Question -

1. In 2007, Potrus, an accrual basis corporate taxpayer, received a $40,000 advance for a series of eight lectures by various employees for the Art Institute. After delivering five lectures, the series was cancelled for poor attendance. Potrus refused to return any of the advance payment, so the Art Institute sued. In 2008, Potrus was ordered by the court to repay $15,000. Potrus's net income was $426,000 in 2007 and $298,000 in 2008. How should Potrus treat the repayment to obtain the best tax result?

2. Colin and Coleen divorced in the current year. Colin is willing to pay Coleen $20,000 of alimony for five years so that she can return to school and obtain a degree. Coleen has stated that she needs no less that $20,000 after taxes and will not accept Colin's offer of alimony. Coleen is in the 15 percent tax bracket and Colin is in the 35 percent tax bracket. How much alimony must Coleen receive to have $20,000 after taxes? What is Colin's after-tax cost of this alimony payment?