Question 1

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

Payments received for physical injuries are generally not taxable, while payments for non-physical injuries (such as emotional distress) are usually taxable.

Question 2

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

Accepted Answer

According to the IRS, accelerated death benefits paid by a life insurance company to a terminally ill policyholder are generally excluded from taxable income. However, it is important to consult a tax professional or the IRS for specific guidance on this topic.

Question 3

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

Accepted Answer

False

Question 4

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 considered a return of premium and not taxable income, therefore they are generally excludable from income tax.

Question 5

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

Many tax exclusions exist due to tax laws and policies created by Congress to incentivize specific actions or behaviors, such as donating to charitable organizations or investing in certain industries.

Question 6

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 included in the recipient's gross income.

Question 7

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

Accepted Answer

Awards for emotional distress attributable to a physical injury are excluded from gross income under the Internal Revenue Code (IRC) section 104(a)(2).

Question 8

Premiums paid by an employer for employee disability coverage are excluded from the employee's gross income.

Accepted Answer

This is a true statement, according to the Internal Revenue Code. The premiums paid by the employer for disability coverage are considered excludable fringe benefits, and thus not taxable to the employee.

Question 9

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 correct. The portion of the selling price equal to the basis in the property is known as the seller's adjusted basis, and it is not subject to taxation. The remaining amount of the selling price, minus any selling expenses, is subject to taxation as a capital gain.

Question 10

Payments received from a workers' compensation plan are taxable.

Accepted Answer

Payments received from workers' compensation plans are generally not taxable under both federal and state tax laws. However, there may be exceptions if the payments are also for disability retirement, supplemental security income (SSI), or Social Security disability insurance (SSDI). It is always best to consult with a tax professional for specific guidance on your individual situation.

Question 11

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 12

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. However, there may be certain circumstances where a portion of the benefits may be taxable, such as if the premiums were paid by the employer and were not included in the employee's taxable income. It is always best to consult with a tax professional in order to determine the taxability of insurance benefits received.

Question 13

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

The answer of Any distribution from a Qualified Tuition Plan...

Question 14

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 have to include the rental value of their personal residence in their gross income, unless they rent out a portion of their home or use it for business purposes. However, there are exceptions and special circumstances, so it is important to consult with a tax professional for guidance.

Question 15

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 16

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

Accepted Answer

Income cannot be transferred to another taxpayer in order to avoid taxes. This is considered tax evasion and is illegal.

Question 17

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

Withdrawals from Qualified Tuition Plans for qualified higher education expenses are indeed tax-free as long as certain criteria are met.

Question 18

Loan proceeds are taxable in the year received in cash.

Accepted Answer

Loan proceeds are not considered taxable income because they are not earned income. They are a debt obligation that must be repaid. However, if the loan is forgiven, then the amount forgiven may be taxable as income.

Question 19

An individual is considered terminally ill for tax purposes 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 20

In general,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

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. This is because the excess amount is considered as taxable income.

Quiz 4: Gross Income: Exclusions