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Exam 5: Gross Income: Exclusions

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Question 21

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In 2017,Theresa was in an automobile accident and suffered physical injuries.The accident was caused by Ramon's negligence.In 2018,Theresa collected from his insurance company.She received $15,000 for loss of income,$10,000 for pain and suffering,$50,000 for punitive damages,and $6,000 for medical expenses which she had deducted on her 2017 tax return (the amount in excess of 10% of adjusted gross income).As a result of the above,Theresa's 2018 gross income is increased by $56,000.

A) True
B) False

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Question 22

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The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes,provided the privilege is not abused.Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings.The copies made during the year would have cost $150 at a local office supply.

A) Ed must include $150 in his gross income.
B) Ed may exclude the cost of the copies as a no-additional cost fringe benefit.
C) Ed may exclude the cost of the copies only if the organization is a client of Mauve.
D) Ed may exclude the cost of the copies as a de minimis fringe benefit.
E) None of these.

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

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Question 23

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The earnings from a qualified state tuition program account are deferred from taxation until they are used for qualified higher education expenses.At that time,the amount taken from the fund must be included in the gross income of the person who contributed to the account.

Amber Machinery Company purchased a building from Ted for $250,000 cash and a mortgage of $750,000.One year after the transaction,the mortgage had been reduced to $725,000 by principal payments by Amber,but it was apparent that Amber would not be able to continue to make the monthly payments on the mortgage.Ted reduced the amount owed by Amber to $600,000.This reduced the monthly payments to a level that Amber could pay.Amber must recognize $125,000 income from the reduction in the debt by Ted.

Calvin miscalculated his income in 2015 and overpaid his state income tax by $10,000.In 2016,he amended his 2015 state income tax return and received a $10,000 refund and $900 interest.Calvin itemized his deductions in 2015,deducting $12,000 in state income tax and $30,000 total itemized deductions.As a result of the amended return in 2016,Calvin must recognize $10,900 of gross income.

Beverly died during the current year.At the time of her death,her accrued salary and commissions totaled $3,000 and were paid to her husband.The employer also paid the husband $35,000 which represented an amount equal to Beverly's salary for the year prior to her death.The employer had a policy of making the salary payments to "help out the family in the time of its greatest need." Beverly's spouse collected her interest in the employer's qualified profit sharing plan amounting to $30,000.As beneficiary of his wife's life insurance policy,Beverly's spouse elected to collect the proceeds in installments.In the year of death,he collected $8,000 which included $1,500 interest income.Which of these items are subject to income tax for Beverly's spouse?

Christie sued her former employer for a back injury she suffered on the job in 2017.As a result of the injury,she was partially disabled.In 2018,she received $240,000 for her loss of future income,$160,000 in punitive damages because of the employer's flagrant disregard for the employee's safety,and $15,000 for medical expenses.The medical expenses were deducted on her 2017 return,reducing her taxable income by $12,000.Christie's 2018 gross income from the above is:

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 $8,000 from her employer.For the next 60 days,she received $12,000 under an accident and health insurance policy purchased by her employer.The premiums on the health insurance policy were excluded from her gross income.During the last 30 days,Julie received $6,000 on an income replacement policy she had purchased.Of the $26,000 she received,Julie must include in gross income:

Gary cashed in an insurance policy on his life.He needed the funds to pay for his terminally ill wife's medical expenses.He had paid $12,000 in premiums and he collected $30,000 from the insurance company.Gary is not required to include the gain of $18,000 ($30,000 - $12,000) in gross income.

Ben was hospitalized for back problems.While he was away from the job,he collected his regular salary from an employer-sponsored income protection insurance policy.Ben's employer-sponsored hospitalization insurance policy also paid for 90% of his medical expenses.Ben 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.

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

What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)

Sharon had some insider information about a corporate takeover.She unintentionally informed a friend,who immediately bought the stock in the target corporation.The takeover occurred and the friend made a substantial profit from buying and selling the stock.The friend told Sharon about his stock dealings,and gave her a pearl necklace because she "made it all possible." The necklace was worth $10,000,but she already owned more jewelry than she desired.

Evaluate the following statements: I.De minimis fringe benefits are those that are so immaterial that accounting for them is impractical. II.De minimis fringe benefits are subject to strict anti-discrimination requirements. III.Generally,a fringe benefit of less than $50 is considered de minimis and can be excluded from gross income. ​

A U.S.citizen worked in a foreign country for the period July 1,2016 through August 1,2017.Her salary was $10,000 per month.Also,in 2016 she received $5,000 in dividends from foreign corporations (not qualified dividends) .No dividends were received in 2017.Which of the following is correct?

Sam was unemployed for the first two months of 2017.During that time,he received $4,000 of state unemployment benefits.He worked for the next six months and earned $14,000.In September,he was injured on the job and collected $5,000 of workers' compensation benefits.Sam's Federal gross income from the above is $18,000 ($4,000 + $14,000).

If an employer pays for the employee's long-term care insurance premiums,the employee can exclude from gross income the premiums but all of the benefits collected must be included in gross income.

The Royal Motor Company manufactures automobiles.Non-management employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally,management employees of Local Dealer,Inc.,are allowed to buy a new automobile from the company at the dealer's cost.Which of the following statements is correct?

In December 2017,Todd,a cash basis taxpayer,paid $1,200 of fire insurance premiums for the calendar year 2018 on a building he held for rental income.Todd deducted the $1,200 of insurance premiums on his 2017 tax return.He had $150,000 of taxable income that year.On June 30,2018,he sold the building and,as a result,received a $500 refund on his fire insurance premiums.As a result of the above:

Benny loaned $100,000 to his controlled corporation.When it became apparent the corporation would not be able to repay the loan in the near future,Benny canceled the debt.The corporation should treat the cancellation as a nontaxable contribution to capital.