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Exam 5: Gross Income and Exclusions

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Question 21

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Gambling winnings are included in gross income only to the extent that the winnings exceed gambling losses incurred during the same period.

A) True
B) False

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Question 22

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This year Ann has the following stock transactions. What amount is included in her gross income if Ann paid a $200 selling commission for each sale?

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$2,100. ATT: ($9,500 - $200) -...

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Question 23

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Terri and Mike are seeking a divorce. Terri and Mike own an art collection worth $357,000 that would belong to Terri. Mike offered to make annual payments of cash to Terri each year for five years if Terry allows Mike to take possession of the art collection. Mike insists however, that the annual payments must cease in the event of Terri's death. What amount of annual payment must Terri demand to make her indifferent after taxes between taking possession of the ($357,000) art versus collecting the cash payments? Assume that Terri has a marginal tax rate of 15 percent and Mike's tax rate is 35 percent and ignore the time value of money.

Desai and Lucy divorced this year. Lucy has custody of their child, Andrea, and under the divorce decree Desai pays Lucy $120,000 per year. The payments must be made in cash and will cease if Lucy dies or remarries. The payments drop to $100,000 per year once Andrea reaches the age of 18. How much of the payments should Lucy include in gross income this year?

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?

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

When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter has realized $100 of income.

Which of the following is not a necessary condition for income to be included in gross income?

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:

Ben's employer offers employees the following benefits. What amount must Ben include in his gross income?

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?

Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.

Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.

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:

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

Simon was awarded a scholarship to attend State Law School from Gary Harris & Associates, Attorneys at Law. The scholarship pays Simon's tuition ($7,000 per semester), fees ($500 per semester), and a $4,500 per semester stipend to pay for food and housing. In order to qualify for the stipend, Simon must work 10 hours per week at Gary Harris & Associates during the term. How much of the scholarship is Simon required to include in gross income?

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?

Interest earned on a Federal Treasury bond is excluded from gross income (for federal tax purposes).

Fred must include in gross income a $7,500 payment received from his neighbor to compensate Fred for the emotional distress he suffered when his neighbor accidentally ran over his dog.

The assignment of income doctrine requires that in order to shift income from the property producing the income to another person, the taxpayer must transfer only the income to the other person.