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Exam 5: Gross Income and Exclusions

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Question 71

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Which of the following statements about alimony payments is true for divorce agreements executed before 2019?

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 the choices are correct.

F) None of the above
G) A) and E)

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Question 72

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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. Assuming no unusual or hardship circumstances apply, how much of the gain is included in gross income?

A) $550,000
B) $300,000
C) $250,000
D) $50,000
E) None of the choices are correct.

F) A) and C)
G) A) and B)

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Question 73

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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 and assume that there are 365 days in this year.)

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.

This year Mary received a $340 refund of state income taxes that she deducted on her tax return last year. Mary included a total of $6,300 of state income taxes when she itemized deductions last year. What amount of the refund, if any, should Mary include in her gross income this year?

A below-market loan (e.g., from an employer to an employee)is a common example of a transaction that generates taxable imputed income.

Acme published a story about Paul, and as a result Paul sued Acme for damage to his reputation, emotional distress, and punitive damages. Paul won an award of $25,750 for damages, $9,550 for emotional distress, and $68,250 for punitive damages. What amount must Paul include in his gross income?

Workers' compensation benefits are excluded from gross income.

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?

Anna received $15,000 from life insurance paid upon the death of her grandmother. Anna can exclude the entire amount of the life insurance from her gross income.

Graham has accepted an offer to do graduate work in the chemistry department at State University. The chemistry department offered Graham a $5,000 tuition reduction and $3,500 toward the cost of room and meals. Under the terms of the scholarship Graham must work in the chemistry labs during the summer as a research assistant. What amount must Graham include in his gross income?

George purchased a life annuity for $3,400 that will provide him $85 monthly payments for as long as he lives. Based on IRS tables, George's life expectancy is 100 months. How much of the first $85 payment will George include in his gross income?

In April of this year Victoria received a $1,400 refund of state income taxes that she paid last year. Last year Victoria claimed itemized deductions of $14,790. Victoria's itemized deductions included state income taxes paid of $3,750. How much of the refund, if any, must Victoria include in gross income if the standard deduction last year was $12,200?

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

Juan works as a landscaper for local businesses on weekends, and he often provides services in exchange for property. This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services, $3,570 of groceries, and a certificate of deposit (CD)for $4,050. The CD matures next year with interest. Finally, Juan received a gift card that can only be applied for $850 of clothing at a local mall. Juan has only applied the gift card to purchase $100 of clothing. Compute Juan's gross income, assuming that he uses the cash basis of accounting.

Shaun is a student who has received an academic scholarship to State University. The scholarship paid $14,000 for tuition, $2,500 for fees, and $1,000 for books. In addition, Shaun's dormitory fees of $8,500 were paid by the university when he agreed to counsel freshman on campus living. What amount must Shaun include in his gross income?

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

Wendell is an executive with CFO Tires. At the beginning of this year the corporation loaned Wendell $50,000 at an interest rate of1 percent. Wendell would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing federal interest rate. Wendell used the funds as a down payment on a vacation home, and during the year he paid $500 of interest to CFO. On December 31, CFO forgave the loan and remaining interest. What amount of gross income does Wendell recognize from the loan this year?

A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of 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: