Reference no: EM131585109

Sheila K. had a terrible year during 2016. Not only did her grandmother pass away in the first part of the year, but she lost her job in May. In March, she took some of the cash she inherited from grandma and loaned it to one of her friends who had convinced her that he had an idea for a new iPhone app that was sure to be a huge hit. She loaned Alberto $25,000 in cash and made him sign a promissory note that did not charge him interest and required repayment only once Alberto’s app had sold 25,000 copies in the Apple App store. After she lost her job, she took some of the stock inherited from grandma and sold it to make her mortgage payment for June. The sales price of the shares was $4,000 for 1,000 shares. The stock price at the date of grandma’s death on January 1 was $10 per share. Sheila was the executor of grandma’s estate. Starting in July, Sheila tried to get in touch with Alberto but found out his cell phone had been turned off and he had moved away with no forwarding address. She continued to look for him until November when she finally gave up; however when she checked the App store, she found the exact app that Alberto had described to her. It was selling for $0.99 per copy. A little more investigation and she found out that the App store had sold nearly 1 million copies of “Alberto’s Flashing App” (don’t ask what it does).   In November, she found out that the company in which grandma had invested and left to her (she originally owned 100,000 shares) had gone bankrupt and was reorganizing its debts. Sheila was very sad because she knew that grandma was one of the original investors in this company and had worked hard before her death (perhaps the cause?) to make the company be successful. She did not expect to get anything from the bankruptcy due to the high level of debts owed by the company to its creditors. The other investors had been her uncle and aunt who each had invested $250,000 along with grandma’s $450,000.

Required: based on all of the above information, determine what transactions, if any, impact Sheila’s 2016 taxable income. Calculate the amounts for each transaction you feel has some type of impact on her taxable income and describe the character of the income or loss (capital vs. ordinary and short term vs. long-term). Describe any limitations or concerns you have about the timing of each transaction and the impact it might have on Sheila’s taxable income for 2016.