Exam 3: Income Sources

An installment sale I.occurs whenever property is sold and at least one payment is received in a tax year subsequent to the year of sale. II.may be disregarded by a taxpayer who elects to recognize the entire gain in the year of sale. III.triggers a method of income recognition based upon the wherewithal-to-pay concept. IV.allows businesses that sell inventory on credit to defer recognition of income until payment is received. ​

Under the imputed interest rules, gift loans between a daughter (lender) and her mother (borrower) may result in I.No imputed interest income recognized by the mother. II.No imputed interest deduction by the daughter. III.Imputed interest income recognized by the daughter. IV.Deduction allowed for imputed interest expense by the mother. ​

Imputed interest rules and policies include which of the following? I.Gift loans have no income tax effect to the lender. II.Any loan of $10,000 or less is exempted from imputed interest rules. III.On gift loans of $100,000 or less, the imputed interest on the loan cannot exceed the borrower's net investment income for the year. IV.With a loan to a shareholder, a corporation can deduct the imputed payment. ​

Victoria is an employee of The Bellamy Corporation. During a recent business trip, one of Victoria's connecting flights was overbooked. Because Victoria did not have a business meeting until the next day, she volunteered to take the next available flight. The airline gave Victoria a $20 meal ticket and a coupon worth $100 off any future flight on the airline for giving up her seat on the overbooked flight. Has Victoria realized income from the receipt of the meal ticket and the coupon? Explain in terms of the income tax concepts.

Martin purchased an annuity contract at the beginning of 2002 for $84,000. The contract specifies that he will receive $2,000 per month for life. Martin receives his first payments on July 1, 2014, when he was 67 years old. Martin dies on August 15, 2019 (the August payment was received prior to his death). What amount, if any, should be deducted on Martin's 2019 tax return as a result of failing to receive his expected return on the annuity contract?

Match each statement with the correct term below. -Earned income