Raylene's personal automobile is destroyed by a tornado. Her insurance company paid her $5,000, which she used to purchase a new automobile costing $10,000. Raylene received the automobile that was destroyed as a graduation present from her uncle Earl. Earl's basis in the automobile was $2,000. The automobile was worth $8,000 when Raylene received it.
Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.