Exam 4: Gross Income: Concepts and Inclusions

A cash basis taxpayer purchased a certificate of deposit for $1,000 on July 1, 2017 that will pay $1,100 upon its maturity on June 30, 2019.The taxpayer must recognize a portion of the income in 2018.

Susan purchased an annuity for $200,000.She is to receive $18,000 each year and her life expectancy is 13 years.If Susan collects under the annuity for 14 years, the entire $18,000 received in the 14th year must be included in her gross income.

If an employer provides all employees with group term life insurance equal to twice the employee's annual salary, an employee with a salary of $50,000 has no gross income from the life insurance protection provided by the employer.

If the alimony recapture rules apply, the recipient of alimony decreases his or her adjusted gross income (AGI) by a portion of the amount included in gross income as alimony in a prior year or years.

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Gordon, an employee, is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year.According to the IRS Uniform Premium Table (based on Gordon's age), the amount is $12 per year for $1,000 of protection.The cost of an individual policy would be $15 per year for $1,000 of protection.Since Gordon paid nothing towards the cost of the $250,000 protection, he must include in his 2019 gross income which of the following amounts?

Darryl, a cash basis taxpayer, gave 1,000 shares of Copper Company common stock to his daughter on September 29, 2019.Copper Company is a publicly held company that has declared a $2.00 per share dividend on September 30th every year for the last 20 years.Just as Darryl had expected, Copper Company declared a $2.00 per share dividend on September 30th, payable on October 15th, to stockholders of record as of October 10th.The daughter received the $2,000 dividend on October 18, 2019.

April, a calendar year taxpayer, is a 40% partner in Pale Partnership, whose fiscal year ends on September 30th.For the fiscal year ending September 30, 2019, the partnership had $400,000 net income and for fiscal year ending September 30, 2020, the partnership had $300,000 net income.April withdrew $100,000 in December of each year.April's gross income from the partnership for 2019 is $160,000 ($400,000 × 40%).

A sole proprietor purchased an asset for $1,000 in 2019.Its value was $1,500 at the end of 2019.In 2020, the taxpayer sold the asset for $1,400.In 2020, the proprietor realized a taxable gain of $400 but an economic loss of $100.

The purpose of the tax rules that apply to below-market loans between family members is to:

Norma's income for 2019 is $27,000 from part-time work and $9,000 of Social Security benefits.Norma is not married.A portion of her Social Security benefits must be included in her gross income.

Green Company, an accrual basis taxpayer, provides business-consulting services.Clients generally pay a retainer at the beginning of a 12-month period.This entitles the client to no more than 40 hours of services.Once the client has received 40 hours of services, Green charges $500 per hour.Green Company allocates the retainer to income based on the number of hours worked on the contract.At the end of the tax year for contracts entered into for the current year, the company had $50,000 of unearned revenues from these contracts.The company also had $10,000 in unearned rent income received this year from excess office space leased to other companies.Based on this, Green must include in gross income for the subsequent tax year:

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.

In December 2018, Mary collected the December 2018 and January 2019 rent from a tenant.Mary is a cash basis taxpayer.The amount collected in December 2018 for the 2019 rent should be included in her 2019 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.

Under the terms of a divorce agreement entered into in 2018, Kim was to pay her husband Tom $7,000 per month in alimony.Kim's payments will be reduced to $3,000 per month when their 9 year-old son becomes 21.The husband has custody of their son.For a 12 month period, Kim can deduct from gross income (and Tom must include in gross income):

The alimony rules applicable to divorces entered into before 2019:

Jacob and Emily were co-owners of a personal residence.As part of their divorce agreement entered into in 2017, 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.

When a business is operated as an S corporation, a disadvantage is that the shareholder must pay the tax on his or her share of the S corporation's income even though the S corporation did not distribute the income to the shareholder.

After his divorce in 2015, Jeff was required to pay $18,000 per year to his former spouse, Darlene, who had custody of their child.Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year, Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.