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Exam 4: Gross Income Concepts and Inclusions

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Question 1

Multiple Choice

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Gordon,an employee,is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year.According to the IRS Uniform Premium Table (based on Gordon's age) ,the amount is $12 per year for $1,000 of protection.The cost of an individual policy would be $15 per year for $1,000 of protection.Since Gordon paid nothing towards the cost of the $250,000 protection,Gordon must include in his 2015 gross income which of the following amounts?

A) $1,350.
B) $2,400.
C) $3,000.
D) $3,750.
E) None of these.

F) D) and E)
G) A) and D)

Correct Answer

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B

Question 2

True/False

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A cash basis taxpayer purchased a certificate of deposit for $1,000 on July 1,2014 that will pay $1,100 upon its maturity on June 30,2016.The taxpayer must recognize a portion of the income in 2015.

A) True
B) False

Correct Answer

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True

Question 3

True/False

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If the alimony recapture rules apply,the recipient of the alimony decreases his or her AGI by a portion of the amount included in gross income as alimony in a prior year or years.

After the divorce,Jeff was required to pay $18,000 per year to his former spouse,Darlene,who had custody of their child.Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year,Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.

In the case of a below-market gift loan for which there is no exception to the imputed interest rules,the lender is deemed to have received interest income even though no interest is charged and collected.

The alimony recapture rules are intended to:

An advance payment received in June 2016 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

The taxable portion of Social Security benefits may be affected by:

The purpose of the tax rules that apply to below-market loans between family members is to:

The annual increase in the cash surrender value of a life insurance policy:

In 2016,Juan,a cash basis taxpayer,was offered $3 million for signing a professional baseball contract.He counter offered that he would receive $900,000 per year for 4 years beginning in 2017.The team accepted the counteroffer.Juan constructively received $3 million in 2016.

Debbie is age 67 and unmarried and her only sources of income are $200,000 in taxable interest and $20,000 of Social Security benefits.Debbie's adjusted gross income for the year is:

Our tax laws encourage taxpayers to ____ assets that have appreciated in value and ____ assets that have declined in value.

Jim and Nora,residents of a community property state,were married in early 2015.Late in 2015 they separated,and in 2016 they were divorced.Each earned a salary,and they received income from community owned investments in all relevant years.They filed separate returns in 2015 and 2016.

The fact that the accounting method the taxpayer uses to measure income is consistent with GAAP does not assure that the method will be acceptable for tax purposes.

Judy is a cash basis attorney.In 2016,she performed services in connection with the formation of a corporation and received stock with a value of $4,000 for her services.By the end of the year,the value of the stock had decreased to $2,000.She continued to hold the stock.Judy must recognize $4,000 of gross income from the stock for 2016.

Thelma and Mitch were divorced.The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000.Under the terms of the divorce agreement,Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years,or until Thelma's death,whichever should occur first.Thelma and Mitch lived apart when the payments were made by Mitch.Mitch paid the $600,000 to Thelma over the six-year period.The divorce agreement did not contain the word "alimony." Then,Mitch sold the stocks for $1,300,000.Mitch's recognized gain from the sale is:

For purposes of determining gross income,which of the following is true?

On December 1,2016,Daniel,an accrual basis taxpayer,collects $12,000 rent for December 2016 and $12,000 for January 2017.Daniel must include the $24,000 in 2016 gross income.

In 2016 Todd purchased an annuity for $150,000.The annuity is to pay him $2,500 per month for the rest of his life.His life expectancy is 100 months.Which of the following is correct?