Points will be awarded for identifying the issues, the law that applies, and a significant percentage of the points awarded will be based on a thoughtful communication of your conclusions and ultimate advice. Please cite any legal or administrative support you utilize to reach conclusions.

Skipper B comes to your office for a 2020 tax planning session. Skipper owns a charter boat on Lake Michigan and did not have a good year because of Covid-19. He supplies you with his books showing record income and expenses. As you question whether there is anything else you should know, he says there is one thing he was unsure of.

Skipper proceeds to tell you that he had some storm damage to the boat. A friend, Gilligan, owns the marina where Skipper keeps his boat, and Gilligan is a master at fiberglass repair. Gilligan repaired the boat to like new condition and Skipper tells you he owes Gilligan $5,000 for the work.

He proceeds to add more detail, including Skipper took John and Mary on a weekend tour of the Apostle Islands to celebrate their wedding anniversary. Skipper would normally charge $5,000 for a full weekend tour. Skipper did not collect the $5,000 from the charter guests, instead he asked them to pay the $5,000 to Gilligan (and not to Skipper) and they comply.

1. Under these facts, who has gross income and how much, if any, should be reported, and why?