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prob033 - She did not charge her sister any interest on the...

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Problem 33 (Text: Ch. 6, 8) Margaret Chudleigh has come to you with details of the following transactions. (1) She gave her spouse 200 common shares of Fly-By-Night Airways Ltd. which had cost her $15 per share in 1980. The fair market value of the shares on the date of the gift was $45 per share. The shares have historically paid dividends of approximately $3 per share per year. (2) She legally transferred, for no proceeds, title to an antique desk to her son, age 15. The desk was valued at approximately $60,000 at the date of the transfer. Margaret had inherited the desk from her grandmother in 1983. The fair market value of the desk was $10,000 at the time of the inheritance. Her son intends to sell the desk in 3 years time to help finance his university education. (3) She loaned $120,000 to her sister to allow her sister to start up a day-care operation. Her sister did not invest any additional funds in the business.
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Unformatted text preview: She did not charge her sister any interest on the loan. The day-care business was unincorporated. Her sister operated this business at a loss for the first year and then decided that she really did not want to be in the day-care business after all. Her sister sold the business for total proceeds of $150,000, the gain of $30,000 being attributed to the existence of a solid client base after one year of operations. None of the gain represented gains on any of the assets purchased with the $120,000 loan. Her sister repaid the loan upon receiving the proceeds from the sale of the business. Required : Discuss all of the possible income tax implications of these transactions through to the ultimate disposition by the recipient of the property involved. Assume that these transactions have all taken place within the last two year period....
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