Question 1

In the case of a fringe benefit plan that is discriminatory (e.g. ,the plan favors officers over other employees),

Accepted Answer

A) All employees must include all benefits received in gross income. 
B) De minimis fringes may be excluded from gross income. 
C) The value of a parking space provided (value of $100 per month)must be included in gross income. 
D) Those who are being discriminated against can exclude a certain portion of their cash compensation from gross income to achieve parity. 
E) None of the above. 
A) All employees must include all benefits received in gross income. 
B) De minimis fringes may be excluded from gross income. 
C) The value of a parking space provided (value of $100 per month)must be included in gross income. 
D) Those who are being discriminated against can exclude a certain portion of their cash compensation from gross income to achieve parity. 
E) None of the above. B

Question 2

Chris was hospitalized for stomach problems.While he was away from the job,he collected his regular salary from an employer-sponsored income protection insurance policy.Chris's employer-sponsored hospitalization insurance policy also paid for all of his medical expenses.Chris also collected on an income protection policy that he purchased.Which of the above sources of income are taxable? Explain the basis for excluding any item or items.

Accepted Answer

Only the collections on the employer-sponsored income protection policy are subject to tax.The hospitalization benefits received from the employer sponsored plan are specifically excluded.Both the premiums and the payments can be excluded.The amounts Chris collected on a policy he purchased are specifically excluded under the rationale that the payments are a recovery of Chris's premiums.

Question 3

Ted's property was taken by the State of Virginia to build a highway overpass.He disputed the amount of the condemnation award he was to receive and ultimately collected an amount for the property plus $12,000 interest on the award.Ted can exclude from gross income the interest he received from the State of Virginia associated with the condemnation award.

Accepted Answer

A) True 
 B)False  False

Question 4

Sam was unemployed for the first two months of 2010.During that time,he received $3,000 of state unemployment benefits.He worked for the next six months and earned $12,000.In September he was injured on the job and collected $4,000 of worker's compensation benefits.Sam's Federal gross income from the above is $15,000.

Accepted Answer

A) True 
 B)False

Question 5

In 2010,Bob's unincorporated business has a net loss of $12,000.Bob has investment income of $15,000.Itemized deductions and personal exemptions total $13,000.Thus,on his 2010 tax return,his taxable income was a negative $10,000.In 2010,Bob discovered that an employee has stolen $14,000 (pocketing the proceeds from unrecorded sales)from the business.This $14,000 theft loss is included in calculating the net loss of Bob's business of $12,000.In 2011,Bob recovers the $14,000 from the former employee.How can the tax benefit rule assist Bob in 2011?

Accepted Answer

Bob realizes a $14,000 increase in wealt

Question 6

A cash basis taxpayer took an itemized deduction of $5,500 for state income tax paid in 2010.His total itemized deductions in 2010 were $18,000.In 2011,he received a $900 refund of his 2010 state income tax.The taxpayer must include the $900 refund in his 2011 Federal gross income in accordance with the tax benefit rule.

Accepted Answer

A) True 
 B)False

Question 7

Jack received a court award for $100,000 for damages to his personal reputation by the National Gossip.He also received $50,000 in punitive damages.Jack must include in his gross income as a damage award:

Accepted Answer

A) $0. 
B) $50,000. 
C) $100,000. 
D) $150,000. 
E) None of the above. 
A) $0. 
B) $50,000. 
C) $100,000. 
D) $150,000. 
E) None of the above.

Question 8

Olaf was injured in an automobile accident and received $25,000 for his physical injury,$10,000 for his loss of income,and $50,000 punitive damages.As a result of the award,the amount Olaf must include in gross income is:

Accepted Answer

A) $10,000. 
B) $50,000. 
C) $60,000. 
D) $85,000. 
E) None of the above. 
A) $10,000. 
B) $50,000. 
C) $60,000. 
D) $85,000. 
E) None of the above.

Question 9

Early in the year,Marcus was in an automobile accident during the course of his employment.As a result of the physical injuries he sustained,he received the following payments during the year:   What is the amount that Marcus must include in gross income for the current year?

Accepted Answer

A) $20,000. 
B) $13,000. 
C) $7,000. 
D) $6,000. 
E) $0. 
A) $20,000. 
B) $13,000. 
C) $7,000. 
D) $6,000. 
E) $0.

Question 10

Under the Swan Company's cafeteria plan,all full-time employees are allowed to select any combination of the benefits below,but the total received by the employee cannot exceed $8,000 a year.   Which of the following statements is true?

Accepted Answer

A) Sam,a full-time employee,selects choices II and III and $2,000 cash.His gross income must include the $2,000. 
B) Paul,a full-time employee,elects to receive $8,000 cash because his wife's employer provided these same insurance benefits for him.Paul is required to include the $8,000 in gross income. 
C) Sue,a full-time employee,elects to receive choices I,II and $3,200 for III.Sue is not required to include any of the above in gross income. 
D) All of the above. 
E) None of the above. 
A) Sam,a full-time employee,selects choices II and III and $2,000 cash.His gross income must include the $2,000. 
B) Paul,a full-time employee,elects to receive $8,000 cash because his wife's employer provided these same insurance benefits for him.Paul is required to include the $8,000 in gross income. 
C) Sue,a full-time employee,elects to receive choices I,II and $3,200 for III.Sue is not required to include any of the above in gross income. 
D) All of the above. 
E) None of the above.

Question 11

Describe a situation under which a company would decide a cafeteria plan would be advantageous for its employees.

Accepted Answer

Cafeteria plans are beneficial where emp

Question 12

Tommy,a senior at State College,receives free room and board as full compensation for working as a resident advisor at the university dormitory.The regular housing contract is $1,800 a year in total,$1,000 for lodging and $800 for meals in the dormitory.Tommy had the option of receiving the meals or $800 in cash.Tommy accepted the meals.What is Tommy's gross income from working as a resident advisor?

Accepted Answer

A) $0,the entire value of the contract is excluded from gross income. 
B) $800,only the meal contract must be included in gross income. 
C) $1,000,only the lodging contract must be included in gross income. 
D) $1,800,the entire value of the contract is compensation. 
E) None of the above. 
A) $0,the entire value of the contract is excluded from gross income. 
B) $800,only the meal contract must be included in gross income. 
C) $1,000,only the lodging contract must be included in gross income. 
D) $1,800,the entire value of the contract is compensation. 
E) None of the above.

Question 13

Tonya is a cash basis taxpayer.In 2010,she paid state income taxes of $5,000.In early 2011,she filed her 2010 state income tax return and received a $500 refund.

Accepted Answer

A) If Tonya itemized her deductions in 2010 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $500,she must include the $500 in her 2011 Federal gross income. 
B) If Tonya took the standard deduction on her 2010 Federal income tax return,Tonya must include the $500 in her 2011 Federal gross income. 
C) If Tonya itemized her deductions in 2010,she must amend her 2010 Federal income tax return to reduce her itemized deductions. 
D) If Tonya took the standard deduction on her 2010 Federal income tax return,Tonya must amend her 2010 tax return. 
E) None of the above. 
A) If Tonya itemized her deductions in 2010 on her Federal income tax return and her itemized deductions exceeded the standard deduction by at least $500,she must include the $500 in her 2011 Federal gross income. 
B) If Tonya took the standard deduction on her 2010 Federal income tax return,Tonya must include the $500 in her 2011 Federal gross income. 
C) If Tonya itemized her deductions in 2010,she must amend her 2010 Federal income tax return to reduce her itemized deductions. 
D) If Tonya took the standard deduction on her 2010 Federal income tax return,Tonya must amend her 2010 tax return. 
E) None of the above.

Question 14

The president of Silver Corporation is assigned a secretary.When the secretary has completed work on company matters,the secretary is available to do the president's personal matters (pick up laundry,buy groceries)so long as the privilege is not abused.No other employee has a personal secretary.

Accepted Answer

A) The value of the secretary's services provided to the president may be excluded as no-additional-cost services. 
B) The value of the secretary's services provided to the president may be excluded because the president did not receive cash. 
C) The value of the secretary's services provided to the president may be excluded as no-additional-cost services because the services are not available to all employees. 
D) If the value of secretary's services are considered de minimis,the president may exclude the benefit from gross income even through other employees are not provided the same benefit. 
E) None of the above. 
A) The value of the secretary's services provided to the president may be excluded as no-additional-cost services. 
B) The value of the secretary's services provided to the president may be excluded because the president did not receive cash. 
C) The value of the secretary's services provided to the president may be excluded as no-additional-cost services because the services are not available to all employees. 
D) If the value of secretary's services are considered de minimis,the president may exclude the benefit from gross income even through other employees are not provided the same benefit. 
E) None of the above.

Question 15

Ridge is the manager of a motel.As a condition of his employment,Ridge is required to live in a room on the premises so that he would be there in case of emergencies.Ridge considered this a fringe benefit,since he would otherwise be required to pay $600 per month rent.The room that Ridge occupied normally rented for $60 per night,or $1,500 per month.On the average,90% of the motel rooms were occupied.As a result of this rent-free use of a room,Ridge is required to include in gross income.

Accepted Answer

A) $0. 
B) $600 per month. 
C) $1,500 per month. 
D) $1,350 ($1,500 * .90 = $1,350). 
E) None of the above. 
A) $0. 
B) $600 per month. 
C) $1,500 per month. 
D) $1,350 ($1,500 * .90 = $1,350). 
E) None of the above.

Question 16

Members of a research team can exclude from gross income the value of their lodging furnished at the research base located at the South Pole.

Accepted Answer

A) True 
 B)False

Question 17

In the case of interest income from state and Federal bonds:

Accepted Answer

A) I is true,II and III are false. 
B) I and II are true,and III is false. 
C) II and III are true,and I is false. 
D) I,II,and III are true. 
E) None of the above. 
A) I is true,II and III are false. 
B) I and II are true,and III is false. 
C) II and III are true,and I is false. 
D) I,II,and III are true. 
E) None of the above.

Question 18

Jena is a full-time student at State University and is claimed by her parents as a dependent.Her only source of income is an $8,000 scholarship ($800 for books,$3,800 tuition,$200 student activity fee,and $3,200 room and board).Jena's gross income for the year is:

Accepted Answer

A) $0. 
B) $200. 
C) $3,200. 
D) $3,400. 
E) None of the above. 
A) $0. 
B) $200. 
C) $3,200. 
D) $3,400. 
E) None of the above.

Question 19

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.

Accepted Answer

A) If Louise worked in the foreign branch from May 1,2010 until October 31,2011,she may exclude $40,000 from gross income in 2010 and exclude $50,000 in 2011. 
B) If Louise worked in the foreign branch from May 1,2010 until October 31,2011,she cannot exclude anything from gross income because she was not present in the country for 330 days in either year. 
C) If Louise began work in the foreign country on May 1,2010,she must work through November 30,2011 in order to exclude $55,000 from gross income in 2011 but none in 2010. 
D) Louise will not be allowed to exclude any foreign earned income because she made less than $91,500. 
E) None of the above. 
A) If Louise worked in the foreign branch from May 1,2010 until October 31,2011,she may exclude $40,000 from gross income in 2010 and exclude $50,000 in 2011. 
B) If Louise worked in the foreign branch from May 1,2010 until October 31,2011,she cannot exclude anything from gross income because she was not present in the country for 330 days in either year. 
C) If Louise began work in the foreign country on May 1,2010,she must work through November 30,2011 in order to exclude $55,000 from gross income in 2011 but none in 2010. 
D) Louise will not be allowed to exclude any foreign earned income because she made less than $91,500. 
E) None of the above.

Question 20

Margaret is trying to decide whether to place funds in a qualified tuition program.Her son will be attending college in 4 years.She is in the 35% marginal tax bracket and she believes she can earn 7% before tax return on alternative investments.Thus,$10,000 will accumulate to $11,948 (after-tax)in 4 years.Margaret expects tuition to increase at the rate of 5% each year to $12,155 in 4 years.Her son will be in the 15% marginal tax bracket in all relevant years.Given these assumptions,should Margaret participate in the qualified tuition program?

Accepted Answer

Margaret can accumulate $11,948 by inves

Exam 5: Gross Income: Exclusions

In the case of a fringe benefit plan that is discriminatory (e.g. ,the plan favors officers over other employees),

Jack received a court award for $100,000 for damages to his personal reputation by the National Gossip.He also received $50,000 in punitive damages.Jack must include in his gross income as a damage award:

Olaf was injured in an automobile accident and received $25,000 for his physical injury,$10,000 for his loss of income,and $50,000 punitive damages.As a result of the award,the amount Olaf must include in gross income is:

Early in the year,Marcus was in an automobile accident during the course of his employment.As a result of the physical injuries he sustained,he received the following payments during the year: What is the amount that Marcus must include in gross income for the current year?

Under the Swan Company's cafeteria plan,all full-time employees are allowed to select any combination of the benefits below,but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

Describe a situation under which a company would decide a cafeteria plan would be advantageous for its employees.

Tonya is a cash basis taxpayer.In 2010,she paid state income taxes of $5,000.In early 2011,she filed her 2010 state income tax return and received a $500 refund.

The president of Silver Corporation is assigned a secretary.When the secretary has completed work on company matters,the secretary is available to do the president's personal matters (pick up laundry,buy groceries)so long as the privilege is not abused.No other employee has a personal secretary.

Members of a research team can exclude from gross income the value of their lodging furnished at the research base located at the South Pole.

In the case of interest income from state and Federal bonds:

Jena is a full-time student at State University and is claimed by her parents as a dependent.Her only source of income is an $8,000 scholarship ($800 for books,$3,800 tuition,$200 student activity fee,and $3,200 room and board).Jena's gross income for the year is:

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation,cost Recovery,amortization,and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Part 2--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses,1231,and Recapure Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters