Exam 4: Gross Income: Concepts and Inclusions

Betty purchased an annuity for $24,000 in 2012.Under the contract, Betty will receive $300 each month for the rest of her life.According to the actuarial estimates, Betty will live to receive 96 payments and will receive a 3% return on her original investment.

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

If a lottery prize winner transfers the prize to a qualified government unit or nonprofit organization, then the prize is excluded from the winner's gross income if the amount of the prize does not exceed 30% of the winner's AGI.

After the divorce, 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.

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:

Samantha and her son, Brent, are cash basis taxpayers. Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000.On the date of the gift, March 31, 2012, the accrued interest on the bond was $100. On December 31, 2012, Brent collected $400 interest on the bond.Brent must include in gross income the $300 interest earned after the date of the gift.

The annual increase in the cash surrender value of a life insurance policy:

The tax concept and economic concept of income are in agreement on which of the following:

The financial accounting principle of conservatism is not well-suited to the task of measuring taxable income.

In the case of a gift loan of less than $100,000, the imputed interest rules apply if the donee has net investment income of over $1,000.

Ted was shopping for a new automobile. He found one that met his needs and agreed to purchase it for $23,000. He had shopped around and concluded that he could not get a better price from another dealer. After he had paid for the automobile, the dealer called to notify Ted that he was entitled to a manufacturer's rebate of $1,500. The next week he received a $1,500 check from the manufacturer.How much should Ted include in gross income?

The alimony recapture rules are intended to:

Under the terms of a divorce agreement, Ron is to pay his former wife Jill $10,000 per month.The payments are to be reduced to $7,000 per month when their 15 year-old child reaches age 18.During the current year, Ron paid $120,000 under the agreement.Assuming all of the other conditions for alimony are satisfied, Ron can deduct from gross income (and Jill must include in gross income) as alimony:

Seth, a calendar year taxpayer, purchased an annuity for $50,000 in 2010.The annuity was to pay him $3,000 on the first day of each year, beginning in 2010, for the remainder of his life.Seth's life expectancy at the time he purchased the annuity was 20 years.In 2012, Seth developed a deadly disease, and doctors estimated that he would live for no more than 24 months.

Melissa is a compulsive coupon clipper.She often brags about the time she purchased a cart full of groceries for $5.00, when the cost without coupons would have been $50.Discuss whether Melissa realizes gross income from her coupon clipping.

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

Theresa, a cash basis taxpayer, purchased a bond on July 1, 2009, for $10,000, plus $400 of accrued interest. The bond paid $800 of interest each December 31. On March 31, 2012, she sold the bond for $10,300, which included $200 of accrued interest.

Margaret made a $90,000 interest-free loan to her son, Adam, who used the money to retire a mortgage on his personal residence and to buy a certificate of deposit.Adam's only income for the year is his salary of $35,000 and $1,400 interest income on the certificate of deposit.The relevant Federal interest rate is 8% compounded semiannually.The loan is outstanding for the entire year.

Wayne owns a 25% interest in the capital and profits of Emerald Company (a calendar year partnership).For tax year 2012, the partnership earned revenue of $900,000 and had operating expenses of $560,000.During the year, Wayne withdrew from the partnership a total of $90,000. He also invested an additional $20,000 in the partnership.For 2012, Wayne's gross income from the partnership is:

For purposes of determining gross income, which of the following is true?