Exam 4: Income Exclusions

Chad is a senior manager with Gusto, Inc. Chad's secretary, Loretta, takes care of several of Chad's personal tasks when time permits. Loretta arranges for the weekly pickup and delivery of Chad's laundry and dry cleaning. Loretta also books reservations to the theater and arranges for tickets to basketball games for Chad. Chad hopes that Loretta's services are classified as

Match each statement with the correct term below. -Flexible benefits plan

Mei-Ling is a candidate for a master's degree in taxation from Western State University. During the current year she receives the following cash payments: How much must be included in Mei-Ling's gross income? State allocated tuition waiver scholarship \ 2,200 A Microsoft scholarship (for fees and books) 800 Check from her grandmother 1,700 Loan proceeds from the college financial aid office 2,500 Prize won from a "rub and scratch" lottery ticket 300 Loan from her roommate 100 Interest received from National Bank CD 400

Returns of human capital I.are excluded from gross income. II.include unemployment compensation benefits. III.include workers' compensation payments received for personal injury. IV.are treated the same for tax purposes as all other forms of capital recovery. ​

Match each statement with the correct term below. -Loss-of-income damages

Gary receives $40,000 worth of Quantro, Inc., common stock from the estate of his late grandmother. He receives a $100 cash dividend six months later. Before the end of the year, Gary sells the stock for $42,000. Due to these events, how much must Gary include in his gross income for the year?

Ward and June are in the 32% tax bracket. Included in their assets is a Dell Computer Corporation bond with a face value of $10,000. The bond pays $1,000 a year in interest. Ward and June gift the bond to their son, Wally (age 19), on January 1, 2018. Wally is in the 12% tax bracket. The 2018 net tax savings for the family unit of Ward, June and Wally related to the transfer of the bond is

Bernice is the beneficiary of a $50,000 insurance policy on her father's life. If she receives the proceeds in installments from the insurance company that carries the policy, she will earn only five-percent interest per year, receiving $10,500 per year for five years. Bernice decides to take the $50,000 in a lump-sum payment and invest the funds herself. Of the $50,000 received:

When Rick found out that Ryan's liabilities exceeded his assets by $15,000, he forgave Ryan the $1,000 he owed Rick in hoping that Ryan might get back on his feet. Ryan is allowed to exclude the $1,000 from income.

No-additional-cost services and employee discounts must be made available to employees on a nondiscriminatory basis and must also be in the same line of business in which the employee works to be excluded from the employee's income.

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below. -Dick lives rent-free in an apartment (value $675/month) in a complex where he is the apartment manager and must be on the premises to handle problems.

Match each statement with the correct term below. -Scholarship

Angie's employer has a qualified pension plan. The employer makes all payments into the plan; employees do not contribute to the plan. During the current year, the employer pays $5,000 into the plan on Angie's behalf. Which of the following statements is true? I.Angie is not taxed on the $5,000 in the current year. II.The $5,000 payment is excluded from her income in the current year, but she will pay tax on the $5,000 as she receives it. ​

Harry is a CPA employed as a manager by a regional accounting firm. The firm pays Harry's dues to professional organizations and $175 monthly for his personal parking place at the office. Only managers and partners receive these benefits. I.Both payments are working condition fringe benefits. II.These benefits are excludable for Harry even though they discriminate in favor of higher-paid employees. ​

Match each statement with the correct term below. -Working condition fringe

For the past seven years Karen, an attorney, has directed litigation clients to Rebecca, a CPA, for accounting investigatory work. Because of the amount of litigation work Karen directed to Rebecca, Rebecca's business is now comprised solely of litigation support work. Karen began taking tennis lessons this year. Rebecca gives Karen a new tennis racquet so they could share afternoons by playing tennis together. I.The "gift" appears to be a form of compensation. II.Substance-over-form applies to this situation. III.The tennis racquet meets the income tax definition of a gift. IV.Karen recognizes no gross income from the receipt of the tennis racquet. ​

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below. -Julia receives $6.3 million in compensatory damages for a personal physical injury.

Morris is considering investing in some bonds. Morris is in the 32% tax bracket. His broker tells him about City of Fargo, North Dakota, bonds with a yield of 6%.

Each of the numbered items below is accorded only one of the following lettered treatments. Use the existing law as it applies to the current year, match the best answer to the statements below. -Hank's employer gives him fishing gear that is worth $1,250 at his retirement party. (non-qualified plan)

Ward and June are in the 32% tax bracket. Included in their assets is a Dell Corporation bond with a face value of $10,000. The bond pays $1,000 a year in interest. Ward and June make a gift to their son, Wally (age 19) of the $1,000 in interest income. Wally is in the 10% tax bracket. What is Ward and June's tax liability related to the bond and the bond interest for the current year?