Thelma and Mitch Were Divorced in 2017

question 7

Multiple Choice

Thelma and Mitch were divorced in 2017. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years, or until Thelma's death, whichever should occur first. Thelma and Mitch lived apart when the payments were made by Mitch. Mitch paid the $600,000 to Thelma over the six-year period. The divorce agreement did not contain the word "alimony." Then, Mitch sold the stocks for $1,300,000. Mitch's recognized gain from the sale is:

• A) $0.
• B) $1,000,000 ($1,300,000 - $300,000).
• C) $700,000 ($1,300,000 - $600,000).
• D) $300,000 ($1,300,000 - $1,000,000).
• E) None of these.

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Definitions:

Internal Nares

The internal nares, also known as the choanae, are openings at the back of the nasal cavity leading into the pharynx, facilitating airflow from the nose to the throat.

Nasal Cavity

The hollow space within the nose through which air flows, filtered, warmed, and humidified, also housing olfactory receptors.

Soft Palate

The soft tissue constituting the back of the roof of the mouth, separating the oral cavity from the nasal passages.

Expiratory Reserve Volume

The additional amount of air that can be forcibly exhaled after the completion of a normal expiration.