Question 1

A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

Accepted Answer

A) True 
 B)False

Question 2

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.

Accepted Answer

A) True 
 B)False

Question 3

A portion of each payment received from a purchased annuity contract represents income.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  $1,450 
B)  $2,300 
C)  $2,650 
D)  $3,550 
E)  $4,400

Question 5

Trevor received a gift of $25,000 in cash from his rich uncle.Trevor must include $15,000 of this gift in his gross income this year.

Accepted Answer

A) True 
 B)False

Question 6

In January of the current year,Dora made a gift of stock to her granddaughter.At the time of the gift,the stock was worth $15,000.Several months later in the same year after the gift,a $500 dividend was declared on the stock and paid to Dora's granddaughter.What amount must Dora's granddaughter include in her gross income for the current year?

Accepted Answer

A)  $2,000 
B)  $15,000 
C)  $15,500 
D)  $2,500 
E)  None of the choices are correct.

Question 7

Qualified fringe benefits received by an employee can be excluded from gross income.

Accepted Answer

A) True 
 B)False

Question 8

Karl works at Moe's grocery.This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost.This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000.What amount must Karl include in his gross income?

Accepted Answer

A)  $46,600 
B)  $47,000 
C)  $49,000 
D)  $43,400 
E)  $45,500

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is a true statement about the first payment received from a purchased annuity?

Accepted Answer

A)  The payment is included in gross income. 
B)  A portion of the payment is a return of capital. 
C)  The payment can only be taxed in the year after the annuity was purchased. 
D)  The payment is not taxed until the annuity payments cease altogether. 
E)  None of the choices are a true statement.

Question 11

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Accepted Answer

A) True 
 B)False

Question 12

Jack and Jill are married.This year Jack earned $72,000 and Jill earned $80,000 and they received $4,000 of interest income from a joint savings account.How much gross income would Jack report if he files married-filing-separate from Jill?

Accepted Answer

A)  $72,000 if they reside in a common law state. 
B)  $74,000 if they reside in a community property law state. 
C)  $76,000 if they reside in a common law state. 
D)  $78,000 if they reside in a community property law state. 
E)  None of the choices are correct.

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

Bobby and Sissy got married 2.5 years ago.Since that time,they have lived in Bobby's home.Sissy sold her previous home three years ago and excluded her entire gain ($80,000)at that time.Bobby and Sissy decided to move to a bigger home this year.As a result,they sold Bobby's home for $500,000 (original cost $150,000).How much of the gain from the sale is taxable?

Accepted Answer

The answer of Bobby and Sissy got married 2.5 years...

Question 15

Andres has received the following benefits this year.
  Besides these benefits Andres missed work for two months due to an illness.During his illness Andres received $6,500 in sick pay from a disability insurance policy.Assume Andres has disability insurance provided by his employer as a nontaxable fringe benefit.What amount,if any,must Andres include in gross income this year?

Accepted Answer

The answer of Andres has received the following benefits this...

Question 16

This year Larry received the first payment from an annuity that promises to pay him $3,000 per month for the rest of his life.The IRS tables indicate that given Larry's age,he should expect to receive 310 monthly payments.The cost of the annuity to Larry was $620,000.How much of the first $3,000 payment should Larry include in gross income?

Accepted Answer

The answer of This year Larry received the first payment...

Question 17

The all-inclusive definition of income means that gross income is defined very broadly.

Accepted Answer

A) True 
 B)False

Question 18

Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

Accepted Answer

A)  Tax benefit rule. 
B)  Constructive receipt. 
C)  Return of capital principle. 
D)  Wherewithal to pay. 
E)  None of the choices are correct.

Question 19

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years.Charles paid $180,000 for the annuity.How much of the first $20,000 payment should Charles include in gross income?

Accepted Answer

The answer of Charles purchased an annuity from an insurance...

Question 20

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 rendered.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 the choices are true.

Exam 5: Gross Income and Exclusions

A taxpayer generally includes in gross income the amount of debt forgiven by a lender.

Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income.

A portion of each payment received from a purchased annuity contract represents income.

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

Trevor received a gift of $25,000 in cash from his rich uncle.Trevor must include $15,000 of this gift in his gross income this year.

Qualified fringe benefits received by an employee can be excluded from gross income.

Karl works at Moe's grocery.This year Karl was paid $43,000 in salary but he was allowed to purchase his groceries at 10% below Moe's cost.This year Karl spent $3,600 to purchase groceries costing Moe $4,000 and worth $6,000.What amount must Karl include in his gross income?

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

Which of the following is a true statement about the first payment received from a purchased annuity?

Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses.

Jack and Jill are married.This year Jack earned $72,000 and Jill earned $80,000 and they received $4,000 of interest income from a joint savings account.How much gross income would Jack report if he files married-filing-separate from Jill?

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

The all-inclusive definition of income means that gross income is defined very broadly.

Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale:

Charles purchased an annuity from an insurance company that promised to pay him $20,000 per year for the next 12 years.Charles paid $180,000 for the annuity.How much of the first $20,000 payment should Charles include in gross income?

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 rendered.Which of the following is a true statement?