1. What amount, if any, must be included in gross income by the following taxpayers? Please
answer separately for each, A through D.
A. Anne received $2,000 from her insurance company when her automobile which cost $3,000
was stolen.
B. Barry received $3,000 from his brother. Barry at initiated a lawsuit against his brother in an
effort to recover $3,000 he had previously loaned to him. The brother paid Barry back before the
case was tried, and Barry dropped the lawsuit.
C. Carry, an accountant, sued a client in order to collect her fee for doing tax work. Would
Carry's accounting method make any difference?
D. Dave has incurred $6,000 of medical expenses so far this year. He paid $400 of the expenses
himself. His insurance company paid $4,000 of the expenses. The hospital is suing Dave and the
insurance company for the balance, $1,600.
Solution
A. Taxes depend on the