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Exam 5: Gross Income: Exclusions

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Question 31

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John told his nephew, Steve, "if you maintain my house when I cannot, I will leave the house to you when I die." Steve maintained the house and when John died, Steve inherited the house.The value of the residence can be excluded from Steve's gross income as an inheritance.

A) True
B) False

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Question 32

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As an executive of Cherry, Inc., Ollie receives a fringe benefit in the form of annual tuition scholarships of $10,000 to each of his three children.The scholarships are paid by the company on behalf of the children of key employees directly to each child's educational institution and are payable only if the student maintains a B average.

A) The tuition payments of $30,000 may be excluded from Ollie's gross income as a scholarship.
B) The tuition payments of $10,000 each must be included in each child's gross income.
C) The tuition payments of $30,000 may be excluded from Ollie's gross income because the payments are for the academic achievements of the children.
D) The tuition payments of $30,000 must be included in Ollie's gross income.
E) None of these.

F) All of the above
G) A) and B)

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Question 33

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Workers' compensation benefits are included in gross income if the employer also pays the employee while the employee is recovering from his or her injury.

Christie sued her former employer for a back injury she suffered on the job in 2019.As a result of the injury, she was partially disabled.In 2020, she received $240,000 for her loss of future income, $160,000 in punitive damages because of the employer's flagrant disregard for the employee's safety, and $15,000 for medical expenses.The medical expenses were deducted on her 2019 return, reducing her taxable income by $12,000.Christie's 2020 gross income from the above is:

A company has a medical reimbursement plan for officers that covers all costs that the company's insurer will not pay.However, for all employees who are not officers, the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds.An officer incurred $1,500 in medical expenses and was reimbursed for that amount.An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

Swan Finance Company, an accrual method taxpayer, requires all of its customers to carry credit life insurance.If a customer dies, the company receives from the insurance company the balance due on the customer's loan.Ali, a customer, died owing Swan $1,500.The balance due included $200 accrued interest that Swan has included in income.When Swan collects $1,500 from the insurance company, Swan:

George is employed by Quality Appliance Company.All full-time employees are allowed to purchase appliances at the company's cost plus 10%.The employees are also given, at no cost, a one-year service contract on all the goods purchased from the company.George purchased a refrigerator for $500.The company's normal selling price for the refrigerator is $800.George also received a service contract at no charge that had a value of $150.During the year, George was required to have his refrigerator serviced once.The cost of the call would have been $75 if he had not had the service contract.Is George required to recognize any income from the purchase of the refrigerator, the receipt of the service contract, and the service call?

Employers can provide numerous benefits to their employees and the employees are permitted to exclude the value of these benefits from gross income.What are the effects of the exclusions on the following? a.The benefit of an exclusion varies directly with the recipient's marginal tax rate. Thus, individuals with the highest marginal tax rate enjoy the greatest benefit from the exclusion and those taxpayers in the lowest marginal tax rate enjoy the least benefit.Also, the exclusions are generally available with the better-paying jobs.This also causes the tax system to be less progressive than were the exclusions a.The progressiveness of the tax system. b.The complexity of the tax system.

Randy is the manager of a motel.As a condition of his employment, Randy is required to live in a room on the premises so that he would be there in case of emergencies.Randy considered this a fringe benefit since he would otherwise be required to pay $800 per month rent.The room that Randy occupied normally rented for $70 per night, or $2,100 per month.On the average, 90% of the motel rooms were occupied.As a result of this rent-free use of a room, Randy is required to include in gross income.

Harold bought land from Jewel for $150,000.Harold paid $50,000 cash and gave Jewel an 8% note for $100,000. The note was to be paid over a five-year period.When the balance on the note was $80,000, Jewel began having financial difficulties.To accelerate her cash inflows, Jewel agreed to accept $60,000 cash from Harold in final payment of the note principal.

A U.S.citizen who works in France from February 1, 2019 until January 31, 2020 is eligible for the foreign earned income exclusion in 2019 and 2020.

The de minimis fringe benefit:

Theresa sued her former employer for age, race, and gender discrimination.She claimed $200,000 in damages for loss of income, $300,000 for emotional harm, and $500,000 in punitive damages.She settled the claim for $700,000.As a result of the settlement, Theresa must include in gross income:

If a scholarship does not satisfy the requirements for a gift, the scholarship must be included in gross income.

Calvin miscalculated his income in 2017 and overpaid his state income tax by $10,000.In 2018, he amended his 2017 state income tax return and received a $10,000 refund and $900 interest.Calvin itemized his deductions in 2017, deducting $12,000 in state income tax and $30,000 total itemized deductions (in 2017, individuals were not limited to a $10,000 state tax deduction when they itemized deductions).As a result of the amended return in 2018, Calvin must recognize $10,900 of gross income.

A U.S.citizen worked in a foreign country for the period July 1, 2018 through August 1, 2019.Her salary was $10,000 per month.Also, in 2018 she received $5,000 in dividends from foreign corporations (not qualified dividends) .No dividends were received in 2019.Which of the following is correct?

Employees of a CPA firm located in Maryland may exclude from gross income the meals and lodging provided by the employer while they were on an audit in Delaware.

Barney is a full-time graduate student at State University.He serves as a teaching assistant for which he is paid $700 per month for nine months and his $5,000 tuition is waived.The university waives tuition for all of its employees.In addition, Barney receives a $1,500 research grant to pursue his own research and studies.Barney's gross income from the above is:

Agnes receives a $5,000 scholarship that covers her tuition at Parochial High School.She may not exclude the $5,000 because the exclusion applies only to scholarships to attend college.

Cash received by an employee from an employer: