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Exam 5: Gross Income: Exclusions

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Question 1

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In December 2016, Emily, a cash basis taxpayer, received a $2,500 cash scholarship for the Spring semester of 2017. However, she did not use the funds to pay the tuition until January 2017. Emily can exclude the $2,500 from her gross income in 2016.

A) True
B) False

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Question 2

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Mauve Company permits employees to occasionally use the copying machine for personal purposes. The copying machine is located in the office where the higher paid executives work, so they occasionally use the machine. However, the machine is not convenient for use by the lower paid warehouse employees and, thus, they never use the copier. The use of the copy machine may not be excluded from gross income because the benefit is discriminatory.

A) True
B) False

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Question 3

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What are the tax problems associated with payments received by a wife from her deceased husband's employer? (Assume the wife renders no services to the employer.)

The First Chance Casino has gambling facilities, a bar, a restaurant, and a hotel. All employees are allowed to obtain food from the restaurant at no charge during working hours. In the case of the employees who operate the gambling facilities, bar, and restaurant, 60% of all of Casino's employees, the meals are provided for the convenience of the Casino. However, the hotel workers demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work. Which of the following is correct?

In 2017, Theresa was in an automobile accident and suffered physical injuries. The accident was caused by Ramon's negligence. In 2018, Theresa collected from his insurance company. She received $15,000 for loss of income, $10,000 for pain and suffering, $50,000 for punitive damages, and $6,000 for medical expenses which she had deducted on her 2017 tax return (the amount in excess of 10% of adjusted gross income). As a result of the above, Theresa's 2018 gross income is increased by $56,000.

Martha participated in a qualified tuition program for the benefit of her son. She invested $6,000 in the fund. Four years later her son withdrew $8,000, the entire balance in the program, to pay his college tuition.

A scholarship recipient at State University may exclude from gross income the scholarship proceeds used to pay for:

Iris collected $150,000 on her deceased husband's life insurance policy. The policy was purchased by the husband's employer under a group policy. Iris's husband had included $5,000 in gross income from the group term life insurance premiums during the years he worked for the employer. She elected to collect the policy in 10 equal annual payments of $18,000 each.

Assuming a taxpayer qualifies for the exclusion treatment, the interest income on educational savings bonds:

Olaf was injured in an automobile accident and received $25,000 for his physical injury, $50,000 for his loss of income, and $10,000 punitive damages. As a result of the award, the amount Olaf must include in gross income is:

Early in the year, Marion was in an automobile accident during the course of his employment. As a result of the physical injuries he sustained, he received the following payments during the year: ​ What is the amount that Marion must include in gross income for the current year?

Beverly died during the current year. At the time of her death, her accrued salary and commissions totaled $3,000 and were paid to her husband. The employer also paid the husband $35,000 which represented an amount equal to Beverly's salary for the year prior to her death. The employer had a policy of making the salary payments to "help out the family in the time of its greatest need." Beverly's spouse collected her interest in the employer's qualified profit sharing plan amounting to $30,000. As beneficiary of his wife's life insurance policy, Beverly's spouse elected to collect the proceeds in installments. In the year of death, he collected $8,000 which included $1,500 interest income. Which of these items are subject to income tax for Beverly's spouse?

Under the Swan Company's cafeteria plan, all full-time employees are allowed to select any combination of the benefits below, but the total received by the employee cannot exceed $8,000 a year. I. Group medical and hospitalization insurance for the employee, $3,600 a year. II) ​ Group medical and hospitalization insurance for the employee's spouse and children, $1,200 a year. III) Child-care payments, actual cost but not more than $4,800 a year. IV) Cash required to bring the total of benefits and cash to $8,000. ​ Which of the following statements is true?

Sharon had some insider information about a corporate takeover. She unintentionally informed a friend, who immediately bought the stock in the target corporation. The takeover occurred and the friend made a substantial profit from buying and selling the stock. The friend told Sharon about his stock dealings, and gave her a pearl necklace because she "made it all possible." The necklace was worth $10,000, but she already owned more jewelry than she desired.

Tommy, a senior at State College, receives free room and board as full compensation for working as a resident advisor at the university dormitory. The regular housing contract is $2,000 a year in total, $1,200 for lodging and $800 for meals in the dormitory. Tommy had the option of receiving the meals or $800 in cash. Tommy accepted the meals. What must Tommy include in gross income from working as a resident advisor?

George, an unmarried cash basis taxpayer, received the following amounts during 2017: ​ What amount should George report as gross income from dividends and interest for 2017?

Gary cashed in an insurance policy on his life. He needed the funds to pay for his terminally ill wife's medical expenses. He had paid $12,000 in premiums and he collected $30,000 from the insurance company. Gary is not required to include the gain of $18,000 ($30,000 - $12,000) in gross income.

Doug and Pattie received the following interest income in the current year: ​ Greenbacks Bank also gave Doug and Pattie a cellular phone (worth $100) for opening the savings account. What amount of interest income should they report on their joint income tax return?

What Federal income tax benefits are provided for college students?

Tonya is a cash basis taxpayer. In 2017, she paid state income taxes of $8,000. In early 2018, she filed her 2017 state income tax return and received a $900 refund.