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Exam 4: Gross Income: Concepts and Inclusions

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Question 51

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Mark is a cash basis taxpayer.He is a partner in the M&M partnership,and his share of the partnership's profits for 2012 is $90,000.Only $40,000 was distributed to him in January 2012,and this was his share of the 2011 partnership profits.None of the 2012 profits were distributed although Mark's share of the 2012 profits was $90,000.Mark's gross income from the partnership for 2012 is $40,000.

A) True
B) False

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Question 52

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Ted loaned money to a business acquaintance.The loan was for $100,000 and was to be repaid at the rate of $13,000 each year for ten years.The effective interest rate was 5%.He also purchased an annuity contract for $100,000 that would pay him $13,000 each year for ten years.Will Ted's gross income for the first year differ with the loan as compared to the annuity contract? Explain your answer.

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Yes,as an annuity,Ted would treat $10,00...

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Question 53

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Theresa,a cash basis taxpayer,purchased a bond on July 1,2009,for $10,000,plus $400 of accrued interest.The bond paid $800 of interest each December 31.On March 31,2012,she sold the bond for $10,300,which included $200 of accrued interest.

In January 2012,Tammy purchased a bond due in 24 months.The cost of the bond is $857 and its maturity value is $1,000.No interest is paid each year,but the compound interest rate on the bond is 8%.Tammy also purchased a Series EE United States Government bond for $558,with a maturity value in 10 years of $1,000.This is the only Series EE bond she has ever owned.The Series EE bond is sold to yield 6% interest.Tammy is 13 years old and has no other source of income.She is claimed as a dependent by her parents.Compute Tammy's gross income from the bond and Series EE bond for 2012.

Wayne owns a 25% interest in the capital and profits of Emerald Company (a calendar year partnership) .For tax year 2012,the partnership earned revenue of $900,000 and had operating expenses of $560,000.During the year,Wayne withdrew from the partnership a total of $90,000.He also invested an additional $20,000 in the partnership.For 2012,Wayne's gross income from the partnership is:

A sole proprietorship purchased an asset for $1,000 in 2012 and its value was $1,500 at the end of 2012.In 2013,the sole proprietorship sold the asset for $1,400.The sole proprietorship realized a taxable gain of $400 in 2013 but an economic loss of $100 in 2013.

Mike contracted with Kram Company,Mike's controlled corporation.Mike was a medical doctor and the contract provided that he would work exclusively for the corporation.No other doctor worked for the corporation.The corporation contracted to perform an operation for Rosa for $8,000.The corporation paid Mike $6,500 to perform the operation under the terms of his employment contract.

In 2012,Juan,a cash basis taxpayer,was offered $3 million for signing a professional baseball contract.He counteroffered that he would receive $900,000 per year for 4 years beginning in 2013.The team accepted the counteroffer.Juan constructively received $3 million in 2012.

The Blue Utilities Company paid Sue $2,000 for the right to lay an underground electric cable across her property anytime in the future.

Sarah,a majority shareholder in Teal,Inc.,made a $200,000 interest-free loan to the corporation.Sarah is not an employee of the corporation.

In some foreign countries,the tax law specifically designates the types of income items that are includible in gross income.How does this approach compare with the U.S.Internal Revenue Code (§ 61)? What is a major advantage to the approach used in the U.S.tax law?

In the case of a below-market gift loan for which there is no exception to the imputed interest rules,the lender is deemed to have received interest income even though no interest is charged and collected.

Barney painted his house which saved him $3,000.According to the realization requirement,Barney must recognize $3,000 of income.

Travis and Andrea were divorced.Their only marital property consisted of a personal residence (fair market value of $400,000,cost of $200,000) ,and publicly-traded stocks (fair market value of $800,000,cost basis of $500,000) .Under the terms of the divorce agreement,Andrea received the personal residence and Travis received the stocks.In addition,Andrea was to receive $50,000 for eight years.

Susan purchased an annuity for $200,000.She is to receive $18,000 each year and her life expectancy is 13 years.If Susan collects under the annuity for 14 years,the entire $18,000 received in the 14th year must be included in her gross income.

If the employer provides all employees with group term life insurance equal to twice the employee's annual salary,an employee with a salary of $50,000 has no gross income from the life insurance protection provided by the employer.

Gordon,an employee,is provided group term life insurance coverage equal to twice his annual salary of $125,000 per year.According to the IRS Uniform Premium Table (based on Gordon's age) ,the amount is $12 per year for $1,000 of protection.The cost of an individual policy would be $15 per year for $1,000 of protection.Since Gordon paid nothing towards the cost of the $250,000 protection,Gordon must include in his 2012 gross income which of the following amounts?

Samantha and her son,Brent,are cash basis taxpayers.Samantha gave Brent a corporate bond with a face amount and fair market value of $10,000.On the date of the gift,March 31,2012,the accrued interest on the bond was $100.On December 31,2012,Brent collected $400 interest on the bond.Brent must include in gross income the $300 interest earned after the date of the gift.

Katherine is 60 years old and is bargaining with her employer over deferred compensation.In exchange for reducing her current year's salary by $50,000,she can receive a lump-sum amount in 5 years,when she will retire.If she receives the $50,000 in the current year,she will invest in certificates of deposit that yield 5%.Katherine in the 28% marginal tax bracket in all relevant years.What is the minimum amount Katherine should accept as a deferred pay option? [Hint: the compound interest factor is 1.1934.] $59,669

Margaret made a $90,000 interest-free loan to her son,Adam,who used the money to retire a mortgage on his personal residence and to buy a certificate of deposit.Adam's only income for the year is his salary of $35,000 and $1,400 interest income on the certificate of deposit.The relevant Federal interest rate is 8% compounded semiannually.The loan is outstanding for the entire year.