Analyze the tax implications

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Analyze the tax implications of the following case studies. Apply the IRS codes to determine what should and shouldn't be included as income. Support your conclusions with reference to specific IRS codes and regulations.

Case Study Problem 1
John and Amy are your tax clients. They were divorced 2 years ago, and they live in separate households. Their divorce decree stated that John was to make monthly payments to Amy. The court designated $300 per month as alimony and $200 per month as child support, or a total of $6,000 per year. Pursuant to the divorce agreement, alimony payments would terminate at the death of the payee. John has been unemployed for much of the year and paid Amy $2,000 that he said was for child support. In addition, John transferred the title to a three-year-old car with a $4,000 fair market value (FMV) and basis of $7,000 in exchange for her promise not to pursue any claim she has against him for the unpaid child support and alimony. Does Amy have to report any alimony, and is John entitled to an alimony deduction? What are the tax consequences for both John and Amy?

Reference no: EM13657866

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