Question 1

Any distribution from a qualified tuition plan not used for qualified higher education expenses is both included in income and subject to a 10% penalty.

Accepted Answer

False

Question 2

Loan proceeds are taxable in the year received in cash.

Accepted Answer

Loan proceeds are not considered income and therefore are not taxable. However, if the loan is forgiven, the amount forgiven may be considered income and therefore taxable.

Question 3

Each year a taxpayer must include in gross income the rental value of his or her personal residence.

Accepted Answer

This statement is false. Generally, a taxpayer does not need to include the rental value of his or her personal residence in gross income. However, there are certain situations in which rental income from a personal residence may need to be reported, such as if the property is rented out for more than a certain number of days per year.

Question 4

Amounts collected under accident and health insurance policies purchased by the taxpayer are excludable from income.

Accepted Answer

Amounts collected under accident and health insurance policies are generally excluded from income, as long as the premiums were not paid using pre-tax dollars through an employer-sponsored plan.

Question 5

Which of the following items will result in an increase in gross income?

Accepted Answer

C)This is a taxable exchange of services,and both parties will realize income equal to the value of services received.

Question 6

An individual is considered terminally ill for purposes of the exclusion for accelerated death benefits if a physician certifies that he is reasonably likely to die within 36 months.

Accepted Answer

The answer of An individual is considered terminally ill for...

Question 7

Amounts withdrawn from qualified tuition plans are tax-free if the amounts are used for qualified higher education expenses including tuition,fees,books,and room and board for students attending on at least a half-time basis.

Accepted Answer

The statement is true. Withdrawals from qualified tuition plans (also known as 529 plans) for qualified higher education expenses are tax-free.

Question 8

Dividends on life insurance policies are generally excludable income because they are considered a return of premium.

Accepted Answer

Dividends on life insurance policies are paid out of the company's surplus and are considered a return of premium. Therefore, they are not taxable income and are generally excluded from income.

Question 9

Many exclusions exist due to the benevolence of Congress or as a result of the government's attempts to encourage particular social behavior.

Accepted Answer

Exclusions exist due to various reasons, including the government's attempts to promote certain social behavior and Congress's benevolence in creating laws that exclude certain types of income or activities from taxation.

Question 10

Sam received a scholarship for room and board.This scholarship is excludable from income.

Accepted Answer

The answer of Sam received a scholarship for room and...

Question 11

Katie,a self-employed CPA,purchased an accident & disability insurance policy.As the result of an auto accident,Katie was unable to work and received $3,000 of disability benefits per month for seven months.The benefits were based on her estimated monthly income and should be reported as gross income.

Accepted Answer

The answer of Katie,a self-employed CPA,purchased an accident & disability...

Question 12

Punitive damages are taxable unless they are awarded for physical injuries.

Accepted Answer

The answer of Punitive damages are taxable unless they are...

Question 13

While payments received because a person has been physically injured are excluded from gross income,payments on account of non-physical injury must be included in gross income.

Accepted Answer

This is true according to the IRS tax code. Payments received for physical injuries or sickness are generally not included in gross income, while payments for non-physical injuries or emotional distress must be included.

Question 14

A taxpayer may avoid tax on income by having the payment made to another taxpayer.

Accepted Answer

A taxpayer cannot avoid tax on their income by simply having the payment made to another taxpayer. The income must still be reported and properly taxed either by the individual receiving the payment or potentially through gift tax laws if applicable.

Question 15

John,an employee of a manufacturing company,suffered a heart attack and was unable to work for six months.He received $1,500 per month of disability benefits as a result of an employer-provided group policy.The benefits are includible in John's gross income.

Accepted Answer

Disability benefits received through an employer-provided group policy are generally taxable and must be included in the recipient's gross income.

Question 16

Except in the case of qualifying accelerated death benefits,if a life insurance policy is sold or surrendered for a lump sum before the death of the insured,the amount received is taxable to the extent it exceeds the premiums paid.

Accepted Answer

This is true according to the IRS. If a life insurance policy is sold or surrendered for a lump sum before the death of the insured, the proceeds may be subject to taxation if they exceed the premiums paid. However, if the policy qualifies for accelerated death benefits (i.e. the insured has a terminal illness), the proceeds may be tax-free.

Question 17

Upon the sale of property,a portion of the selling price equal to the basis in the property is considered a return of capital to the seller and is,therefore,not taxable.

Accepted Answer

This is because the basis in the property represents the original cost of the property to the seller, and any portion of the selling price that is equal to the basis is essentially just a return of the seller's own investment in the property. As such, it is not considered income and is not taxable.

Question 18

Awards for emotional distress attributable to a physical injury are excluded from gross income.

Accepted Answer

This is true according to IRS regulations. Awards for emotional distress, such as those received in a lawsuit for a physical injury, are considered "medical care" and are therefore excluded from gross income. However, awards for emotional distress not related to a physical injury may be taxable.

Question 19

Sumedha is the beneficiary of her mother's $500,000 life insurance policy.She receives $54,000 per year over ten years in settlement of her mother's policy.Sumedha will exclude the $54,000 proceeds received each year from the life insurance company.

Accepted Answer

The answer of Sumedha is the beneficiary of her mother's...

Question 20

Accelerated death benefits from a life insurance policy received by a terminally ill person may be excluded from taxable income.

Accepted Answer

According to the IRS, accelerated death benefits received by an individual who is terminally ill may be excluded from taxable income. However, there are certain criteria that must be met for the benefits to be excluded.

Quiz 4: Gross Income: Exclusions