TOOLS & TECHNIQUES OF LIFE INSURANCE PLANNING



TOOLS & TECHNIQUES OF EMPLOYEE BENEFIT AND RETIREMENT PLANNING

11th Edition

College Course Materials

Deanna L. Sharpe, Ph.D., CFP®, CRPC®, CRPS®

Associate Professor

CFP® Program Director

Personal Financial Planning Department

University of Missouri-Columbia

Please Note: Correct answers for each question are indicated in bold type. After each question, the number of the page containing information relevant to answering the question is given. When a calculation is necessary or the reasoning behind a given answer may be unclear, a brief rationale for the correct answer is also given.

Part B: Employee Benefit Planning

Fringe Benefits

Chapter 58: Moving Expense Reimbursement

True/False

58.1 A relocated employee can deduct expenses for house hunting as well as expenses for selling, buying, or leasing a residence.

58.2 A moving expense reimbursement plan must meet ERISA requirements since it is classified as a welfare benefit plan.

58.3 If an employer purchases a relocated employee’s old home to prevent the employee from getting below market price due to a forced sale, the amount above fair market value that the employee receives can be deemed additional compensation

Answers:

58.1 False [p. 458]

58.2 False [p. 458]

58.3 True [p. 459]

Multiple Choice

58.4 All of the following are examples of nondeductible moving expenses except:

a. real estate taxes

b. car registration or driver’s license fees due to relocation in different state

c. forfeiture of club dues

d. loss on sale of old home

e. storage and insurance of personal property for up to a 30-day period

Answer: E [p. 458]

58.5 Advantages of moving expense reimbursement include all of the following except:

a. encourages labor mobility within company

b. moving expenses can be a form of tax-free compensation

c. employer can design a moving expense reimbursement plan to fit company needs

d. employer can offer reimbursement to a select group of employees

e. employee can deduct expenses associated with sale, purchase, or lease of residence

Answer: E [p. 457]

58.6 Deductible moving expenses include reasonable costs for all of the following except:

a. cost of moving household pets

b. home improvements to sell old house

c. storage and insurance for personal property for a 30-day period after vacating old residence

d. expenses incurred in travel to new home

e. costs to connect utilities in new home

Answer: B [p. 458]

Application

58.7 Will Pack, an employee for Venture Enterprises, Inc., was transferred from the Chicago office to the San Francisco office in June 2007. Will paid $4,000 to have his household goods packed and trucked from Chicago to San Francisco. He followed the moving van in his own car, driving 2,140 miles. Once in San Francisco, he had to store his household goods for 20 days due to an unexpected delay in closing on his new house. Between the time that he left his home in Chicago and settled into his new home in San Francisco, he spent $350 on restaurant meals. Will can deduct $ ________ in moving expense.

a. $1,038

b. $4,000

c. $4,350

d. $5,038

e. more information is needed to complete calculation

Answer: D [p. 458 – Will can deduct $4,000 to pack and move his household goods. He can also deduct 48.5 cents per mile (based on the rate effective for 2007) for 2,140 miles or $1,038. Cost of meals is not deductible.]

58.8 I. M. Best, owner of Best Corporation, wants his senior vice president, I. B. Better to move from Milwaukee, Wisconsin to Smyrna, Georgia to open a branch office. Housing prices in Milwaukee are in a slump. Better’s house has been on the market for six months and has only gotten one offer that’s about $10,000 below market. Best wants to prevent Better from getting an inadequate price on his home due to a forced sale using the method that generates the greatest tax advantage for Best and Better. What should Best do?

a. Reimburse Better the difference between fair market value for his home and the sale price

b. Best should purchase Better’s home for fair market value as determined by an independent appraiser

c. Better should sell his home below market value and deduct the difference between the sale price and the fair market value on his own income taxes

d. Better should hold out for a market upswing in Milwaukee

e. Best should give Better a bonus equal to the difference between the sale price and the fair market value of Better’s home

Answer: B [pp. 458-459]

58.9 Angela Winter’s employer had her relocate from Chicago to Phoenix earlier this year. Angela began working full time at her new location a week after the move 10 months ago. Angela can deduct her moving expenses as an “above the line” deduction.

a. true

b. false

Answer: A [p. 457-458]

58.10 Carl Commute worked for the home office of Splendid Enterprises for 15 years. About two years ago, Carl took a job at one of the branch offices, 65 miles away. Having just finished construction on a new home right before the transfer, Carl was reluctant to sell. Now weary of the 3-hour commute, Carl has decided to sell and relocate nearer the branch office. Since his move is employment related, Carl can take a tax deduction for his moving expenses.

a. true

b. false

Answer: B [p. 458 – Only expenses within a year of move to new job can be deducted.]

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