $60.

(d) $720.

68. Which of the following situations would create an inclusion in an employee’s gross income?

(a) Kay is the director and manager of Holiday Hotel. As a condition of her employment, Kay

is required to live at the hotel. The value of this is $1,000 per month.

(b)Natalie is a secretary at JKL Law Firm. JKL provides her with free soft drinks. Natalie

estimates that she drinks $20 worth of soft drinks per month.

passenger, for free on the airline whenever an open seat is available.

(d) Eric moved from Houston to New Orleans. His expenses for the move included $400 of

truck rental costs, $100 of lodging and $200 of pre-move house hunting expenses. Eric’s

employer reimbursed him $600.

69. Judy is covered by a $200,000 group-term life insurance policy of which her daughter is the

sole beneficiary. Judy’s employer pays the entire premium for the policy, for which the uniform

annual premium is $0.75 per $1,000 per month of coverage. How much, if any, of the cost of

the group-term life insurance is excluded from Judy’s gross income on an annual basis?

(a) $0.

(b) $450.

(d) $1,800.

70. A business valued at $4,000,000 has 4 partners. The partnership purchases a life insurance

policy on each partner’s interest. This is an example of:

(a) A buy-sell entity insurance plan.

(b) A partnership buy/sell plan.

(d) A key person plan.