Question 1

Community property laws dictate that income earned by one spouse is treated as though it were earned equally by both spouses.

Accepted Answer

A) True 
 B)False

Question 2

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:

Accepted Answer

A) Tax benefit rule 
B) Constructive receipt 
C) Return of capital principle 
D) Wherewithal to pay 
E) None of the choices are true 
A) Tax benefit rule 
B) Constructive receipt 
C) Return of capital principle 
D) Wherewithal to pay 
E) None of the choices are true

Question 3

Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share)at the time she started working, when the stock price was $6 per share.When the share price was $15 per share, she exercised all of her options.Eighteen months later she sold all of the shares for $20 per share.What is the amount of Maren's bargain element?

Accepted Answer

A) $0. 
B) $700. 
C) $900. 
D) $1,500. 
E) None of the choices are correct. 
A) $0. 
B) $700. 
C) $900. 
D) $1,500. 
E) None of the choices are correct.

Question 4

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

Accepted Answer

A) Tax refund rule 
B) Constructive receipt 
C) Return of capital principle 
D) Tax benefit rule 
E) None of the choices are true 
A) Tax refund rule 
B) Constructive receipt 
C) Return of capital principle 
D) Tax benefit rule 
E) None of the choices are true

Question 5

When the wash sale rules apply, the realized loss is:

Accepted Answer

A) recognized at time of sale. 
B) not recognized at time of sale and does not affect basis of newly acquired stock. 
C) recognized at time of sale and added to basis of the newly acquired stock. 
D) not recognized at time of sale and added to basis of the newly acquired stock. 
E) not recognized at time of sale and subtracted from the basis of the newly acquired stock. 
A) recognized at time of sale. 
B) not recognized at time of sale and does not affect basis of newly acquired stock. 
C) recognized at time of sale and added to basis of the newly acquired stock. 
D) not recognized at time of sale and added to basis of the newly acquired stock. 
E) not recognized at time of sale and subtracted from the basis of the newly acquired stock.

Question 6

Qualified fringe benefits received by an employee can be excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 7

Both employers and employees may contribute to defined contribution plans.However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Accepted Answer

A) True 
 B)False

Question 8

Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years.The annuity was purchased at a cost of $300,000.How much of the first quarterly payment will Fran include in her gross income?

Accepted Answer

A) $7,500 
B) $4,500 
C) $12,000 
D) $32,400 
E) All of these choices are correct. 
A) $7,500 
B) $4,500 
C) $12,000 
D) $32,400 
E) All of these choices are correct.

Question 9

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., no obligation to repay the amount):

Accepted Answer

A) Claim of right 
B) Constructive receipt 
C) Return of capital principle 
D) Wherewithal to pay 
E) None of the choices are correct. 
A) Claim of right 
B) Constructive receipt 
C) Return of capital principle 
D) Wherewithal to pay 
E) None of the choices are correct.

Question 10

Capital loss carryovers for individuals are carried forward indefinitely.

Accepted Answer

A) True 
 B)False

Question 11

Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives.Later this year Harold will recover the remainder of his cost of the annuity.Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?

Accepted Answer

A) Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income. 
B) Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity. 
C) The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity. 
D) Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy. 
E) All of these choices are correct. 
A) Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income. 
B) Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity. 
C) The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity. 
D) Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy. 
E) All of these choices are correct.

Question 12

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables, George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

Accepted Answer

A) $80 
B) $72 
C) $48 
D) $32 
E) None of the choices are correct. 
A) $80 
B) $72 
C) $48 
D) $32 
E) None of the choices are correct.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The cash method of accounting requires taxpayers to recognize income only when that income is received as cash.

Accepted Answer

A) True 
 B)False

Question 15

Joyce's employer loaned her $50,000 this year (interest-free)to buy a new car.If the federal interest rate was 3 percent, which of the following is correct?

Accepted Answer

A) Joyce recognizes $1,500 of taxable interest income. 
B) Joyce's employer recognizes $1,500 of deductible interest expense. 
C) Joyce recognizes $1,500 of imputed compensation income. 
D) Joyce recognizes $1,500 of imputed dividend income. 
E) None of the choices are correct. 
A) Joyce recognizes $1,500 of taxable interest income. 
B) Joyce's employer recognizes $1,500 of deductible interest expense. 
C) Joyce recognizes $1,500 of imputed compensation income. 
D) Joyce recognizes $1,500 of imputed dividend income. 
E) None of the choices are correct.

Question 16

Henry works part time on auto repairs and restoration projects.This year Henry was paid $5,400 for repairs he made to his neighbor's auto.Henry's neighbor promised to pay Henry another $2,200 in cash next year.Henry's brother borrowed $4,100 in cash in December of this year and gave him a negotiable promissory note for $4,300 due in three months with interest.Henry sold the note in January for $3,500.Finally, Henry restored a car for the football coach.The coach paid him with a pass to next year's football games.The pass is worth $750.Compute Henry's gross income assuming that he uses the cash basis of accounting.

Accepted Answer

$5,400 + $750 = $6,150.
Gross

Question 17

NeNe is an accountant and U.S.citizen who has accepted a permanent position in Madrid, Spain, for a Spanish financial services company.This year, NeNe spent the entire year working in Madrid.NeNe's employer paid $40,000 of her Madrid housing expenses this year.What amount of the $40,000 housing payments may NeNe exclude?

Accepted Answer

A) NeNe can exclude all of the housing payment because she worked more than 330 days overseas 
B) $16,944 
C) $23,056 
D) $14,826 
E) None of her salary can be excluded from gross income. 
A) NeNe can exclude all of the housing payment because she worked more than 330 days overseas 
B) $16,944 
C) $23,056 
D) $14,826 
E) None of her salary can be excluded from gross income.

Question 18

Prizes and awards are generally taxable.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following refers to the date stock options are awarded to an employee?

Accepted Answer

A) Grant date. 
B) Exercise date. 
C) Lapse date. 
D) Vesting date. 
A) Grant date. 
B) Exercise date. 
C) Lapse date. 
D) Vesting date.

Question 20

Emily is a cash-basis taxpayer, and she was an especially productive salesperson last year.In December of last year her supervisor told Emily she had earned a $5,000 bonus.However, Emily received the bonus check after year-end.Identify the principle that will determine when Emily is taxed on the bonus:

Accepted Answer

A) Assignment of income. 
B) Constructive receipt. 
C) Return of capital principle. 
D) Wherewithal to pay. 
E) All of these choices are correct. 
A) Assignment of income. 
B) Constructive receipt. 
C) Return of capital principle. 
D) Wherewithal to pay. 
E) All of these choices are correct.

Community property laws dictate that income earned by one spouse is treated as though it were earned equally by both spouses.

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:

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

When the wash sale rules apply, the realized loss is:

Qualified fringe benefits received by an employee can be excluded from gross income.

Both employers and employees may contribute to defined contribution plans.However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years.The annuity was purchased at a cost of $300,000.How much of the first quarterly payment will Fran include in her gross income?

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., no obligation to repay the amount):

Capital loss carryovers for individuals are carried forward indefinitely.

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables, George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

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

The cash method of accounting requires taxpayers to recognize income only when that income is received as cash.

Joyce's employer loaned her $50,000 this year (interest-free)to buy a new car.If the federal interest rate was 3 percent, which of the following is correct?

Prizes and awards are generally taxable.

Which of the following refers to the date stock options are awarded to an employee?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Filters

Exam 5: Gross Income and Exclusions

Community property laws dictate that income earned by one spouse is treated as though it were earned equally by both spouses.

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:

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

When the wash sale rules apply, the realized loss is:

Qualified fringe benefits received by an employee can be excluded from gross income.

Both employers and employees may contribute to defined contribution plans.However, the amount that employees may contribute to the plan in a given year is limited by the tax law while the amount that employers may contribute is not.

Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years.The annuity was purchased at a cost of $300,000.How much of the first quarterly payment will Fran include in her gross income?

Identify the rule that states that income has been realized when a taxpayer receives the income and there are no restrictions on the taxpayer's use of the income (e.g., no obligation to repay the amount):

Capital loss carryovers for individuals are carried forward indefinitely.

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables, George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

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

The cash method of accounting requires taxpayers to recognize income only when that income is received as cash.

Joyce's employer loaned her $50,000 this year (interest-free)to buy a new car.If the federal interest rate was 3 percent, which of the following is correct?

Prizes and awards are generally taxable.

Which of the following refers to the date stock options are awarded to an employee?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Individual for Agi Deductions

Individual From Agi Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Entities Overview

Corporate Formations and Operations

Corporate Nonliquidating and Liquidating Distributions

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

Filters