Question 1

Heather's interest and gains on investments for 2010 were as follows:   Heather's gross income from the above is:

Accepted Answer

A) $1,600. 
B) $1,500. 
C) $1,200. 
D) $1,100. 
E) None of the above. 
A) $1,600. 
B) $1,500. 
C) $1,200. 
D) $1,100. 
E) None of the above.

Question 2

The exclusion of interest on educational savings bonds:

Accepted Answer

A) Applies only to savings bonds owned by the child. 
B) Applies to parents who purchase bonds for which the proceeds are used for their child's education. 
C) Means that the child must include the interest in income if the bond is owned by the parent. 
D) Is phased out once the taxpayer's adjusted gross income exceeds $50,000. 
E) None of the above. 
A) Applies only to savings bonds owned by the child. 
B) Applies to parents who purchase bonds for which the proceeds are used for their child's education. 
C) Means that the child must include the interest in income if the bond is owned by the parent. 
D) Is phased out once the taxpayer's adjusted gross income exceeds $50,000. 
E) None of the above.

Question 3

Ben was diagnosed with a terminal illness.His physician estimated that Ben would live no more than 18 months.After he received the doctor's diagnosis,Ben cashed in his life insurance policy to pay some medical bills.Ben had paid $12,000 in premiums on the policy,and he collected $50,000,the cash surrender value of the policy.Henry enjoys excellent health,but he cashed in his life insurance policy to purchase a new home.He had paid premiums of $12,000 and collected $50,000 from the insurance company.

Accepted Answer

A) Neither Ben nor Henry is required to recognize gross income. 
B) Both Ben and Henry must recognize $38,000 ($50,000 - $12,000)of gross income. 
C) Henry must recognize $38,000 ($50,000 - $12,000)of gross income,but Ben does not recognize any gross income. 
D) Ben must recognize $38,000 ($50,000 - $12,000)of gross income,but Henry does not recognize any gross income. 
E) None of the above. 
A) Neither Ben nor Henry is required to recognize gross income. 
B) Both Ben and Henry must recognize $38,000 ($50,000 - $12,000)of gross income. 
C) Henry must recognize $38,000 ($50,000 - $12,000)of gross income,but Ben does not recognize any gross income. 
D) Ben must recognize $38,000 ($50,000 - $12,000)of gross income,but Henry does not recognize any gross income. 
E) None of the above.

Question 4

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities,but reimburses its employee for the cost of parking in a nearby garage,up to $150 per month.

Accepted Answer

A) Kristen and Karen must recognize gross income from the parking services. 
B) Kristen can exclude the employer provided parking from gross income,but Karen must include her reimbursement in gross income. 
C) Kristen must include the value of the employer provided parking from her gross income,but Karen can exclude her reimbursement from gross income. 
D) Neither Kristen nor Karen is required to include the cost of parking in gross income. 
E) None of the above. 
A) Kristen and Karen must recognize gross income from the parking services. 
B) Kristen can exclude the employer provided parking from gross income,but Karen must include her reimbursement in gross income. 
C) Kristen must include the value of the employer provided parking from her gross income,but Karen can exclude her reimbursement from gross income. 
D) Neither Kristen nor Karen is required to include the cost of parking in gross income. 
E) None of the above.

Question 5

Tom loaned $20,000 to his controlled corporation.When it became apparent the corporation would not be able to repay the loan in the near future,Tom canceled the debt.The corporation should treat the cancellation as a nontaxable contribution to capital.

Accepted Answer

A) True 
 B)False

Question 6

Harold bought land from Jewel for $150,000.Harold paid $50,000 cash and gave Jewel an 8% note for $100,000.The note was to be paid over a five-year period.When the balance on the note was $80,000,Jewel began having financial difficulties.To accelerate her cash inflows,Jewel agreed to accept $60,000 cash from Harold in final payment of the note principal.

Accepted Answer

A) Harold must recognize $20,000 ($80,000 - $60,000)of gross income. 
B) Harold is not required to recognize gross income,but must reduce his cost basis in the land to $130,000. 
C) Harold is not required to recognize gross income,since he paid the debt before it was due. 
D) Jewel must recognize gross income of $20,000 ($80,000 - $60,000)from discharge of the debt. 
E) None of the above. 
A) Harold must recognize $20,000 ($80,000 - $60,000)of gross income. 
B) Harold is not required to recognize gross income,but must reduce his cost basis in the land to $130,000. 
C) Harold is not required to recognize gross income,since he paid the debt before it was due. 
D) Jewel must recognize gross income of $20,000 ($80,000 - $60,000)from discharge of the debt. 
E) None of the above.

Question 7

Barbara was injured in an automobile accident.She has threatened to file a suit against the other party involved in the accident and has proposed the following settlement:
   The defendant's insurance company is reluctant to pay punitive damages.Also,the company disputes the amount of her loss of wages amount.Instead,the company offers to pay her $210,000 for damages to her arm and $30,000 medical expenses.Assuming Barbara is in the 35% marginal tax bracket,will her after-tax proceeds from accepting the offer be equal to what she considers to be her actual damages (listed above)?

Accepted Answer

Barbara's claim for punitive damages of

Question 8

A debtor undergoing a Chapter 11 reorganization under the bankruptcy laws who receives a discharge of his or her liabilities has realized income but can exclude the debt reduction from gross income.

Accepted Answer

A) True 
 B)False

Question 9

Meg's employer carries insurance on its employees that will pay an employee his or her regular salary while the employee is away from work due to illness.The premiums for Meg's coverage were $1,200.Meg was absent from work for two months as a result of a kidney infection.Meg's employer's insurance company paid Meg's regular salary of $8,000 while she was away from work.Meg also collected $2,000 on a wage continuation policy she had purchased.Meg is not taxed on any of the above amounts.

Accepted Answer

A) True 
 B)False

Question 10

A U.S.citizen worked in a foreign country for the period July 1,2009 through August 1,2010.Her salary was $10,000 per month.Also,in 2009 she received $5,000 in dividends from foreign corporations (not qualified dividends).No dividends were received in 2010.Which of the following is correct?

Accepted Answer

A) The taxpayer can exclude $60,000 from U.S.gross income for 2009 because the total salary earned in the foreign country in 2009 was less than the annual foreign earned income exclusion,but the dividends of $5,000 must be included in gross income. 
B) The taxpayer can exclude a portion of the compensation income from U.S.gross income in 2009 and 2010,but must include the dividend income of $5,000 in gross income. 
C) The taxpayer can exclude from U.S.gross income $60,000 salary in 2009,but in 2009 the taxpayer will exceed the twelve month limitation and,therefore,all of the 2010 compensation must be included in gross income.All of the dividends must be included in 2009 gross income. 
D) The taxpayer can exclude a portion of the salary from U.S.gross income in 2009 and 2010,and all of the dividend income. 
E) None of the above. 
A) The taxpayer can exclude $60,000 from U.S.gross income for 2009 because the total salary earned in the foreign country in 2009 was less than the annual foreign earned income exclusion,but the dividends of $5,000 must be included in gross income. 
B) The taxpayer can exclude a portion of the compensation income from U.S.gross income in 2009 and 2010,but must include the dividend income of $5,000 in gross income. 
C) The taxpayer can exclude from U.S.gross income $60,000 salary in 2009,but in 2009 the taxpayer will exceed the twelve month limitation and,therefore,all of the 2010 compensation must be included in gross income.All of the dividends must be included in 2009 gross income. 
D) The taxpayer can exclude a portion of the salary from U.S.gross income in 2009 and 2010,and all of the dividend income. 
E) None of the above.

Question 11

Ron,age 19,is a full-time graduate student at City University.During 2010,he received the following payments:   Ron served as a resident advisor in a dormitory and,therefore,the university waived the $2,500 charge for the room he occupied.What is Ron's adjusted gross income for 2010?

Accepted Answer

A) $1,000. 
B) $3,500. 
C) $5,000. 
D) $12,000. 
E) None of the above. 
A) $1,000. 
B) $3,500. 
C) $5,000. 
D) $12,000. 
E) None of the above.

Question 12

A U.S.citizen who works in France from February 1,2010 until January 31,2011 is eligible for the foreign earned income exclusion in 2010 and 2011.

Accepted Answer

A) True 
 B)False

Question 13

Turquoise Company purchased a life insurance policy on the company's chief executive officer,Joe.After the company had paid $400,000 in premiums,Joe died and the company collected the $1.5 million face amount of the policy.The company also purchased group term life insurance on all its employees.Joe had included $16,000 in gross income for the group term life insurance premiums.Joe's widow,Rebecca,received the $100,000 proceeds from the group term life insurance policy.

Accepted Answer

A) Rebecca can exclude the life insurance proceeds of $100,000,but Turquoise Company must include $1,100,000 ($1,500,000 - $400,000)in gross income. 
B) Turquoise Company and Rebecca can exclude the life insurance proceeds of $1,500,000 and $100,000,respectively,from gross income. 
C) Turquoise Company can exclude $1,100,000 ($1,500,000 - $400,000)from gross income,but Rebecca must include $84,000 in gross income. 
D) Turquoise Company must include $1,100,000 ($1,500,000 - $400,000)in gross income and Rebecca must include $100,000 in gross income. 
E) None of the above. 
A) Rebecca can exclude the life insurance proceeds of $100,000,but Turquoise Company must include $1,100,000 ($1,500,000 - $400,000)in gross income. 
B) Turquoise Company and Rebecca can exclude the life insurance proceeds of $1,500,000 and $100,000,respectively,from gross income. 
C) Turquoise Company can exclude $1,100,000 ($1,500,000 - $400,000)from gross income,but Rebecca must include $84,000 in gross income. 
D) Turquoise Company must include $1,100,000 ($1,500,000 - $400,000)in gross income and Rebecca must include $100,000 in gross income. 
E) None of the above.

Question 14

Theresa sued her former employer for age,race,and gender discrimination.She claimed $250,000 in damages for loss of income and $500,000 in punitive damages.She settled the claim for $600,000.As a result of the settlement,Theresa must include in gross income:

Accepted Answer

A) $0. 
B) $400,000 [$500,000/($250,000 + $500,000)* $600,000]. 
C) $500,000. 
D) $600,000. 
E) None of the above. 
A) $0. 
B) $400,000 [$500,000/($250,000 + $500,000)* $600,000]. 
C) $500,000. 
D) $600,000. 
E) None of the above.

Question 15

Julie was suffering from a viral infection that caused her to miss work for 90 days.During the first 30 days of her absence,she received her regular salary of $5,000 from her employer.For the next 60 days,she received $10,000 under an accident and health insurance policy that she had purchased for premium payments totaling $6,000.Of the $15,000 she received,Julie must include in gross income:

Accepted Answer

A) $0. 
B) $4,000. 
C) $5,000 
D) $9,000. 
E) None of the above. 
A) $0. 
B) $4,000. 
C) $5,000 
D) $9,000. 
E) None of the above.

Question 16

The Perfection Tax Service gives employees $10 as "supper money" when they are required to work overtime,approximately 20 days each year.The supper money received:

Accepted Answer

A) Must be included in the employee's gross income. 
B) Must be included in the employee's gross income if the employee does not spend it for supper. 
C) May be excluded from the employee's gross income as a "no-additional cost" fringe benefit. 
D) May be excluded from the employee's gross income as a de minimis fringe benefit. 
E) None of the above. 
A) Must be included in the employee's gross income. 
B) Must be included in the employee's gross income if the employee does not spend it for supper. 
C) May be excluded from the employee's gross income as a "no-additional cost" fringe benefit. 
D) May be excluded from the employee's gross income as a de minimis fringe benefit. 
E) None of the above.

Question 17

Hazel,a solvent individual but a recovering alcoholic,embezzled $5,000 from her employer.In the same year that she embezzled the funds,her employer discovered the theft.Her employer did not fire her and told her she did not have to repay the $5,000 if she would attend Alcoholics Anonymous.Hazel met the conditions and her employer canceled the debt.

Accepted Answer

A) Hazel did not realize any income because she obtained the funds illegally. 
B) Hazel is not required to include the $5,000 in gross income because her employer made a gift to her. 
C) Hazel must include $5,000 in gross income from discharge of indebtedness. 
D) Hazel may exclude the $5,000 from gross income because the debt never existed. 
E) None of the above. 
A) Hazel did not realize any income because she obtained the funds illegally. 
B) Hazel is not required to include the $5,000 in gross income because her employer made a gift to her. 
C) Hazel must include $5,000 in gross income from discharge of indebtedness. 
D) Hazel may exclude the $5,000 from gross income because the debt never existed. 
E) None of the above.

Question 18

Barney,a full-time graduate student,receives a full tuition waiver ($6,000 during the year)and a monthly stipend for 9 months of $600 ($5,400 for the year)from State University for performing research for the university as a graduate assistant.In addition,he receives a $1,500 research grant to pursue his own research and studies.Barney's gross income from the above is:

Accepted Answer

A) $0. 
B) $5,400. 
C) $11,400. 
D) $12,900. 
E) None of the above. 
A) $0. 
B) $5,400. 
C) $11,400. 
D) $12,900. 
E) None of the above.

Question 19

The taxpayer incorrectly took a $5,000 deduction (e.g. ,incorrectly calculated depreciation)in 2010 and as a result his taxable income was reduced by $5,000.The taxpayer discovered his error in 2011.The taxpayer can add $5,000 to his 2011 gross income in accordance with the tax benefit rule to correct for the 2010 error.

Accepted Answer

A) True 
 B)False

Question 20

Agnes receives a $5,000 scholarship which covers her tuition at Parochial High School.She may exclude the $5,000 scholarship she received for tuition at the private high school.

Accepted Answer

A) True 
 B)False

Heather's interest and gains on investments for 2010 were as follows: Heather's gross income from the above is:

The exclusion of interest on educational savings bonds:

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities,but reimburses its employee for the cost of parking in a nearby garage,up to $150 per month.

Tom loaned $20,000 to his controlled corporation.When it became apparent the corporation would not be able to repay the loan in the near future,Tom canceled the debt.The corporation should treat the cancellation as a nontaxable contribution to capital.

A debtor undergoing a Chapter 11 reorganization under the bankruptcy laws who receives a discharge of his or her liabilities has realized income but can exclude the debt reduction from gross income.

A U.S.citizen worked in a foreign country for the period July 1,2009 through August 1,2010.Her salary was $10,000 per month.Also,in 2009 she received $5,000 in dividends from foreign corporations (not qualified dividends).No dividends were received in 2010.Which of the following is correct?

Ron,age 19,is a full-time graduate student at City University.During 2010,he received the following payments: Ron served as a resident advisor in a dormitory and,therefore,the university waived the $2,500 charge for the room he occupied.What is Ron's adjusted gross income for 2010?

A U.S.citizen who works in France from February 1,2010 until January 31,2011 is eligible for the foreign earned income exclusion in 2010 and 2011.

Theresa sued her former employer for age,race,and gender discrimination.She claimed $250,000 in damages for loss of income and $500,000 in punitive damages.She settled the claim for $600,000.As a result of the settlement,Theresa must include in gross income:

The Perfection Tax Service gives employees $10 as "supper money" when they are required to work overtime,approximately 20 days each year.The supper money received:

Agnes receives a $5,000 scholarship which covers her tuition at Parochial High School.She may exclude the $5,000 scholarship she received for tuition at the private high school.

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

Exam 5: Gross Income: Exclusions

Heather's interest and gains on investments for 2010 were as follows: Heather's gross income from the above is:

The exclusion of interest on educational savings bonds:

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities,but reimburses its employee for the cost of parking in a nearby garage,up to $150 per month.

Tom loaned $20,000 to his controlled corporation.When it became apparent the corporation would not be able to repay the loan in the near future,Tom canceled the debt.The corporation should treat the cancellation as a nontaxable contribution to capital.

A debtor undergoing a Chapter 11 reorganization under the bankruptcy laws who receives a discharge of his or her liabilities has realized income but can exclude the debt reduction from gross income.

A U.S.citizen worked in a foreign country for the period July 1,2009 through August 1,2010.Her salary was $10,000 per month.Also,in 2009 she received $5,000 in dividends from foreign corporations (not qualified dividends).No dividends were received in 2010.Which of the following is correct?

Ron,age 19,is a full-time graduate student at City University.During 2010,he received the following payments: Ron served as a resident advisor in a dormitory and,therefore,the university waived the $2,500 charge for the room he occupied.What is Ron's adjusted gross income for 2010?

A U.S.citizen who works in France from February 1,2010 until January 31,2011 is eligible for the foreign earned income exclusion in 2010 and 2011.

Theresa sued her former employer for age,race,and gender discrimination.She claimed $250,000 in damages for loss of income and $500,000 in punitive damages.She settled the claim for $600,000.As a result of the settlement,Theresa must include in gross income:

The Perfection Tax Service gives employees $10 as "supper money" when they are required to work overtime,approximately 20 days each year.The supper money received:

Agnes receives a $5,000 scholarship which covers her tuition at Parochial High School.She may exclude the $5,000 scholarship she received for tuition at the private high school.

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