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Exam 5: Gross Income and Exclusions

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Question 51

True/False

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To provide relief from double taxation,Congress allows a foreign-unearned income exclusion for interest and dividends earned in foreign countries.

A) True
B) False

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Question 52

Multiple Choice

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Nate is a partner in a partnership that received $5,000 of interest income this year.Nate's share of the interest is $1,000,and he should report this income on his individual return as:

A) business income
B) income from a partnership
C) interest income
D) dividend income because the partnership intends to organize next year as a limited liability company
E) None of the choices are correct

F) C) and E)
G) None of the above

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Question 53

Multiple Choice

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Emily is a cash-basis taxpayer,and she was an especially productive salesperson last year.In December of last year her supervisor told Emily she had earned a $5,000 bonus.However,Emily received the bonus check after year-end.Identify the principle that will determine when Emily is taxed on the bonus.

The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes.

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 of $20,000 for damages,$5,500 for emotional distress,and $50,000 for punitive damages.What amount must Paul include in his gross income?

Jim received a $500 refund of state income taxes this year.Jim will not need to include the $500 in his gross income this year if he did not deduct state income taxes last year.

The tax benefit rule applies when a taxpayer refunds amounts that were previously included in income.

Hillary is a cash-basis calendar-year taxpayer.During the last week of December she received a letter containing a $5,000 check for services rendered.Which of the following is a true statement?

Caroline is retired and receives income from a number of sources.The interest payments are from bonds that Caroline purchased over past years and a disability insurance policy that Caroline purchased.Calculate Caroline's gross income.

Vincent is a writer and a U.S.citizen.After being out of work for the first half of the year,Vincent moved permanently to Ireland on July 4.He worked for an Irish magazine and earned $110,000 in salary from July 4^th to December 31^st.Earlier in April of this year Vincent received a $1,500 refund of the $3,600 in state income taxes his previous employer withheld from his pay last year.Vincent claimed $12,800 in itemized deductions last year (the standard deduction for a single filer was 12,000).Vincent wants to elect to use the foreign-earned income exclusion to the extent he is eligible.Calculate Vincent's gross income for this year.(Round your final answer to the nearest whole dollar amount and assume there are 365 days in the year.)

Blake is a limited partner in Kling-On Partners.This year Kling-On reported that Blake's share of dividend income was $3,700 and his share of municipal interest was $2,750.Early this year Blake found a bundle of $100 bills in the alley outside his apartment.When no one claimed the money,the cash (a total of $2,400)was returned to Blake.Finally,Blake earned salary of $42,000 but almost $6,500 was withheld for income taxes and FICA tax.Compute Blake's realized income and gross income.

The assignment of income doctrine requires that in order to shift income from the property producing the income to another person,the taxpayer must transfer only the income to the other person.

This year Henry realized a gain on the sale of an antique car that he inherited from his uncle.The buyer has promised to pay Henry in installment payments over the next few years.Identify the principle that will determine when Henry should be taxed on the gain from the sale.

Juan works as a landscaper for local businesses on weekends,and he often provides services in exchange for property.This year Juan provided lawn-mowing services in exchange for $1,275 of car repair services,$3,570 of groceries,and a certificate of deposit (CD)for $4,050.The CD matures next year with interest.Finally,Juan received a gift card that can only be applied for $850 of clothing at a local mall.Juan has only applied the gift card to purchase $100 of clothing.Compute Juan's gross income,assuming that he uses the cash basis of accounting.

When an asset is sold,the taxpayer calculates the gain or loss on the sale of the asset by subtracting the tax basis of the asset from the proceeds of the sale.

This year,Barney and Betty sold their home (sales price $750,000; cost $200,000) .All closing costs were paid by the buyer.Barney and Betty owned and lived in their home for 18 months.Assuming no unusual or hardship circumstances apply,how much of the gain is included in gross income?

The exclusion ratio for a purchased annuity is the cost of the annuity divided by the interest rate.

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?

Teresa was married on November 1 of this year and on that day received numerous gifts from her extended family.Her grandfather presented Teresa with a check for $15,000; her uncle gave Teresa 1,000 shares of Ford stock worth $10 per share (the uncle purchased the shares for $25 each); and her aunt presented Teresa with $50,000 of corporate bonds.(Teresa received $1,500 of semiannual interest from the bonds on December 31 of this year.)Finally,Teresa's parents paid off $50,000 of her student loan debt,including $2,000 of accrued interest.What amount,if any,must Teresa include in gross income this year?

Rental income generated by a partnership is reported by the partners as dividend income on their own individual tax returns.