Exam 20: Gross Income: Exclusions

In September of 2019,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.How much of the gain will she recognize?

Bob,an employee of Modern Corp.,receives a fringe benefit (in lieu of a salary increase)of $1,000.Bob is in a 32% tax bracket.The fringe benefit is nontaxable to Bob.If he had instead paid for the benefit out of his own money,the cost would not be deductible.Bob's after-tax savings from receiving the tax-free benefit is

Cameron is the owner and beneficiary of a $300,000 policy on the life of his mother.Cameron sells the policy to his brother,Parker,for $100,000.Parker subsequently pays premiums of $55,000.Upon his mother's death,how much of the insurance proceeds must Parker include in income?

Ming,who has been employed by the Frostine Corporation for five years,receives a $400 Amazon.com gift card for his years of hard work.The employee service award is taxable.

Ahmad's employer pays $10,000 in tuition this year for Ahmad to attend a graduate business program.How much of the employer-provided tuition is taxable to Ahmad?

In September of 2019,Michelle sold shares of qualified small business stock for $1,000,000 that had a basis of $200,000.She had held the stock for 17 months.Forty-five days after the sale she purchased other qualified small business stock for $1,100,000.What is the basis in the new stock she purchased?

"Working condition fringe benefits," such as memberships in professional organizations paid for by the employer,are generally excluded from the employee's gross income.

Heather is an advertising executive with a major advertising agency.A significant part of her job is selling advertising campaigns to clients and potential clients.Heather spent $6,000 taking clients and potential clients to lunch and dinners in restaurants and discussed advertising campaigns during the meals.For some major accounts,the dinners were followed by taking the clients to Broadway shows.Heather is reimbursed for these meals and tickets after she turns in receipts and other appropriate documentation.What is the appropriate treatment of the reimbursement?

Exter Company is experiencing financial difficulties.It has assets worth $2 million,but owes liabilities of $2.1 million.It has a longstanding relationship with the bank.The bank has agreed to forgive $300,000 of debt principal.Because of this debt forgiveness,Exter will recognize income of

Faye is a marketing manager for Healthy Corp.She earns a salary of $100,000 and has received the following benefits: • Healthy pays 75% of all employees' health and accident insurance coverage.Healthy paid $6,000 towards the cost of Faye's health insurance during the year. • Faye participates in the cafeteria plan and had elected to have $2,000 withheld from her pay to cover the remaining cost of the health insurance premiums and an additional $1,500 to cover dental and other health care costs not paid by insurance (i.e.,funding a flexible spending account).The full $1,500 was used to pay for various qualifying medical costs. • Healthy pays the cost of disability insurance coverage for all employees.The insurance will pay 75% of salary if employees are out of work for a significant period.The cost of Faye's premiums was $600. • Healthy pays for the cost of veterinary insurance for all employees.The cost of coverage for Faye's dog was $400. • Healthy pays for the cost of daycare for its employees' children.The cost for Faye's two children was $8,000. • All employees receive a 20% discount on Healthy's products.The typical markup on their products is 25%.Faye enjoyed $1,200 of savings through the discount program. • Faye won the manager of the year award earlier in the year and received an all-expense paid week at a desert spa valued at $3,500. • Healthy pays Faye's annual membership dues of $500 to the American Marketing Association. • Healthy paid for the full $2,500 cost of Faye's attendance at the American Marketing Association's annual conference in Orlando. How much income must Faye recognize from her employment?

David has been diagnosed with cancer and is expected to live less than 18 months.David is covered by a life insurance policy with a $400,000 face amount.David cashes in the policy early under a special option and receives 80% of the face amount or $320,000.In the year of collection,David will report

John is injured and receives $16,000 of income from a disability policy.John's employer paid 75% of the disability policy premiums and John paid the remainder.In addition,John's employer has paid all the $3,000 of premiums on a health policy that paid John's doctor bills of $10,000.How much of the benefits must John include in income?

An individual is considered terminally ill for purposes of the exclusion for accelerated death benefits if a physician certifies that he is reasonably likely to die within 36 months.

All of the following fringe benefits paid for by the employer may be excluded from an employee's gross income except

During the year,Cathy received the following: • Dividends of $4,000 from Lindsay Corporation.Cathy's father owns the stock and directed the corporation to send the dividends to Cathy. • A car worth $30,000 for being the 1,000th customer at a car dealership. • $5,500 cash gift from her uncle. • $10,000 inheritance from her grandmother. What amount must Cathy include in gross income?

Nondiscrimination requirements do not apply to working condition fringe benefits.

Awards for emotional distress attributable to a physical injury are excluded from gross income.

Each year a taxpayer must include in gross income the rental value of his or her personal residence.

Punitive damages are taxable unless they are awarded for physical injuries.

Cafeteria plans are valuable to employers because