Exam 5: Gross Income: Exclusions

Assuming a taxpayer qualifies for the exclusion treatment, the interest income on educational savings bonds:

Kristen's employer owns its building and provides parking space for its employees. The value of the free parking is $150 per month. Karen's employer does not have parking facilities but reimburses its employees for the cost of parking in a nearby garage up to $150 per month.

Stuart owns 300 shares of Turquoise Corporation stock and 2,000 shares of Blue Corporation stock. During the year, Stuart received 150 shares of Turquoise as a result of a 1-for-2 stock split. The value of the shares received was $4,800. Stuart also received 100 shares of Blue Corporation stock as a result of a 5% stock dividend. Stuart did not have the option of receiving cash from Blue. The additional shares he received had a value of $7,200. Stuart's gross income from the receipt of the additional Turquoise and Blue shares is:

Amber Machinery Company purchased a building from Ted for $250,000 cash and a mortgage of $750,000. One year after the transaction, the mortgage had been reduced to $725,000 by principal payments by Amber, but it was apparent that Amber would not be able to continue to make the monthly payments on the mortgage. Ted reduced the amount owed by Amber to $600,000. This reduced the monthly payments to a level that Amber could pay. Amber must recognize $125,000 income from the reduction in the debt by Ted.

Workers' compensation benefits are included in gross income if the employer also pays the employee while the employee is recovering from his or her injury.

Flora Company owed $95,000, a debt incurred to purchase land that serves as security for the debt.

Jena is a full-time undergraduate student at State University and qualifies as a dependent of her parents. Her only source of income is a $10,000 athletic scholarship ($1,000, books; $5,500, tuition; $500, student activity fee; and $3,000, room and board). Jena's gross income for the year is:

Mel was the beneficiary of a $45,000 group term life insurance policy on his deceased wife. His wife's employer had paid all of the premiums on the policy. Mel used the life insurance proceeds to purchase a U.S. government bond, which paid him $2,500 interest during the current year. Mel's Federal gross income from this is $2,500.

If an employer pays for an employee's long-term care insurance premiums, the employee can exclude from gross income the premiums, but all of the benefits collected must be included in gross income.

Albert had a terminal illness that would require almost constant nursing care for the remaining two years of his estimated life, according to his doctor. Albert had a life insurance policy with a face amount of $100,000. He had paid $25,000 of premiums on the policy. The insurance company has offered to pay him $80,000 to cancel the policy, although its cash surrender value was only $55,000. He accepted the $80,000. Albert used $15,000 to pay his medical expenses. Albert made a miraculous recovery and lived another 20 years. As a result of cashing in the policy:

George, an unmarried cash basis taxpayer, received the following amounts this year: Interest on savings accounts \ 2,000 Interest on a state tax refund 600 Interest on City of Salem school bonds 350 Interest portion of proceeds of a 5 \% bank certificate of deposit purchased last year on July 1 and matured on June 30 of this year 250 Dividends on USG common stock 300 What amount should George report as gross income from dividends and interest this year?

The First Chance Casino has gambling facilities, a bar, a restaurant, and a hotel. All employees are allowed to obtain food from the restaurant at no charge during working hours. In the case of the employees who operate the gambling facilities, bar, and restaurant (60% of all of Casino's employees), the meals are provided for the convenience of the Casino. However, the hotel workers demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work. Which of the following is correct?

George is employed by Quality Appliance Company. All full-time employees are allowed to purchase appliances at the company's cost plus 10%. The employees are also given, at no cost, a one-year service contract on all the goods purchased from the company. George purchased a refrigerator for $500. The company's normal selling price for the refrigerator is $800. George also received a service contract at no charge that had a value of $150. During the year, George was required to have his refrigerator serviced once. The cost of the call would have been $75 if he had not had the service contract. Is George required to recognize any income from the purchase of the refrigerator, the receipt of the service contract, and the service call?

For a person who is in the 35% marginal tax bracket, $1,000 of tax-exempt income is equivalent to $1,350 of income that is subject to tax.

Sam was unemployed for the first two months of 2019. During that time, he received $4,000 of state unemployment benefits. He worked for the next six months and earned $14,000. In September, he was injured on the job and collected $5,000 of workers' compensation benefits. Sam's Federal gross income from this is $18,000 ($4,000 + $14,000).

Matilda works for a company with 1,000 employees. The company has a hospitalization insurance plan that covers all employees. However, the employee must pay the first $3,000 of his or her medical expenses each year. Each year, the employer contributes $1,500 to each employee's health savings account (HSA). Matilda's employer made the contributions in 2018 and 2019, and the account earned $100 interest in 2019. At the end of 2019, Matilda withdrew $3,100 from the account to pay the deductible portion of her medical expenses for the year and other medical expenses not covered by the hospitalization insurance policy. As a result, Matilda must include in her 2019 gross income:

The taxpayer was in the 35% marginal tax bracket in 2018 and deducted $15,000 in state income taxes as an itemized deduction that year. In 2019, he filed his 2018 state income tax return and received a $5,000 refund of state income taxes paid in 2018. His marginal tax rate in 2019 was 12%. What was the taxpayer's Federal tax benefit from the overpayment of his 2018 state income tax?

Peggy is an executive for the Tan Furniture Manufacturing Company. She purchased furniture from the company for $9,500, the price Tan ordinarily would charge a wholesaler for the same items. The retail price of the furniture was $12,500, and Tan's cost was $9,000. The company also paid for Peggy's parking space in a garage near the office. The parking fee was $600 for the year. All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy. However, the company does not pay other employees' parking fees. Peggy's gross income from the above is:

Nicole's employer pays her $150 per month toward the cost of parking near a railway station where Nicole catches the train to work. The employer also pays the cost of the rail pass, $75 per month. Nicole can exclude both of these payments from her gross income.

Carin, a widow, elected to receive the proceeds of a $150,000 life insurance policy on the life of her deceased husband in 10 installments of $17,500 each. Her husband had paid premiums of $60,000 on the policy. In the first year, Carin collected $17,500 from the insurance company. She must include in gross income: