Tina,an Experienced Pool Contractor,and Bruce Agree on a Price for Tina

question 38

Multiple Choice

Tina,an experienced pool contractor,and Bruce agree on a price for Tina to build a pool in Bruce's backyard.Tina discovers that she did not initially figure in enough of a charge for labor.She tells Bruce that unless she receives an extra $5,000 with which to hire workers,she cannot complete the job.Bruce agrees thinking to himself that he has a way out.When Tina finishes the pool,Bruce refuses to pay the additional $5,000.Which of the following is the most likely result of their dispute?

• A) Bruce will be required to pay because a typical, unilateral contract is involved, and he got the benefit of his bargain.
• B) Bruce will be required to pay because a typical, bilateral contract is involved, and he got the benefit of his bargain.
• C) Bruce will be required to pay because unforeseen circumstances are an exception to the preexisting duty rule.
• D) Bruce will not be required to pay because he provided no additional consideration, and the preexisting duty rule applies.
• E) Bruce will only be required to pay ½ of the agreed upon amounts because of the calculations involved under the preexisting duty rule.

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Definitions:

Passive Activity Losses

Financial losses in activities in which the taxpayer does not materially participate, with limitations on their use to offset other income.

Passive Losses

Financial losses from activities in which the taxpayer does not materially participate, such as rental property.

Portfolio Income

Income from investments, including dividends, interest, and capital gains.

Material Participant

An individual who is actively involved on a regular, continuous, and substantial basis in the operations of a business, affecting their tax treatment of losses.