Question 1

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car.If the federal interest rate was 4%,which of the following is correct?

Accepted Answer

A) Janine recognizes $200 of taxable interest income. 
B) Janine's employer recognizes $200 of deductible interest expense. 
C) Janine recognizes $200 of imputed compensation income. 
D) Janine recognizes $200 of imputed dividend income. 
E) None of thesE.The imputed interest rules do not apply to loans of $10,000 or less. 
A) Janine recognizes $200 of taxable interest income. 
B) Janine's employer recognizes $200 of deductible interest expense. 
C) Janine recognizes $200 of imputed compensation income. 
D) Janine recognizes $200 of imputed dividend income. 
E) None of thesE.The imputed interest rules do not apply to loans of $10,000 or less.

Question 2

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements about alimony payments is true?

Accepted Answer

A) To qualify as alimony,payments must be made in cash. 
B) Alimony payments are includible in the gross income of the recipient. 
C) To qualify as alimony,payments cannot continue after the death of the recipient. 
D) To qualify as alimony,payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child support. 
E) All of these 
A) To qualify as alimony,payments must be made in cash. 
B) Alimony payments are includible in the gross income of the recipient. 
C) To qualify as alimony,payments cannot continue after the death of the recipient. 
D) To qualify as alimony,payments must be made under a written agreement or divorce decree that does not designate the payments as "nonalimony" or child support. 
E) All of these

Question 4

Unemployment benefits are excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 5

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Accepted Answer

A) True 
 B)False

Question 6

Hillary is a cash-basis calendar-year taxpayer.During the last week of December she received a letter containing a $5,000 check for services.Which of the following is a true statement?

Accepted Answer

A) Hillary is taxed on the $5,000 of service income in the year she cashes the check. 
B) Hillary is taxed on the $5,000 of service income in the year the check was mailed. 
C) Hillary is taxed on the $5,000 of service income in the year she receives the check. 
D) Hillary is taxed on the $5,000 of service income in the year she provides the services. 
E) None of these is truE.Under constructive receipt Hillary is taxed on income when property is received or made available to her. 
A) Hillary is taxed on the $5,000 of service income in the year she cashes the check. 
B) Hillary is taxed on the $5,000 of service income in the year the check was mailed. 
C) Hillary is taxed on the $5,000 of service income in the year she receives the check. 
D) Hillary is taxed on the $5,000 of service income in the year she provides the services. 
E) None of these is truE.Under constructive receipt Hillary is taxed on income when property is received or made available to her.

Question 7

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Accepted Answer

A) True 
 B)False

Question 8

Pam recently was sickened by eating spoiled peanut butter.She successfully sued the manufacturer for her medical bills ($3,700) ,her emotional distress ($6,000 - she now fears peanut butter) ,and punitive damages ($44,000) .What amount must Pam include in her gross income?

Accepted Answer

A) $44,000 
B) $50,000 
C) $47,700 
D) $9,700 
E) Zero - none of these benefits is included in gross income 
A) $44,000 
B) $50,000 
C) $47,700 
D) $9,700 
E) Zero - none of these benefits is included in gross income

Question 9

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

Accepted Answer

A) $80 
B) $72 
C) $48 
D) $32 
E) None of these 
A) $80 
B) $72 
C) $48 
D) $32 
E) None of these

Question 10

This year Ed celebrated his 25th year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?

Accepted Answer

A) $2,250 
B) $2,000 
C) $250 
D) Zero if Ed offers to contribute his watch and bonus to a qualified charity 
E) Zero - all employee awards are excluded from gross income 
A) $2,250 
B) $2,000 
C) $250 
D) Zero if Ed offers to contribute his watch and bonus to a qualified charity 
E) Zero - all employee awards are excluded from gross income

Question 11

Harold receives a life annuity from his qualified pension that pays him $5,000 per year for as long as he lives.Later this year Harold will recover the remainder of his cost of the annuity.Which of the following correctly describes how the annuity payments are taxed after Harold has recovered the cost of the annuity?

Accepted Answer

A) Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income. 
B) Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity. 
C) The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity. 
D) Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy. 
E) All of these 
A) Harold will continue to apply the annuity exclusion ratio to determine the amount of each annuity payment includible in gross income. 
B) Harold will include the entire amount of each annuity payment in gross income after he recovers the cost of the annuity. 
C) The entire amount of each annuity payment is excluded from gross income after Harold recovers his cost of the annuity. 
D) Harold must request that the IRS calculate his exclusion ratio based upon a revised life expectancy. 
E) All of these

Question 12

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Accepted Answer

A) True 
 B)False

Question 13

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes) .

Accepted Answer

A) True 
 B)False

Question 14

This year,Barney and Betty sold their home (sales price $750,000;cost $200,000) .All closing costs were paid by the buyer.Barney and Betty owned and lived in their home for 18 months.How much of the gain is included in gross income?

Accepted Answer

A) $550,000 
B) $300,000 
C) $250,000 
D) $50,000 
E) None 
A) $550,000 
B) $300,000 
C) $250,000 
D) $50,000 
E) None

Question 15

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

Accepted Answer

A) True 
 B)False

Question 16

Kevin provided services to several clients this year who paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Accepted Answer

A) Cash 
B) Shares of stock listed on the New York Stock Exchange 
C) A used car 
D) Gold coins 
E) All of these are included in gross income 
A) Cash 
B) Shares of stock listed on the New York Stock Exchange 
C) A used car 
D) Gold coins 
E) All of these are included in gross income

Question 17

Prizes and awards are generally taxable.

Accepted Answer

A) True 
 B)False

Question 18

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

Accepted Answer

A) Dave is taxed on $62,000 of plumbing income this year. 
B) Steve is taxed on $62,000 of plumbing income this year. 
C) Steve is taxed on $62,000 of income from gifts received this year. 
D) Dave may deduct the $62,000 received by Steve. 
E) All of these are true 
A) Dave is taxed on $62,000 of plumbing income this year. 
B) Steve is taxed on $62,000 of plumbing income this year. 
C) Steve is taxed on $62,000 of income from gifts received this year. 
D) Dave may deduct the $62,000 received by Steve. 
E) All of these are true

Question 19

An employee may exclude up to a 40 percent employer-provided discount on services.

Accepted Answer

A) True 
 B)False

Question 20

Mike received the following interest payments this year.What amount must Mike include in his gross income (for federal tax purposes) ?

Accepted Answer

A) $2,650 
B) $2,350 
C) $2,050 
D) $2,300 
E) $3,500 
A) $2,650 
B) $2,350 
C) $2,050 
D) $2,300 
E) $3,500

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car.If the federal interest rate was 4%,which of the following is correct?

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

Which of the following statements about alimony payments is true?

Unemployment benefits are excluded from gross income.

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Hillary is a cash-basis calendar-year taxpayer.During the last week of December she received a letter containing a $5,000 check for services.Which of the following is a true statement?

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Pam recently was sickened by eating spoiled peanut butter.She successfully sued the manufacturer for her medical bills ($3,700) ,her emotional distress ($6,000 - she now fears peanut butter) ,and punitive damages ($44,000) .What amount must Pam include in her gross income?

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

This year Ed celebrated his 25^th year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes) .

This year,Barney and Betty sold their home (sales price $750,000;cost $200,000) .All closing costs were paid by the buyer.Barney and Betty owned and lived in their home for 18 months.How much of the gain is included in gross income?

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

Kevin provided services to several clients this year who paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Prizes and awards are generally taxable.

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

An employee may exclude up to a 40 percent employer-provided discount on services.

Mike received the following interest payments this year.What amount must Mike include in his gross income (for federal tax purposes) ?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Tax Overview

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters

Exam 5: Gross Income and Exclusions

Janine's employer loaned her $5,000 this year (interest-free) to buy a used car.If the federal interest rate was 4%,which of the following is correct?

Taxpayers meeting certain home ownership and use requirements can permanently exclude up to $1,000,000 of realized gain on the sale of their principal residence.

Which of the following statements about alimony payments is true?

Unemployment benefits are excluded from gross income.

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

Hillary is a cash-basis calendar-year taxpayer.During the last week of December she received a letter containing a $5,000 check for services.Which of the following is a true statement?

Interest income is earned in the year in which it is received by the taxpayer or credited to the bank account.

Pam recently was sickened by eating spoiled peanut butter.She successfully sued the manufacturer for her medical bills ($3,700) ,her emotional distress ($6,000 - she now fears peanut butter) ,and punitive damages ($44,000) .What amount must Pam include in her gross income?

George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives.Based on IRS tables,George's life expectancy is 100 months.How much of the first $80 payment will George include in his gross income?

This year Ed celebrated his 25th year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?

When a taxpayer sells an asset,the entire proceeds from the sale must be included in gross income regardless of the cost of the asset.

Interest earned on a city of Denver bond is excluded from gross income (for federal tax purposes) .

This year,Barney and Betty sold their home (sales price $750,000;cost $200,000) .All closing costs were paid by the buyer.Barney and Betty owned and lived in their home for 18 months.How much of the gain is included in gross income?

Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions.

Kevin provided services to several clients this year who paid with different types of property.Which of the following payments is not included in Kevin's gross income?

Prizes and awards are generally taxable.

Dave is a plumber who uses the cash method of accounting.This year Dave requested that his clients make their checks payable to his son,Steve.This year Steve received checks in the amount of $62,000 for Dave's plumbing services.Which of the following is a true statement?

An employee may exclude up to a 40 percent employer-provided discount on services.

Mike received the following interest payments this year.What amount must Mike include in his gross income (for federal tax purposes) ?

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Tax Overview

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Filters

This year Ed celebrated his 25^th year as an employee of Designer Jeans Company.In recognition of his long and loyal service,the company awarded Ed a gold watch worth $250 and a $2,000 cash bonus.What amount must Ed include in his gross income?