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Exam 5: Gross Income and Exclusions

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Question 51

True/False

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Constructive receipt represents the principle that cash basis taxpayers will be taxed on income when it is made available to them without substantial restrictions.

A) True
B) False

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Question 52

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The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

A) True
B) False

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Question 53

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To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?

In April of this year Victoria received a $1,400 refund of state income taxes that she paid last year. Last year Victoria claimed itemized deductions of $8,890. Victoria's itemized deductions included state income taxes paid of $3,750. How much of the refund, if any, must Victoria include in gross income if the standard deduction last year was $6,300?

Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of one percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing Federal interest rate. Wendell used the funds as a down payment on a vacation home and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?

Kevin provided services to several clients this year that paid with different types of property. Which of the following payments is not included in Kevin's gross income?

To provide relief from double taxation, Congress allows a foreign-unearned income exclusion for interest and dividends earned in foreign countries.

Generally, 85 percent of Social Security benefits are included in income of high income taxpayers.

Earnings from Internal Revenue Code Section 529 plans and Coverdell education savings accounts are excluded from gross income as long as the earnings are used to pay for qualifying educational expenditures.

Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

This year Kelsi received a $1,900 refund of state income taxes that she paid last year. Last year Kelsi claimed itemized deductions of $7,400 including $2,800 of state income taxes. How much of the refund, if any, must Kelsi include in gross income if the standard deduction last year was $6,300?

Trevor received a gift of $25,000 in cash from his rich uncle. Trevor must include $15,000 of this gift in his gross income this year.

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($3,700) , her emotional distress ($6,000 - she now fears peanut butter) , and punitive damages ($44,000) . What amount must Pam include in her gross income?

The tax law includes a complex set of restrictions called the anti-frontloading rules to make it difficult for taxpayers to disguise and reclassify property payments as alimony payments.

A portion of each payment received from a purchased annuity contract represents income.

An employee may exclude up to a 40 percent employer-provided discount on services received by the employee.

For tax purposes, unearned income means income that has not yet been realized.

Hank is a U.S. citizen and is doing a three to six-year assignment as a sales executive in Paris for a French company, which began this year. Hank earned $109,500 working for the French company this year but only lived in France for 340 days (out of 365 days) . What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the U.S.? (rounded to the nearest one-hundred dollars)

Hal Gore won a $1 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $400,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?