Exam 4: Income Exclusions

Julia spends her summers away from college as a forest ranger in a remote area near Mt. McKinley, Alaska. She lives in a remote dormitory where she also receives free meals. The dormitory's location permits rangers to be on call in case of an emergency. I.The value of the lodging is excluded from Julia's gross income. II.The value of the meals is excluded from Julia's gross income. ​

In July, Bruce leases a building to Vanessa for a period of twenty years at a monthly rental of $1,500. As part of the lease agreement, Vanessa pays a $3,000 security deposit. In addition, the lease agreement states that any improvements that Vanessa made to the building become Bruce's property. Prior to moving in on July 1, Vanessa makes improvements to the building at a cost of $13,000. How much gross income does Bruce have from the lease arrangement in the first year of the lease?

Connie received a $1,000 scholarship to attend State University from a local civic group based on her grades and community activities. The $1,000 is included in income.

On April 1, Sally is given $20,000 worth of City of Boise bonds for her 18^th birthday. On June 30, Sally receives the $800 annual interest payment on the bonds. How much income should Sally recognize due to these two events?

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. -Laura's employer pays the first $5,000 in childcare benefits under their childcare assistance plan.

Fanny'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 $4,000 into the plan on Fanny's behalf. The plan also earns $3,000 during the year on the balance in Fanny's retirement account. Which of the following statements is true? I.Fanny is not taxed on the $4,000 in the current year. II.Fanny is not taxed on the $3,000 in the current year. ​

Discharges of debt are generally taxable. However, in certain circumstances, part or all of the income from a discharge of indebtedness may be excluded. Which of the following concepts form(s) the basis for the income tax treatment of a discharged debt? I.Wherewithal-to-Pay Concept. II.Legislative Grace Concept. III.Realization Concept. IV.Substance Over Form Doctrine. ​

Jacob is experiencing cash flow problems during the current year. Rather than put the $80,000 business loan in default, his bank agrees to reduce the debt to $50,000. Prior to the debt reduction, Jacob's total assets were $500,000 and his total liabilities were $490,000. How much income must Jacob recognize from the reduction of his bank loan?

Isabel, age 51 and single, is an electrical engineer employed by Regis Corporation. Isabel's annual salary is $80,000. Regis Corporation's qualified pension plan matches employee's contributions to the plan up to 5% of the employee's annual salary. During the current year, Isabel contributes the $4,000 maximum to the plan, which is matched by Regis. Due to high cost of medical insurance, the corporation does not provide any medical insurance to its employees. Instead, it offers a flexible benefits plan that employees can use to pay for medical insurance, unreimbursed medical costs, and childcare costs. Isabel elects to have $2,500 paid into the plan. Isabel uses the plan to purchase medical insurance costing $2,200. Isabel spends an additional $150 from the plan on eyeglasses and dental costs. Regis Corporation also provides group-term life insurance at twice the employee's annual gross salary. The cost of Isabel's insurance was $600. Regis also provides engineers in Isabel's department with free parking in the company's parking garage. Non-employees pay $3,180 per year to park in the garage. Isabel's $250 dues to the Electrical Engineer's Association and her $1,560 health club membership are also paid by Regis. Compute Isabel's taxable compensation from Regis Corporation.

Ramon is a waiter at Trucker's Delight Restaurant. He eats two meals each day at the restaurant at no charge. One is eaten just before he begins work; the other is eaten during working hours. The value of meals consumed by Ramon during the current year is $2,500, evenly distributed between the two meals. What are the tax effects of this situation? I.Ramon will have to recognize $1,250 of income. II.None are taxable because the meals are for the convenience of the employer. III.If Ramon has the option of receiving his choice of either a cash payment or the two meals, the $2,500 is taxable. ​

Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2016. He received $120 interest on the bonds in 2016, 2017 and 2018. In 2017, he sells the bonds for a gain of $300. Ferris excludes the value of the bonds received and the bond interest, but must include a $300 capital gain in his 2018 gross income. Which of the following Concepts, Constructs, and/or Doctrines form the basis for this treatment? I.Capital Recovery Concept II.Legislative Grace Concept III.Constructive Receipt Doctrine IV.Realization Concept ​

The information that follows applies to the current year for Aaron and Janelle, a married couple. Based on the above information, what is Aaron and Janelle 's adjusted gross income? - Aaron is employed as a shoe sal esman; his compensation is $\$ 75,000$ . - Janelle is employed by the state of Indiana; her compensation is $\$ 35,000$ . - Aaron and Janelle have total allowable itemized deductions of $\$ 12,000$ . - Aaron and Janelle have two dependent children. - Aaron and Janelle have other economic income as follows: - Interest on U.S. Treasury notes $\$ 1,000$ . - Interest on Compost Computer bonds $\$ 1,500$ . - Interest on German government bonds $\$ 750$ . - Inter est on City of Nashville bonds $\$ 1,200$ . - Aaron's wealthy uncle gives him $\$ 1,000$ . - Janelle sold Aaron's football card collection for $\$ 3,000$ . It cost $\$ 800$ . - Janelle sells Aaron's fishing boat for $\$ 2,000$ . Aaron had purchased the boat 3 years ago for $\$ 2,800$ .

The tax law allows the exclusion of general types of employment-related fringe benefits provided they are made available to employees on a nondiscriminatory basis. Which of the following must be provided on a nondiscriminatory basis to be excluded from income? I.De minimis fringe benefits. II.Employee discounts. III.No additional cost services. IV.Working-condition fringes. ​

The interest from Guam Water Authority bonds is excluded from income as "Municipal Bond Interest."

Joan purchased her residence in 2012 for $500,000 by borrowing $450,000. In 2018, she becomes unemployed and can no longer afford to make the full monthly payment on the mortgage. When the mortgage balance is $430,000, the bank agrees to reduce her mortgage to avoid foreclosure. Joan is insolvent before and after the loan reduction. How much income would Joan have to recognize if the bank agrees to reduce the mortgage on the residence to $300,000?

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. -Jeane's employer pays his medical premiums each month ($130/month).

Gus owes $50,000 in credit card debt to Neighbor's Bank. Gus was having financial difficulties during the current year and Neighbor's Bank agreed to reduce Gus's debt to $20,000 to help him get his financial affairs in order and avoid bankruptcy. I.If Gus's assets were $100,000 and his liabilities were $150,000 before the discharge, he is not taxed on any of the $30,000 debt reduction. II.If Gus's assets were $80,000 and his liabilities were $100,000 before the discharge, he is taxed on all $30,000 of the debt reduction. ​

Drew graduated from business school in December 2017. To honor Drew, on January 3, 2018, his uncle gives him two tickets to the Super Bowl. The uncle paid $1,200 for each ticket. Because he had to report to work at a brokerage firm in Indianapolis on January 15, 2018, he could not use the tickets. Therefore, he sells them for $2,500 each. How much income must Drew recognize in 2018 because of these events?

On her 18th birthday, Patti's grandfather gave her $8,000 of dividends on stock he owned, which she uses to pay college expenses. The cost of Patti's tuition, fees, and books is $6,000. Patti's gross income from this event is:

Chipper borrowed money from several creditors for personal uses. At a time when his assets are worth $120,000 and his debts are $140,000, his creditors agree on a compromise settlement in which they forgive $26,000 of the debt. How much of the $26,000 is included in Chipper's Gross Income?