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Exam 5: Gross Income and Exclusions

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Question 1

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This year Henry realized a gain on the sale of an antique car that he inherited from his uncle. The buyer has promised to pay Henry in installment payments over the next few years. Identify the principle that will determine when Henry should be taxed on the gain from the sale:

A) Assignment of income
B) Constructive receipt
C) Return of capital principle
D) Wherewithal to pay
E) All of these

F) A) and E)
G) C) and E)

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Question 2

Multiple Choice

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To calculate a gain or loss on the sale of an asset, the proceeds from the sale are reduced by which of the following?

A) Tax basis of the property
B) Selling expenses
C) Amount realized
D) Tax basis of the property and Selling expenses
E) All of these

F) C) and D)
G) None of the above

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Question 3

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Hal Gore won a $1 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal directed the awarding organization to transfer $400,000 of the award to the Environmental Protection Agency. How much of the prize should Hal include in his gross income?

NeNe is an accountant and U.S. citizen, who has accepted a permanent position in Madrid, Spain for a Spanish financial services company. This year, NeNe spent the entire year working in Madrid. NeNe's employer paid $40,000 of her Madrid housing expenses this year. What amount of the $40,000 housing payments may NeNe exclude?

Alex is 63 years old and retired. This year Alex won $212,200 in the state lottery. Alex also received $20,000 from an annuity he purchased eight years ago. He purchased the annuity, to be paid annually for 15 years, for $157,500. Alex received $10,000 in Social Security benefits for the year. Calculate Alex's gross income.

Which of the following is a description of how the annuity exclusion ratio is calculated for an annuity paid over a fixed period?

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

Income is included in gross income unless a tax provision specifies that it can be deferred or excluded.

Ophra is a cash basis taxpayer who is employed in the publishing industry. This year her employer informed her that because of her outstanding performance she is entitled to a free world cruise. Ophra asked her employer to issue the cruise tickets to her parents, and he complied with this request. Identify the principle that will determine whether Ophra or her parents are taxed on the value of the cruise tickets:

Recognized income may be in the form of cash or property received (but not services received).

Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes) ? $\begin{array} { l r } { \underline { \text { Bond } } } & \underline { \text { Interest } } \\\text { General Motors } & \$ 1,450 \\\text { City of New York } & 900 \\\text { State of New Jersey } & 1,200 \\\text { U.S. Treasury } & 850\end{array}$

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.

Identify the rule that determines whether a taxpayer must include in income a refund of an amount deducted in a previous year:

Generally, 85 percent of Social Security benefits are included in income of high income taxpayers.

To provide relief from double taxation, Congress allows a foreign-unearned income exclusion for interest and dividends earned in foreign countries.

Robert will be working overseas on a permanent assignment for an international company beginning on March 1 of this year (306 days this year). His salary is $11,000 per month while Robert is overseas, but only $9,200 per month otherwise. What is the minimum amount of Robert's salary that he must include in gross income this year? (Round your final answer to the nearest whole dollar amount & assume that there are 365 days in this year)

Unemployment benefits are excluded from gross income.

Nate is a partner in a partnership that received $5,000 of interest income this year. Nate's share of the interest is $1,000, and he should report this income on his individual return as:

Which of the following statements about alimony payments is true?

Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 years. The annuity was purchased at a cost of $300,000. How much of the first quarterly payment will Fran include in her gross income?