Exam 4: Gross Income: Concepts and Inclusions

Under the terms of a divorce agreement entered into in 2017, Lanny was to pay his wife Joyce $2,000 per month in alimony and $500 per month in child support. For a twelve-month period, Lanny can deduct from gross income and Joyce must include in gross income):

Wayne owns a 30% interest in the capital and profits of Emerald Company a calendar year partnership). For tax year 2018, the partnership earned revenue of $900,000 and had operating expenses of $660,000. During the year, Wayne withdrew from the partnership a total of $90,000. He also invested an additional $30,000 in the partnership. For 2018, Wayne's gross income from the partnership is:

On a particular Saturday, Tom had planned to paint a room in his house, but his employer gave him the opportunity to work that day. If Tom works, he must hire a painter for $120. For Tom to have a positive cash flow from working and hiring the painter:

Sarah, a widow, is retired and receives $20,000 interest income and dividends and $10,000 in Social Security benefits. Sarah is considering selling a stock at an $8,000 gain. What will be the increase in Sarah's gross income as a result of the sale of the stock?

Harry and Wanda were married in Texas, a community property state, but moved to Virginia, a common law state. The calculation of their income on a joint return:

Green, Inc., provides group term life insurance for all of its employees. The coverage equals twice the employee's annual salary. Sam, a vice-president, worked all year for Green, Inc., and received $200,000 of coverage for the year at a cost to Green of $1,500. The Uniform Premiums based on Sam's age) are $.25 per month for $1,000 of protection. How much must Sam include in gross income this year?

Our tax laws encourage taxpayers to assets that have appreciated in value and assets that have declined in value.

Detroit Corporation sued Chicago Corporation for intentional damage to Detroit's goodwill. Detroit had created its goodwill through providing high-quality services to its customers. Thus, no basis for the goodwill appeared on Detroit's balance sheet. The suit was settled and Detroit received $1,500,000 for the damages to its goodwill.

In the case of a below-market gift loan for which there is no exception to the imputed interest rules, the lender is deemed to have received interest income even though no interest is charged and collected.

Jerry purchased a U.S. Series EE savings bond for $744. The bond has a maturity value in 10 years of $1,000 and yields 3% interest. This is the first Series EE bond that Jerry has ever owned.

The Maroon & Orange Gym, Inc., uses the accrual method of accounting. The corporation sells memberships that entitle the member to use the facilities at any time. A one-year membership costs $480 $480/12 = $40 per month); a two-year membership costs $720 $720/24 = $30 per month). Cash payment is required at the beginning of the membership period. On July 1, 2018, the company sold a one-year membership and a two-year membership. For financial reporting purposes, Maroon reports the membership income ratably over the number of months involved. The company should report as gross income from the two contracts:

Thelma and Mitch were divorced in 2017. The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000. Under the terms of the divorce agreement, Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years, or until Thelma's death, whichever should occur first. Thelma and Mitch lived apart when the payments were made by Mitch. Mitch paid the $600,000 to Thelma over the six-year period. The divorce agreement did not contain the word "alimony." Then, Mitch sold the stocks for $1,300,000. Mitch's recognized gain from the sale is:

Linda delivers pizzas for a pizza shop. On Wednesday, December 31, 2018, Linda made several deliveries and collected $400 from customers. However, Linda forgot to turn in the proceeds for the day to her employer until the following Friday, January 2, 2019. The pizza shop owner recognizes the income of $400 when he receives it from Linda in 2019.

Jacob and Emily were co-owners of a personal residence. As part of their divorce agreement entered into in 2016, Emily paid Jacob cash for his interest in the personal residence. This cash payment results in a taxable gain to Jacob if he receives more cash than his share of the cost of the residence.

On December 1, 2018, Daniel, an accrual basis taxpayer, collects $12,000 rent for December 2018 and $12,000 for January 2019. Daniel must include the $24,000 in 2018 gross income.

Fred is a full-time teacher. He has written a book and receives royalties from it. Fred's mother, Mabel, is age 65 and lives on her Social Security benefits and gifts from her son, Fred. This year Fred directed the publisher to make the royalty check payable to Mabel because she needs the money for support. Fred must include the amount of the royalty check in his gross income.

On January 1, Father Dave) loaned Daughter Debra) $100,000 to purchase a new car and to pay off college loans. There were no other loans outstanding between Dave and Debra. The relevant Federal rate on interest was 6 percent. The loan was outstanding for the entire year.

Alimony recapture may occur if there is a substantial decrease in the amount of the alimony payments in the second year.

In all community property states, the income from property that was inherited by a spouse after the marriage is treated as all earned by the spouse who inherited the property.

With respect to the prepaid income from services, which of the following is true?