RMI 4135- exam 4 practice portal

Angel is over 13 years old and therefore does not qualify for the dependent care assistance program. For a child who qualifies, the limit is $5,000.

$0 Angel is over 13 years old and therefore does not qualify for the dependent care assistance program. For a child who qualifies, the limit is $5,000.

Natalie is a secretary at JKL Law Firm. JKL provides her with free sodas at her discretion. Natalie estimates that she drinks $20 worth of sodas per month. How much must Natalie include in her annual gross income related to the sodas?

$0 The value of employer-provided de minimis fringe benefits may be excluded from an employee's gross income. However, after 2017, the employer's deduction for the sodas is limited to 50% due to TCJA 2017.

Meredith is an employee of a large company. They are very interested in the betterment of the health of all employees. The company has a health facility on its premises for the exclusive use of its employees and their dependents. A comparable private health club membership at a public facility would cost $2,400 per year. How much, if any, must Meredith include in her gross income if her 10-year old daughter uses the facilities for one-half of the year?

$0 the value of a health facility provided by the employer, on the employer's premises, and solely for the use of employees and their dependents is excluded from gross income by the employee. It does not appear that the 2017 TCJA impacted this fringe benefit.

Jean works for A&R Law Firm, which has a qualified transportation and parking benefits program. A&R provides for $270 for qualified parking per month. How much of the qualified parking is excluded from Jean's gross income and how much is deductible by A&R?

$270 excluded and $0 deductible by A&R. TCJA 2017 disallows a deduction for expenses associated with providing any qualified transportation fringe to employees of a taxpayer after 2017. However, these expenses are not included in income for the employee. The exception is for safety reasons.

Greg is employed by a large corporation with 400 employees. The corporation provides its employees with a no-cost gym membership at a local YMCA. The cost of the membership is $60 per month, which is completely paid for by Greg's employer. How much must Greg include in his yearly gross income related to this no-cost fringe benefit?

$720 In order for the value of the athletic facilities to be excluded from an employee's gross income, the athletic facilities must be located on the employer's business premises and must be for the exclusive use of the employees and their dependents. Greg's membership is at a public YMCA and is therefore taxable. 12 x $60 = $720.

Isse Peking is the manager of Airline Highway Motel. Isse lives in Unit 12. He was given the option to live at the motel if he would also look after the night auditing (the value of his reviews is $400 per month) responsibilities. The value of the motel unit on a monthly basis is $800, but Unit 12 rents on a daily basis for $100 per day. How much, if any, does Isse have to include in his gross income for living on the premises of his employer?

$800 per month Isse is not required by the employer to live on the premises and therefore must include the value of the lodging in his gross income.

adoption assistance programs

-an employee can exclude from his gross income the amount paid for, or expenses incurred by, his employer for qualified adoption expenses -the adoption assistance program must be in writing -limited to an exclusion of $14,300 per adopted child-phased out with AGI of $214,500 to $254,520 -must be nondiscriminatory

things to consider when selecting a qualified plan

-business objectives(competitive employment, tax-deferred savings) -employee census -cash flow considerations -administration costs -owner's business and personal objectives

payroll tax

-deferred compensation is subject to payroll taxes at the time the income is earned(when risk of forfeiture expires or when earnings are paid to the executive) -usually only impact is 1.45% for medicare portion of payroll taxes. now with the additional medicare tax, there is an additional 0.9% above thresholds(executives with salaries greater than $137,700 for 2020 are usually the only employees who defer compensation into these plans) -ordinary income at the time deferred compensation is paid out to executive

investment risk

-defined benefit (risk with employer) -defined contribution(risk with employee)

pension plans (4 types)

-defined benefit pension plans(defined benefit pension plan, and cash balance pension plan) -defined contribution pension plans(money purchase pension plans, and target benefit pension plans)

taxation of ISOs employer

-employer does not have a tax deduction related to the ISO -employers do not have a withholding requirement for ISOs

ongoing notification of eligible employees summary of material modifications

-employer must furnish to plan participants within 210 days after the end of the plan year in which an amendment is adopted

ongoing notification of eligible employees summary plan description

-employer must furnish to the employee within 90 days after the employee becomes a participant -within 90 days after the employees receives a benefit from the plan -within 120 days after the plan is established

taxation of NQSOs upon exercise

-executive will have W-2 income for the appreciation over the exercise price -employer has income tax deduction for same amount

taxation of restricted stock plans at the time the restriction is lifted

-executive's right to stock vests -W-2 income for the fair market value of the stock -employer has tax deduction equal to the W-2 amount

initial notification of eligible employees how and when

-in person or posting(7 to 21 days before request to IRS) -mailed(10-24 days before request to IRS)

rabbi trust

-irrevocable trust -holds set aside funds of NQDC plan(for the benefits of executive, funds are not available to employer but may be available to the employer's general creditors under bankruptcy) -substantial risk of forfeiture exists -assets within the rabbi are not currently taxable to the executive

taxation of ISOs upon sale of stock

-long term capital gain treatment for stock appreciation over exercise price -negative AMT adjustment

meals

-meals provided to an employee for the benefit of the employer -value of meal excludable from employee's gross income if the meals are furnished: for the convenience of the employer and on the employer's business premises

taxation of ISOs upon exercise

-no regular tax -AMT adjustment = to appreciation over the exercise price

taxation of restricted stock plans at receipt of the restricted stock

-no taxable income/deduction -unless executive elects IRC section 83(b)

nonqualified stock option(NQSO)

-option that does not meet requirements of an ISO -ties an employee benefit to the performance of the company stock -exercise does not receive favorable tax treatment -no statutory hold period requirements(employer's may place holding period requirements on the stock)

taxonomy of qualified plan selection

-plan sponsor must be willing to comply with qualified plan requirements -prepare a census -choose between mandatory funded plan and discretionary plan -choose the type of plan that fits objectives of owner and organziation

restricted stock plans

-plan which pays executives with shares or the employer stock -the executive does not pay any amount towards the stock -the stock has restrictions preventing the executive from selling or transferring(usually on a vesting schedule, creates a substantial risk of forfeiture) -plan increases executive retention and ties the executive's benefit to the employer stock price

initial notification of eligible employees who

-present employees who are eligible to participate in the plan -present employees who are not eligible to participate but are in the same location as those eligible to participate

stock apprecitaiton rights(SARs)

-rights that grant the holder cash in an amount = to the excess of the FMW of the stock over the exercise price -ties an employee benefit to the value of the employer's stock -essentially a cashless exercise without any right to purchase the stock -no taxation at grant(unless employee elects IRC section 83b) -employee W-2 income for excess value over the exercise price -employer tax deduction for W-2 amount

Establishing a qualified plan

-select and adopt appropriate plan: must be in writing and adopted by the last day of the company's tax year, must be funded by the due date of the company's tax return -individually designed: most expensive, determing letter

incentive stock options (ISOs)

-statutory stock option -ties an employee benefit to the stock price of the company and may provide special taxation -may only be granted to employees -the aggregate FMV of ISO grants that are exercisable in a year must be les than $100,000 per executive -for ISO special tax treatment, an individual must hold stock for two years from the date of grant, one year from the date of exercise

use of deferred compensation arragements

-to increase the executive's wage replacement ratio -to defer the executive's compensation -in lieu of qualified plans

why you would amend or terminate a qualified plan?

-to maximize benefits for key employees -law changes -employer is unable to support contributions -benefits provided to plan participants were not sufficient

Which of the following is false as to adoption assistance programs? 1. The amount paid is excluded from the employee's income regardless of the employee's income level. 2. The unlimited amount paid is excluded from the employee's income with a phaseout of AGI at certain levels. 3. Up to $14,300 for 2020 is excluded from the employee's income with a phaseout of AGI at certain levels.

1 and 2

Employees generally contribute to which of the following plans? 1. 401(k) plans. 2. Thrift plans. 3. Cash balance pension plans. 4. Defined benefit pension plans.

1 and 2 Cash balance pension plans and defined benefit pension plans are almost always exclusively funded by the employer (noncontributory). 401(k) plans and thrift plans allow employee contributions.

Investment portfolio risk is generally borne by the participant/employee in all of the listed qualified plans, except: 1. Defined benefit pension plan. 2. Cash balance pension plan. 3. 401(k) plan. 4. Profit sharing plan.

1 and 2 In defined benefit and cash balance pension plans, the employer bears the investment risk.

Generally, older age entrants are favored in which of the following plans? 1. Defined benefit pension plans. 2. Cash balance pension plans. 3. Target benefit pension plans. 4. Money purchase pension plans.

1 and 3 Cash balance and money purchase pension plans generally favor younger age entrants. While defined benefit and target benefit pension plans favor older age entrants with less time to accumulate and require higher funding levels.

ABC has an Employee Stock Purchase Plan (ESPP). Which statement(s) regarding an ESPP is/are correct? 1. The purchase price of the stock may be as low as 85% of the stock value. 2. When an employee sells ESPP stock at a gain in a qualifying disposition, all of the gain is capital gain. 3. There is an annual limit of $25,000 per employee for ESPPs.

1 and 3 Statement 2 is incorrect because only the gain in excess of the W-2 income (on the bargain amount) will be capital gain. Statements 1 and 3 are correct.

Which of the employee fringe benefits listed below, if provided by the employer, are both deductible by the employer and not included in an employee's gross income after 2017? 1. Business periodical subscriptions. 2. Season tickets to professional football games. 3. Parking provided near its business (employer pays $90 per month). 4. The use of an on-premises athletic facilities (value of $180 per employee per month).

1 and 4 Season tickets to professional football games are includible in the gross income of the employee receiving the tickets. Periodicals and athletic facilities are both deductible and not included in gross income. Effective with TCJA 2017, season tickets to professional football games are deductible by the employer as compensation expense as long as the cost is includible in the gross income of the employee receiving the tickets. Qualified transportation fringe benefits are not deductible after 2017 as a result of 2017 TCJA.

Which of the following is true regarding employer contributions to secular trusts for employee-participants of a nonqualified deferred compensation agreement? 1. Participants have security against an employer's unwillingness to pay at termination. 2. Participants have security against an employer's bankruptcy. 3. Secular trusts provide tax deferral for employees until distribution. 4. Secular trusts provide employers with a current income tax deduction.

1,2 and 4 Secular trusts are similar to rabbi trusts except that participants do not have a substantial risk of forfeiture and thus, do not provide the employee with tax deferral. Secular trusts provide the employer with a current income tax deduction for contributions. Secular trusts protect the participant from employer unwillingness to pay because they are funded and they protect from bankruptcy because there is no risk of forfeiture.

Qualified retirement plans that permit the employer unlimited investment in sponsor company stock are: 1. 401(k) plans. 2. Stock bonus plans. 3. Profit sharing plans. 4. ESOPs.

1,2,3, and 4 All of the listed plans permit 100% stock in the plans. The 401(k) plan is organized as a profit sharing or stock bonus plan.

Which of the following qualified plans require mandatory funding? 1. Defined benefit pension plans. 2. 401(k) plans with an employer match organized as a profit sharing plan. 3. Cash balance pension plans. 4. Money purchase pension plans.

1,3, and 4 401(k) plans do not require mandatory funding. The other three require mandatory funding.

Kenny holds two jobs - a full-time job with R Corporation and a part-time job with Z Corporation. Kenny uses his car to drive to work. The mileage is as follows: from Kenny's home to R is 70 miles; from R to Z is 10 miles; and from Z to Kenny's home is 70 miles. Kenny's deductible mileage for each work day is:

10 miles The deduction is based on the distance between jobs. There is no deduction for commuting expenses (mileage) to or from a taxpayer's primary place of employment.

The target benefit pension plan and the money purchase pension plan provide some employee/participant investment diversification protections by limiting the investment amount in employer stock to less than or equal to:

10% Defined benefit, cash balance, target benefit, and money purchase pension plans limit contributions of company stock to 10%.

Rick has an 18% nonqualified deferred compensation plan that is funded annually by his employer. Payments are made to a separate trustee of a secular trust who was selected by Rick and his employer. The employer contributions are discontinued at Rick's death, disability, or employment termination. When Rick retires or terminates employment, he will receive the proceeds from the trust.Which of the following is/are correct regarding the deferred compensation plan? 1. The contributions are not currently taxable to Rick because they are subject to a substantial risk of forfeiture. 2. The contributions to the plan are currently subject to payroll taxes. 3. The employer can deduct the contributions to the plan at the time of the contribution.

2 and 3 Because this arrangement is a secular trust, there is no substantial risk of forfeiture to Rick. Thus, Statement 1 is false. Because the trust is not subject to the general creditors of the employer, this is straight compensation. Rick must treat the payments as constructively received, and the employer may deduct the payments as compensation immediately. The payments are subject to payroll tax since the compensation is currently earned.

Which of the following is false regarding a deferred compensation plan that is funded utilizing a rabbi trust? 1. Participants have security against the employer's unwillingness to pay. 2. Rabbi trust provide the participant with security against employer bankruptcy. 3. Rabbi trusts provide tax deferral for participants. 4. Rabbi trusts provide the employer with a current tax deduction.

2 and 4 Rabbi trusts do not provide security against employer bankruptcy or a current tax deduction for the employer.

A distress termination of a qualified retirement plan occurs when: 1. The PBGC initiates a termination because the plan was determined to be unable to pay benefits from the plan. 2. An employer is in financial difficulty and is unable to continue with the plan financially. Generally, this occurs when the company has filed for bankruptcy, either Chapter 7 liquidation or Chapter 11 reorganization. 3. The employer has sufficient assets to pay all benefits vested at the time, but is distressed about it. 4. When the PBGC notifies the employer that it wishes to change the plan due to the increasing unfunded risk.

2 only Statement 3 describes a standard termination. Statement 1 describes an involuntary termination.

Generally, which of the following are contributory plans? -401(k) and money purchase pension plans. -401(k) and thrift plans. -Thrift plans and ESOPs. -Money purchase pension plans and profit sharing plans.

401(k) and thrift plans. Employers generally contribute to money purchase pension plans, ESOPs, and profit sharing plans. Employees contribute (thus contributory plans) to 401(k)s and thrift plans.

Westgate Inc., recently adopted a profit sharing plan. Westgate has two offices, the North Westgate office and the South Westgate office. There are 10 employees in the North Westgate office, 5 of which are eligible for the plan; and 15 employees in the South Westgate office that are all eligible for the plan. Which of the following statements is true? -If Westgate decides to notify the employees about the plan via mail, the letters must be mailed at least 30 days before mailing the determination letter to the IRS. -A Summary Plan Description must be furnished to each participant within 120 days of plan establishment. -If Westgate adopted a prototype plan then they will use a single trust or custodial account that has been adopted by all employers using that prototype plan. Westgate only needs to notify the employees that are eligible for the plan that the company has adopted a qualified plan.

A Summary Plan Description must be furnished to each participant within 120 days of plan establishment. Option a is incorrect because the employees must be notified by mail between 10 and 24 days before mailing the determination letter. Option c describes a master plan. Option d is incorrect because all employees must be notified if they work in an office where an eligible employee works.

Kohler Company allows a 25% discount to all nonofficer employees. Officers are allowed a 30% discount on company products. Kohler's gross profit percent is 35%. Which of the following is true? -An officer who takes a 30% discount must include the extra 5% (30%-25%) in his gross income -Any discounts taken by any employee is includible in the employee's gross income because the plan is discriminatory -All discounts taken by officers (30%) are includible in their gross income because the plan is discriminatory None of the discounts taken by any employee are includible in their gross income because the discount, in all cases, is less than the company's gross profit percentage.

All discounts taken by officers (30%) are includible in their gross income because the plan is discriminatory The plan is discriminatory to non-highly compensated employees; therefore, all discounts actually taken by officers are includible in the officers' income, not just the excess of what is available to the nonofficers. Any discount taken by a nonofficer would be excluded from the employee's gross income.

Which phrase best completes this sentence: "The exclusion for no-additional-cost services applies to any service provided by the employer to an employee that _____." -Causes the employer to lose significant revenue. -Does not cause the employee to incur substantial additional cost Does not cause the employer to incur any substantial additional costs or lose revenue. -Does not cause the employer to incur any additional costs but causes the employer to lose revenue.

Does not cause the employer to incur any substantial additional costs or lose revenue

Marie, the sole shareholder in Marie's Pastries, is contemplating establishing a qualified plan. Marie, a long-time widow, has always treated the employees like her family and the company has experienced very low turnover. She would like to use the retirement plan to assist her in transferring ownership interest to the employees as she is ready to retire. She has a strong preference for avoiding and deferring taxes. She is opposed to mandatory funding and indifferent to integration. Which plan would be appropriate for Marie? -Stock bonus plan. -Money purchase pension plan. -Defined benefit plan. -Employee stock ownership plan

Employee stock ownership plan. An ESOP would be the most appropriate plan to meet Marie's objectives. The stock bonus plan would allow Marie to transfer stock, but would not assist her immediately in her retirement plans. The defined benefit and money purchase pension plan would require mandatory funding. The ESOP would provide her with tax benefits and a diversified portfolio because of her age.

Steve is self-employed as a marketing consultant. He works primarily with start-up internet companies helping to develop corporate brand programs. Several years ago, he established a 401(k) profit-sharing plan and has accumulated $385,000 in the plan. Which of the following forms should he file to meet his compliance requirements? -Form 5500 EZ. -Form 5500 SF. -Form 5500. -He does not need to file a Form 5500 of any type.

Form 5500 EZ. He must file Form 5500 EZ since it is a one-participant plan and total assets exceed $250,000. If assets were below this threshold, he would not have to file the form.

Mary Jane received 1,000 NQSOs with an exercise price of $25 per share when the stock was $25 on the market. Two years from the date of grant Mary Jane exercises when the stock price is $102. At exercise, Mary Jane: -Has W-2 income of $25,000 -Has an AMT adjustment of $77,000 -Has W-2 income of $77,000 -Has an AMT adjustment of $25,000

Has W-2 income of $77,000 Mary Jane will have W-2 income of the difference between the market price and the exercise price ($102 - $25 x $1,000 = $77,000). She will not have an AMT adjustment for the exercise of an NQSO.

Which of the following benefits provided by an employer to its employees is currently taxable to the employee? -Employees of the DEF Department Store are allowed a 15% discount on store merchandise. DEF's normal gross profit percentage is 20%. -On a space-available basis, undergraduate tuition is waived by Private University for the dependent children of employees (value of $15,000 per semester). -Fly Airline allows its employees to fly free when there are open seats available on a flight (average value of $200). -Incidental personal use of a company car.

Incidental personal use of a company car. Personal use of a company car is a taxable fringe benefit. All of the other employer fringe benefits listed may be excluded from the employee's gross income.

Jennifer received 1,000 SARs at $22, the current trading price of Clippers, Inc., her employer. If Jennifer exercises the SARs three years after the grant and Clipper's stock is $34 per share, which of the following statements is true? -Jennifer will have an adjusted basis of $22,000 in the Clippers, Inc. stock. -Jennifer will have W-2 income equal to $12,000. -Jennifer will have long-term capital gain of $12,000. -Jennifer will have ordinary income equal to $22,000.

Jennifer will have W-2 income equal to $12,000. At the exercise of a SAR, the employee receives the difference between the fair market value and the exercise price as W-2 income. Thus, Jennifer has W-2 income equal to $12,000 [($34-$22)x1,000].

Mike was awarded 1,000 shares of restricted stock of B Corp at a time when the stock price was $14. Assume Mike properly makes an 83(b) election at the date of the award. The stock vests 2 years later at a price of $12 and Mike sells it then. What are Mike's tax consequences in the year of sale?

Mike has a long-term capital loss of $2,000. In the year of sale, Mike will have a long-term capital loss of $2,000 ($14,000 - $12,000) because his right to the stock vested. When 83(b) is elected, losses are permitted after the right to the stock has vested.

The qualified tuition reduction does not apply to:

Non-dependent children of current employees. Qualified tuition reduction does not apply to non-dependent children of current employees. Option c is tricky but correct, as widow(er)s of former employees who retired, regardless of 3 years of more, would be eligible for the qualified tuition reduction.

All of the following are reasons that an employer might favor a nonqualified plan over a qualified retirement plan except: -There is more design flexibility with a nonqualified plan. -A nonqualified plan typically has lower administrative costs. -Nonqualified plans typically allow the employer an immediate income tax deduction. -Employers can generally exclude rank-and-file employees from a nonqualified plan.

Nonqualified plans typically allow the employer an immediate income tax deduction. Nonqualified plans do not allow the employer to take an income tax deduction until the employee recognizes the income.

Cindy Sue has been with CS Designs, Inc. for five years. CS Designs has a deferred compensation plan to provide benefits to key executives only. CS Designs contributed $400,000 into a trust for Cindy Sue's benefit under the company's deferred compensation plan. The plan requires that executives must work for the company for 10 years before any benefits can be obtained from the plan. Cindy Sue has come to you to determine when she will be subject to income tax on the contribution by the employer. Which of the following is correct? -Since the assets were placed into a trust, the economic benefit doctrine will require inclusion in income for the current year contributions made by the employer -Since Cindy Sue cannot receive the benefits until she has been with the employer for 10 years, the substantial risk of forfeiture doctrine will not require inclusion in income for the current year contributions made by the employer -Since the assets were placed into a trust, the constructive receipt doctrine will require inclusion in income for the current year contributions made by the employer -Cindy Sue is subject to income tax in the current year because the plan is discriminatory

Since Cindy Sue cannot receive the benefits until she has been with the employer for 10 years, the substantial risk of forfeiture doctrine will not require inclusion in income for the current year contributions made by the employer. The economic benefit and constructive receipt doctrines will not cause inclusion because the assets are forfeitable if she does not stay the required length of service. Deferred compensation plans are by nature discriminatory. The contributions will be included if the employee has an economic benefit, no risk of forfeiture, or constructive receipt.

Company A has been capitalized by MJBJ Vulture Capital, a venture capital company. Company A's cash flows are expected to fluctuate significantly from year to year, due to phenomenal growth. They expect to go public wthin three years. Which of the following would be the best qualified plan for them to consider adopting? -Profit sharing plan. -New comparability plan. -New comparability plan. -Stock bonus plan.

Stock bonus plan. A stock bonus plan will allow equity participation without the use of cash flows and the public offering will eventually provide liquidity.

Patrick works for the Atlanta Falcons in the marketing department. The Falcons have an athletic facility on the premises for employees other than football players. The value provided by the Falcons to Patrick of this fringe benefit is not included in Patrick's gross income if:

Substantially all of the use of the facility is to be employees of the Falcons, their spouses or their dependent.

Which of the following are examples of fringe benefits that are not de minimus? -The commuting use of an employer-provided automobile or other vehicle more than one day per month. -Membership in a private country club. -Employer-provided group term life insurance on the life of the spouse of an employee. -all of the above

all of the above

when does the executives holding period begin for restricted stocks?

at the date the restriction is lifted

Which of the following are characteristics of a phantom stock plan? 1. Benefits are paid in cash. 2. There is no equity dilution from additional shares being issued.

both 1 and 2 The employee does not actually receive stock in a phantom plan. Instead, the employee receives credits for the stock and the benefits are later paid in cash.

Ricky receives stock options for 12,000 shares of XYZ Corporation with an exercise price of $10 when the stock is trading on the national exchange for $10 per share. The XYZ company plan is an Incentive Stock Option Plan. Which of the following statements are true regarding the options? 1. Ricky will be required to hold any ISOs for more than a year after exercise and more than two years from the grant date to have long-term capital gains. 2. 2,000 of the options are NQSOs.

both 1 and 2 To the extent the fair market value of the stock for which the ISO is exerciseable for the first time during any calendar year exceeds $100,000, the excess is treated as a nonstatutory stock option. Therefore, 2,000 of the options are NQSOs.

Who generally makes elective deferrals to a 401(k) plan?

employees Generally, 401(k) plans are funded from both employee elective deferrals and employer matching contributions and non-elective deferrals, but the elective deferrals come from the employee.

Plans that require mandatory funding are generally funded by?

employer Plans that have mandatory funding features (defined benefit pension plans, cash balance pension plans, target benefit pension plans, money purchase pension plans) are generally funded by the employer.

department of labor

enforces the rules of governing the following: -plan managers -plan investments -reporting and disclosure of plan information -enforcement of fiduciary provisions of the law -workers' benefits as regulated by ERISA

constructive receipt

establishes when income is included in a taxpayer's taxable income -occurs when funds are set aside for the taxpayer or credited to his account or made available so the he may draw upon them at any time -income is constructively received if receipt of the funds is not subject to limitations or restrictions

taxation of NQSOs upon sale of stock

executive will have capital gain/loss with a holding period beginning at the exercise date

qualified moving expense reimbursement

if an employer reimburses an employee for qualifying moving expenses, the employee can exclude the reimbursement from his gross income qualifying moving expenses: -expenses related to a qualifying move -deductible moving expenses

Which of the following statements are correct regarding assets reverting back to the sponsor or a qualified plan? 1. Under a merger, assets from a qualified plan can revert back to the plan sponsor without regard to the relationship between the value of the plan assets compared to the value of the obligations under the plan. 2. Any reversion of plan assets will always be subject to a 20% penalty.

neither 1 nor 2 Statement 1 is incorrect because the assets must exceed the plan liabilities. Statement 2 is incorrect because the penalty may be 20 percent or 50 percent.

Professor Stabler has one child, Benson, who is 18 years old and a full-time student at Disc University, a private university where Professor Stabler is the chairman of the Finance Department and a full-time employee. The cost of undergraduate tuition at Disc University is $15,000 per semester, but the children of all full-time employees may attend Disc University for free. Last semester Benson took a Russian history class that was oversubscribed. Twenty-five students were on the waiting list, but Benson was number two. Three students got into the full class. Which of the following are correct? 1. Professor Stabler has to include the value of the tuition remission in his income for last semester. 2. Professor Stabler would not have to include the value of the tuition remission in his income if it was a graduate program that Benson was enrolled in.

neither 1 nor 2 There are no requirements that there is space available for the tuition reduction exclusion. This exception applies only to education below the graduate level.

taxation of ISOs grant date

no taxable income unless exercise price is less than FMV at date if grant

taxation of NQSOs grant date

no taxable income unless exercise price is less than fair market value at date of grant

why don't retirees mind being called seniors?

the term comes with a 10% discount

qualified employee discounts

the value of employee discounts is excluded from an employee's gross income -the discount exclusion does not apply to real property, or investment property exclusion limit -service: 20% of the price of the service to nonemployee customers -products: the employer's gross profit % multiplied by the price the employer charges nonemployee customers nondiscrimination rules apply

lodging

the value of lodging provided to an employee is excluded from their taxable income if: 1. the lodging is furnished on the employer's business premises and 2. the lodging is furnished for the convenience of the employer and 3. the employee is required to accept the lodging as a condition of his employment

athletic facilities furnished by the employer

the value of on-premise athletic facilities provided by an employer to an employee is not included in the employee's gross income if the facility is: 1. operated by the employer and 2. located on the employer's business premises and 3. substantially all of the use of the facility is by employees of the employer, their spouses and their depednet children

Joe Bob receives stock options (ISOs) with an exercise price of $18 when the stock is trading at $18. Joe Bob exercises these options two years after the date of the grant when the stock price is $39 per share. Which of the following statements is correct? -upon exercise Joe Bob will have no regular income for tax purposes. -Joe Bob will have W-2 income of $21 per share upon exercise. -Joe Bob will have $18 of AMT income upon exercise. -Joe Bob's adjusted basis for regular income tax will be $39 at exercise.

upon exercise Joe Bob will have no regular income for tax purposes. Joe Bob does not have income at the date of exercise. Joe Bob's adjusted basis will be $18. The AMT income is equal to the difference between the fair market value and the exercise price ($39 - $18 = $21).