AC371 Exam 1(Chapter 5)

Under the realization principle, what must occur for income to be realized?

- a taxpayer must engage in a transaction with another party - the transaction must result in a measurable change in property rights

Which of the following fringe benefits are excluded from taxation in 2018?

- group term life insurance under $50,000 - dependent care benefits - medical insurance

Under which of the following circumstances might life insurance proceeds be included in gross income?

- when a life insurance policy is cashed out by the insured before death and the proceeds exceed the premiums paid - when a life insurance policy is transferred to another party for valuable consideration

Beginning in 2019, in the case of a divorced couple, __________ payments are excluded from gross income of the recipient and ___________ for the payer.

alimony, nondeductible

Court-ordered cash payments pursuant to a divorce or legal separation which provide financial support to an ex-spouse and do not continue after the death of the ex-spouse are referred to as

alimony

A _____________ is an investment that pays a stream of equal payments over time.

annuity

Income received as a result of services provided by the taxpayer, including business income, is referred to as _______________ income.

earned

Nonrecognition provisions refer to a specific type of income that taxpayers realize but are allowed to permanently _________ from gross income of temporarily __________ until a later period.

exclude, defer

true or false: In general, prizes awarded to taxpayers are excluded from gross income

false

Taxpayers receiving indirect economic benefits, such as bargain purchases or below market loans, are said to have _____________ income which may be taxable.

imputed

Interest in _________ bonds is excluded from federal income taxation.

municipal

Income from ___________ takes different forms, such as dividends, interest, rents, royalties, and annuities.

property

When a taxpayer includes an economic benefit in gross income, he is said to have _____________ the income.

recognized

Constructive Receipt Doctrine

taxpayers realize and recognize income when it is actually received or was available to them

true or false: Income and deductions generated within a partnership or S corporation that are subject to various tax treatments (qualified dividends, capital gains, ect.) retain their character when they flow-through to the owners rather than bing reclassified as ordinary income or loss

true

Single taxpayers meeting certain home ownership and use requirements can permanently exclude up to __________ of the realized gain on the sale of their principal residence.

$250,000

Which of the following represent economic benefits to a taxpayer?

- a computer received in exchange for services rendered - interest income on investments - cash received for completing a job

The highest percentage of social security benefits that may be taxed is __________ , and only for moderate to high income taxpayers.

85%

Which of the following statements is correct concerning a gift?

a gift may be subject to a "gift tax" which is paid by the person giving the gift

The ________________ doctrine states that income has been realized if a taxpayer receives income and there are no restrictions on the taxpayers use of the income.

claim of right

____________ is deemed to occur when the income has been credited to the taxpayer's account or when the income is unconditionally available to the taxpayer, the taxpayer is aware of the availability and there are no restrictions on the income.

constructive receipt

_______ is defined in Sec.61 of the Internal Revenue Code as "all income, from whatever source derived".

gross income

Assignment of Income Doctrine

holds that a taxpayer who earns income from services must recognize the income as theirs

Tax Benefit Rule

if a refund is made for an expenditure deducted in a previous year, then the refund is included in gross income to the extent that a prior deduction produced a tax benefit

Claim of Right Doctrine

income has been realized if a taxpayer receives income and there are no restrictions on the taxpayers use of the income

Which of the following statements is correct regarding the recognition of income?

income may be in the form of cash, property, or services received in a transaction

Form of Receipt Doctrine

indicates that taxpayers realize income whether they receive money, property, or services in a transaction

If a taxpayer cashes out a life insurance policy before death due to a chronic illness, she may exclude from income the amount used to pay for her_____________.

long-term care

Income from property is referred to as _______________ income.

unearned

Return of Capital Doctrine

when receiving a payment for property, taxpayers are allowed to recover the cost of the property tax-free