TAX QUESTIONS
Deb has found it very difficult to repay her loans. Because of these difficulties, the bank decided to forgive one of her most recent loans, an amount of $45,000. After the loan was discharged, Deb had total assets of $232,000 and her remaining loans total $217,000. What amount must Deb include in her gross income?
$15,000 ( a discharge of indebtedness is NOT taxable if the taxpayer is insolvent before AND after the debt forgiveness. if the discharge of indebtedness makes the taxpayer solvent the taxpayer recognizes taxable income to the extent of his solvency)
Berney and Betty got divorced this year. in the divorce decree betty agreed to transfer 100 shares of common stock worth $50,000 and pay barney $24,000 per year for five years(or until barnes death or remarriage) What amount (if any) is included in Barneys gross income this year?
$24,000(alimony payments are in cash pursuant to a divorce and do not survive the death of the recipient)
Ethan competed in the annual autism marathon this year and won a $25,000 prize for fastest wheelchair entrant. ethan indicated that he would transfer the prize to the local hospital. how much of the prize should ethan include in his gross income?
$25,000( the prize must be associated with scientific, literary, or charitable achievement to be excluded)
Graham has accepted an offer to do graduate work in the chemistry dept of the state university. the chemistry dept 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
$3,500
Fran purchased an annuity that provides $12,000 quarterly payments for the next 10 yrs. the annuity was purchased at a cost of $300,000. How much of the first quarterly payment will Fran include in her gross income?
$4,500 ( [300000/(4x10)]=7500 return of capital per payment)
George purchased a life annuity for $3,200 that will provide him $80 monthly payments for as long as he lives. Based on the IRS tables, georges life expectancy is 100 months. how much of the first $80 payment will George include in his gross income?
$42( 3200/100=32 return of capital per payment. hence 48 of the 80 is included in gross income)
Pam recently was sickened by eating spoiled peanut butter. she successfully sued the manufacturer for her medical bills ($3,700), her emotional distress ($6,000-she now fears peanut butter), and punitive damages ($44,000). what amount must pam include in her gross income?
$44,000(the tax laws specify that any payments (other than punitive damages) on account of a personal injury or physical sickness are nontaxable, damages taxpayers receive for emotional distress associated with a physical injury are also excludable. Puntitive damages are fully taxable however because they are intended to punish the harm doer rather than to compensate the taxpayer for injuries)
Hal Gore won a $1 million prize for special contributions to environmental research. this prize is awarded for public achievement and hal directed the awarding organization to transfer $400,000 of the award to the environmental protection agency. How much of the prize should Hal include in his gross income?
$600,000( awards for scientific or public achievement are excluded only if the payor of the award transfers the award to a governmental unit or a public charity)
Hank is a U.S. citizen and is doing a 3-6 yr assignment as a sales executive in Paris for a French company which begins this year. Hank earned $109,500 working for the french company this year but only lived in France for 340 days. what amount of hanks $109,500 salary this year will be allowed to exclude from gross income in the U.S.?
$94,400( 101300x[340/365]=94361.64 rounded to 94400. since hank will have a tax home in a foreign country and spend more than 330 days in the foreign country over 12 months he is eligible to exclude foreign earned income. the exclusion is computed on a daily basis, the maximum exclusion is reduced pro-rata for each day during the calendar year the taxpayer is not to be considered a resident of the foreign country or does not actually live in the foreign country)
Irene's husband passed away this year. After his death. Irene received $250,000 of the proceeds from life insurance on her husband, and she inherited her husband's stock portfolio worth $750,000 and his Rolex watch worth $5,000. What amount must Irene include in her gross income? a. $0 b. $1,005,000 c. $755,000 d. $750,000 e. $250,000
a. $0
Pam recently was sickened by eating spoiled peanut butter. She successfully sued the manufacturer for her medical bills ($3,700), her emotional distress ($6,000 -she now fears peanut butter), and punitive damage ($44,000). What amount must Pam include in her gross income? a. $44,000 b. $50,000 c. $47,700 d. $9,700 e. Zero - None of these benefits is included in gross income
a. $44,000
Joanna received $60,000 compensation from her employer, the value of her stock in ABC company appreciated by $ 5,000 during the year (but she did not sell any of the stock), she received $30,000 of the life insurance proceeds from the death of her husband. What is the amount of Joanna's gross income from these terms? a. $60,000 b. $65,000 c. $85,000 d. $90,000
a. $60,000
If Lindley, on 4/15 requests an extension to fire her tax return, the latest she pay her tax due without penalty is: a. April 15th b. October 15th c. August 15th d. November 15th e. None of these
a. April 15th
Tyrone claimed a large amount of charitable contributions as a tax deduction relative to taxpayers with similar levels of income. If Tyrone's tax return is chosen for audit because of his charitable contributions which audit program likely identified Tyrone's tax return audit? a. DIF system b. Deduction detective c. Document perfection d. Information matching e. None of these
a. DIF system
In June of 2010, Edgar's wife Cathy died and Edgar did not remarry during the year. What is his filing status by 2010 (assuming he and his wife did not have any dependents)? a. Married filed jointly b. Single c. Qualifying widower d. Head of household
a. Married filed jointly
Gross Income includes a. all income from whatever source derived unless excluded by law b. excluded income c. deferred income d. all realized income e. all of these
a. all income from whatever source derived unless excluded by law
Ophra is a cash basis taxpayer who is employed in the publishing industry. This year her employer informed her that because of her outstanding performance she is entitled to a free world cruise. Ophra asked her employer to issue the cruise tickets to her parents, and he complied with this request. Identify the principle that will determine whether Ophra or her parents are taxed on the value of the cruise tickets: a. assignment of income b. constructive receipt c. return of capital principle d. wherewithal to pay
a.(Ophra cannot assign earned income)
Dave is a plumber who uses the cash method of accounting. This year Dave requested that his clients make their checks payable to his son Steve. This yr Steve received checks in the amount of $62,000 for Daves plumbing services. Which of the following is a true statement? a. Dave is taxed on $62,000 of plumbing income this year b. Steve is taxed on $62,000 of plumbing income this year c. Steve is taxed on $62,000 of income from gifts received this year d. dave may deduct the $62,000 received by steve
a.(the assignment of income is not effective for tax purposes)
Hal Gore received a $1 million prize for special contributions to environmental research. This prize is awarded for public achievement, and Hal immediately directed the awarding organization to transfer $400,000 of the award to the Environmental Protection Agency, a qualified organization. How much of the prize should Hal include in his gross income? a. $400,000 b. $600,000 c. $1 million d. None of these because all prizes are exclude e. None of these because prizes from charities are exclude
b. $600,000
Which of the following is a true statement about the first payment received from a purchase annuity? a. the payment is included in gross income b. a portion of the payment is a return of capital c. the payment can only be taxed in the year AFTER the annuity was purchased d. the payment is not taxed until the annuity payments cease altogether
b. (a portion of the first payment from a purchased annuity will be a return of capital depending upon the amount paid for the investment and the expected number of payments to be received)
Which of the following statements regarding personal and dependency exemption is FALSE? a. A married couple filing jointly may claim two personal exemptions b. To qualify as a dependent of another, an individual must be a resident of the United States c. An individual who qualifies as a dependent of another tax payer may not claim a personal exemption d. The personal exemption and the dependency exemption are the same amount
b. To qualify as a dependent of another, an individual must be a resident of the United States
Miguel, a widower whose wife died in 2012, maintains a household for himself and his 10 yr. old daughter who qualifies as his dependent. Miguel did not remarry. What is the most favorable filing status that Miguel qualifies for in 2015? a. Single b. Qualifying Widower c. Head of Household d. Married, filing separately
c. Head of Household
Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale. a. Tax Benefit rule b. Constructive receipt c. Return of capital principle d. Wherewithal to pay e. None of these
c. Return of capital principle
The income tax base for an individual tax base for an individual tax return is: a. Realized income from whatever source derived b. Gross Income c.Taxable income d. Adjusted gross income e. Adjusted gross income minus from AGI deductions
c. Taxable income
Which of the following courts is the only court that provides for a jury trial? a. Tax Court b. U.S. Court of Federal Claims c. U.S. District Court d. U.S. Circuit Court of Appeals e. None of these
c. U.S. District Court
For filing status purposes, the taxpayer's marital status is determined a. Based on the largest percentage of time spent b. at the beginning of the year c. at the end of the year d. as of the middle of the year e. none of these
c. at the end of the year
Identify the rule dictating that on a sale of an asset a taxpayer need only include the incremental gain in gross income rather than the entire proceeds from the sale: a. tax benefit rule b. constructive receipt c. return of capital principle d. wherewithal to pay
c. return of capital principle
Sally is a cash basis tax payer and a member of the Valley Barter club. This yr Sally provided 100 hrs of sewing services to the barter club in exchange for 2 football playoff tickets. which of the following is a true statement? a. sally need not recognize and gross income unless she sells the football tickets b. sally exchange does not result in taxable income c. sally is taxed on the value of the football tickets even if she cannot attend the game d. sally is taxed on the value of her sewing services only if she is a professional seamstress
c. sally is taxed on the value of the football tickets even if she cannot attend the game( gross income includes the value of property received in exchange for services)
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 for $20,000 for damages, $5,500 for emotional distress, and $50,000 for punitive damages. What amount must Paul include in his gross income? a. $5,500 b. $20,00 c. $50,000 d. $70,000 e. All of these benefits are included in gross income
d. $70,000
Bill filed his 2014 tax return on March 15th, 2015. The basic statue of limitations for IRS assessment on Bill's 2014 tax return should end: a. March 15th, 2017 b.April 15th, 2017 c. March 15th, 2018 d. April 15, 2018 e. None of these
d. April 15th, 2018
To calculate realized gain or loss on the sale of an asset, the sales price is reduced by which of the following? a. Tax basis of the property b. Selling expenses c. Amount realized d. Tax basis of the property and Selling expenses e. All of these
d. Tax basis of the property and Selling expenses
Identify the rule that determines whether a taxpayer must include in income of a refund amount deducted in a previous year: a. tax refund rule b. constructive receipt c. return of capital principle d. tax benefit rule
d. tax benefit rule
Which of the following statements about alimony payments is true? a. To qualify as alimony, payments must be made in cash b. Alimony payments are includible in 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 that payments as "nonalimony" or child support e. All of these
e. All of these
During January 2012, Dora made a gift of stock to her granddaughter. At the time of the gift, the stock was worth $15,000. In July 2012, a $500 dividend was declared on the stock and paid to Dora's granddaughter. What amount must Dora's granddaughter include in her gross income if she still owned the stock on December 31, 2012 and it was worth $17,000? a. $2,000 b. $15,000 c. $15,500 d. $2,500 e. None of these
e. None of these
Irenes husband passed away this year. after his death irene received $250,000 of proceeds from life insurance on her husband, and she inherited her husbands stock portfolio worth $750,000. what amount must irene include in her gross income?
zero-none of the benefits are included in gross income( taxpayers exclude inheritances and life insurance proceeds from gross income)
