Unformatted text preview: mployee has a $48,000 basis in the stockthe $28,000 income recognized upon exercise plus the $20,000 option price paid for the stock. [See Reg. 1.612(d)(2)(I).] No income is recognized in 2012. [See Example 30, p. 1835, and 421(a)(1).] a. b. No income is recognized on exercise. [See Example 30, p. 1835, and 421(a)(1).] $19,500 (6,000) $13,500 1823 1824 Selling price Basis in shares ($120 cost 50 shares) Capital gain recognized 11 (See Example 30 and p. 1835.) 1825 Selling price Basis Gain ($4,500 is ordinary) $4,500 is bargain element upon exercise [See Example 31, p. 1838, and 421(b).] Selling price Basis Ordinary income (See Example 31 and p. 1835.) $12,500 (6,000) $ 6,500 $9,500 (6,000) $3,500 184 Chapter 18 Employee Compensation and Retirement Plans 1826 a. b. $75,000 [100% taxable per 402(a).] Computation per 402(e): Tax on lumpsum distribution: Total distribution Less: Minimum distribution Less: allowance* Amount previously subject to fiveyear averaging $75,000 (0) $75,000 *Fiveyear averaging has been repealed, thus the computation is not necessary. The problem simply demonstrates the amount that would have been eligible for averaging. 1827 Total distribution Less: Minimum distribution allowance* Amount subject to fiveyear averaging $51,000 (3,800) $47,200 *Fiveyear averaging has been repealed, thus the computation is not necessary. The problem simply demonstrates the amount that would have been eligible for averaging. 1828 1829 $195,000 in 2011. [See Exhibit 183; pp. 1816 and 1810, and 415(b)(1).) A contribution to a qualified plan may be computed only on an employee's first $245,000 (in 2011) of compensation. Therefore, the maximum contribution to Mr. W's retirement account is $70,000. Note this contribution is limited to 100 percent of compensation or $49,000 limitation in 2011. (See Exhibit 18.3, Examples 10 and 11, pp. 1815 through 1817, and 401(a)(17).) Total amount distributed Less: Income tax at 31% 10% premature withdrawal penalty 15% on excess distribution Net aftertax distribution $300,000 (93,000) (30,000) (7,500)* $169,500 1830 *15% on excess distribution of $150,000 less $15,000 (the premature withdrawal penalty on the excess distribution). [See pp. 188 and 189 and 72(t) and 4980A(a) and (...
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 Spring '11
 SMITH
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