Reference no: EM132819083

Problem 1: During Year 1, Mr. Bob, a cash-basis taxpayer, was involved in a lawsuit with Corporation T over the amount T owed him for accounting fees. The court decided in Bob's favor and ordered T to pay him $10,000 without restriction immediately. Bob received the $10,000 in Year 1, and Corporation T immediately appealed the case. In Year 2, the appellate court upheld the lower court's decision. Which of the following is the proper way for Mr. Bob to handle the $10,000 for income tax purposes?

Option 1: Not report the $10,000 as income since it resulted from a lawsuit and is nontaxable.

Option 2: Include the $10,000 in income in Year 1.

Option 3: Include the $10,000 in income in either Year 1 or Year 2.

Option 4: Report the $10,000 in Year 2 because the case was appealed and he might have had to pay it back.