Exam 5: Gross Income Exclusions

If a scholarship does not satisfy the requirements for a gift,the scholarship must be included in gross income.

If an employer pays for the 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.

Mia participated in a qualified state tuition program for the benefit of her son Michael.She contributed $15,000.When Michael entered college,the balance in the fund satisfied the tuition charge of $20,000.When the funds were withdrawn to pay the college tuition for Michael,neither Mia nor Michael must include $5,000 ($20,000 - $15,000)in gross income.

Ashley received a scholarship to be used as follows: tuition $6,000;room and board $9,000;and books and laboratory supplies $2,000.Ashley is required to include only $9,000 in her gross income.

Ben was hospitalized for back problems.While he was away from the job,he collected his regular salary from an employer-sponsored income protection insurance policy.Ben's employer-sponsored hospitalization insurance policy also paid for 90% of his medical expenses.Ben also collected on an income protection policy that he purchased.Which of the above sources of income are taxable? Explain the basis for excluding any item or items.

Carla is a deputy sheriff.Her employer requires that she live in the county where she is employed.Housing is very expensive;so the county agreed to pay her $4,800 per year to cover the higher cost of housing.Carla must include the housing supplement in her gross income.

Ed died while employed by Violet Company.His wife collected $40,000 on a group term life insurance policy that Violet provided its employees,and $6,000 of accrued salary Ed had earned prior to his death.All of the premiums on the group term life insurance policy were excluded from the Ed's gross income.Ed's wife is required to recognize as gross income only the $6,000 she received for the accrued salary.

Bob had a terminal illness and realized that he "can't take it with him." Therefore,he cashed in his insurance policy and received $120,000.He had paid $50,000 in premiums on the policy.He used the money to fulfill his lifelong ambitions of going to the Super Bowl,driving an expensive sports car,and vacationing in Bermuda. Was Bob's behavior consistent with the Congressional intent in providing the tax exemption he was permitted to use?

An employee can exclude from gross income the value of meals provided by his or her employer whenever:

Iris collected $150,000 on her deceased husband's life insurance policy.The policy was purchased by the husband's employer under a group policy.Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer.She elected to collect the policy in 10 equal annual payments of $18,000 each.

When Betty was diagnosed as having a terminal illness,she sold her life insurance policy to Insurance Purchase,Inc. ,a company that is licensed to invest in these types of contracts.Betty sold the policy for $32,000 and Insurance Purchase,Inc. ,became the beneficiary.She had paid total premiums of $19,000.Betty died 8 months after the sale.Insurance Purchase,Inc. ,collected $50,000 on the policy.The company had paid additional premiums of $4,000 on the policy.Betty is not required to recognize a $13,000 gain from the sale of her life insurance policy and Insurance Purchase,Inc. ,is required to recognize a $14,000 gain from the insurance policy.

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime,approximately 25 days each year.The supper money received:

Zork Corporation was very profitable and had accumulated excess cash.The company decided to repurchase some of its bonds that had been issued for $1,000,000.Because of an increase in market interest rates,Zork was able to retire the bonds for $900,000.The company is not required to recognize $100,000 of income from the discharge of its indebtedness but must reduce the basis in its assets.

Ron,age 19,is a full-time graduate student at City University.During 2016,he received the following payments: Cash award for being the outstanding resident adviser $ 1,500 Resident adviser housing 2,500 State scholarship for ten months (tuition and books) 6,000 State scholarship (meals allowance) 2,400 Loan from college financial aid office 3,000 Cash support from parents 2,000 $17,400 ​ Ron served as a resident advisor in a dormitory and,therefore,the university waived the $2,500 charge for the room he occupied.What is Ron's adjusted gross income for 2016?

Swan Finance Company,an accrual method taxpayer,requires all of its customers to carry credit life insurance.If a customer dies,the company receives from the insurance company the balance due on the customer's loan.Ali,a customer,died owing Swan $1,500.The balance due included $200 accrued interest that Swan has included in income.When Swan collects $1,500 from the insurance company,Swan:

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:

Doug and Pattie received the following interest income in the current year: Savings account at Greenbacks Bank $4,000 United States Treasury bonds 250 Interest on State of Iowa bonds 200 Interest on Federal tax refund 150 Interest on state income tax refund 75 ​ Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100)for opening the savings account.What amount of interest income should they report on their joint income tax return?

A company has a medical reimbursement plan for officers that covers all costs that the insurer will not pay.However,for all employees who are not officers,the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds.An officer incurred $1,500 in medical expenses and was reimbursed for that amount.An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

Meg's employer carries insurance on its employees that will pay an employee his or her regular salary while the employee is away from work due to illness.The premiums for Meg's coverage were $1,800.Meg was absent from work for two months as a result of a kidney infection.Meg's employer's insurance company paid Meg's regular salary of $8,000 while she was away from work.Meg also collected $2,000 on a wage continuation policy she had purchased.Meg must include $11,800 in her gross income.

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.