Exam 4: Gross Income: Concepts and Inclusions

An advance payment received in June 2012 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

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?

Under the terms of a divorce agreement, 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):

In the case of a below-market loan between family members, if the imputed interest rules apply, which of the following is not true?

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:

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

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

Jerry purchased a U.S.Series EE savings bond for $279.The bond has a maturity value in 10 years of $500 and yields 6% interest.This is the first Series EE bond that Jerry has ever owned.

The effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company are:

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, Gordon must include in his 2012 gross income which of the following amounts?

Office Palace, Inc., leased an all-in-one printer to a new customer, Ashley, on December 27, 2012.The printer was to rent for $600 per month for a period of 36 months beginning January 1, 2013.Ashley was required to pay the first and last month's rent at the time the lease was signed.Ashley was also required to pay a $1,500 damage deposit.Office Palace must recognize as income for the lease:

Thelma and Mitch were divorced.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:

Mike contracted with Kram Company, Mike's controlled corporation.Mike was a medical doctor and the contract provided that he would work exclusively for the corporation.No other doctor worked for the corporation.The corporation contracted to perform an operation for Rosa for $8,000.The corporation paid Mike $6,500 to perform the operation under the terms of his employment contract.

George and Erin are divorced, and George is required to pay Erin $20,000 of alimony each year.George earns $75,000 a year.Erin is not required to include the alimony payments in gross income because George earned the income and therefore he should pay the tax on the income.

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, 2012, the partnership had $400,000 net income and for fiscal year ending September 30, 2013, the partnership had $300,000 net income. April withdrew $100,000 in December of each year. April's gross income from the partnership for 2012 is $160,000 ($400,000 ´ 40%).

Margaret owns land that appreciates at the rate of 10% each year.Ralph owns a zero coupon (i.e., all of the interest is paid at maturity but is taxed annually) corporate bond with a yield to maturity of 10%.At the end of 10 years, the bond will mature and the land will be sold.At the end of the 10 years,

Ted and Alice were in the process of negotiating a divorce agreement.They own bonds with a basis of $600,000 and a fair market value of $600,000. They also own common stock with a basis of $800,000 and a fair market value of $600,000. Alice is trying to decide whether to bargain to receive the bonds or the stock.Whichever of the assets she receives, she will sell it to start a new business and to purchase a house. She knows that Ted would prefer to receive the stock, and that he intends to sell them. She knows that Ted has substantial investments that he inherited. a. Why do you suppose that Ted prefers to receive the stock? b. If Ted is bargaining to receive the stock, what additional consideration should Alice receive?

Sarah, a majority shareholder in Teal, Inc., made a $200,000 interest-free loan to the corporation.Sarah is not an employee of the corporation.

On December 1, 2012, Daniel, an accrual basis taxpayer, collects $12,000 rent for December 2012 and $12,000 for January 2013.Daniel must include the $24,000 in 2012 gross income.

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.