Question 1

Clarance rented office space to an attorney who left town before the lease was completed.The attorney left several bookcases and other improvements to cover the remaining rent.Clarance must include in income the value of the leasehold improvements to the extent of the remaining rent that was due.

Accepted Answer

According to IRS guidelines, if a tenant leaves leasehold improvements as collateral for unpaid rent, the landlord must include the fair market value of the improvements in income to the extent of the remaining rent due. Therefore, the statement is true.

Question 2

On her 18th birthday,Anna's grandfather gave her stock worth $100,000.During the current year,Anna receives $5,000 of dividends on the stock,which she uses to pay college expenses.The cost of Anna's tuition,fees,and books is $4,000.Anna's income from this event is:

Accepted Answer

The $5,000 of dividends Anna receives from the stock is considered income for her, regardless of how she chooses to spend it.

Question 3

Myra's employer paid her health and accident insurance premium of $5,600.Since she had the option to take the cash and purchase her own insurance,the $5,600 must be included in income.

Accepted Answer

The payment by an employer for an employee's health and accident insurance premiums is generally excluded from the employee's income, even if the employee had the option to receive cash instead.

Question 4

The interest from Guam Water Authority bonds is excluded from income as "Municipal Bond Interest."

Accepted Answer

Municipal bond interest is generally exempt from federal income tax, and this includes bonds issued by the Guam Water Authority.

Question 5

Cornell is a building contractor who builds 25-30 homes a year.Charlotte is a real estate broker who sells all of Cornell's homes.Charlotte has recently referred a couple to Cornell who wanted him to build a $400,000 home for them.Knowing that Charlotte and her husband enjoy skiing,he bought her a nice pair of skis and boots.
I.The "gift" appears to be a form of compensation.
II.The skis are considered a gift for income tax purposes.
III.Substance-over-form applies to this situation.
IV.Charlotte recognizes gross income from the receipt of the skis.
​

Accepted Answer

The skis and boots given to Charlotte by Cornell can be seen as a form of compensation for referring the couple to him, which means it's not merely a gift in the casual sense. The principle of substance-over-form applies here, indicating that the nature of the transaction is more important than its formal description. Therefore, Charlotte would need to recognize the value of the skis and boots as gross income, as they are considered compensation for her services.

Question 6

To keep the employees on the premises in case an emergency arises,the Riverview Hotel provides meals to its employees in a room adjacent to their restaurant.Since the meals are provided as a convenience to the employer and on their premises,the value of the meals is excluded in the income of the employees.

Accepted Answer

According to the IRS, meals provided by an employer to employees for their convenience on the employer's premises are excluded from the employees' income as a de minimis fringe benefit. Therefore, the statement is true.

Question 7

On her 18th birthday,Patti's grandfather gave her $8,000 of dividends on stock he owned,which she uses to pay college expenses.The cost of Patti's tuition,fees,and books is $6,000.Patti's gross income from this event is:

Accepted Answer

The answer of On her 18th birthday,Patti's grandfather gave her...

Question 8

On April 1,Sally is given $20,000 worth of City of Boise bonds for her 18^th birthday.On June 30,Sally receives the $800 annual interest payment on the bonds.How much income should Sally recognize due to these two events?

Accepted Answer

The answer of On April 1,Sally is given $20,000 worth...

Question 9

No-additional-cost services and employee discounts must be made available to employees on a nondiscriminatory basis and must also be in the same line of business in which the employee works to be excluded from the employee's income.

Accepted Answer

This is stated in IRS regulations regarding fringe benefits. No-additional-cost services (such as free flights for airline employees) and employee discounts must be provided on a nondiscriminatory basis and must relate to the same line of business as the employee works in order to be excluded from the employee's income for tax purposes.

Question 10

Gifts received are not subject to income taxation; however the donor is subject to the gift tax rules on the making of a gift.

Accepted Answer

This is true under US tax law. Gifts received are not taxed as income, but the person making the gift may be subject to gift tax rules.

Question 11

Any income earned subsequent to the death of the decedent from inherited property is excludable from the heir's taxable income.

Accepted Answer

Income earned from inherited property is generally taxable, unless it falls under certain exceptions such as income from life insurance proceeds or certain retirement accounts.

Question 12

Melvin was in an accident which was the other driver's fault.Melvin received $15,000 for pain and suffering,emotional distress,and lost wages.Melvin may exclude the entire $15,000.

Accepted Answer

Compensation received for physical injuries or illness, including pain and suffering, is generally not taxable. Therefore, Melvin may exclude the entire $15,000 from his taxable income. The same is true for compensation received for emotional distress related to the physical injury. Lost wages, however, are typically taxable as they would have been included in Melvin's taxable income if he had earned them as regular income.

Question 13

Patrick ran up a large credit card debt.Since the bank wanted to keep Patrick's account they forgave $5,000 of his balance.Patrick was solvent before and after the forgiveness.He has to include the $5,000 in his income.

Accepted Answer

According to the IRS, any debt forgiveness over $600 must be reported as income for tax purposes. Therefore, Patrick must include the $5,000 forgiven balance as income on his taxes, even though it helped him become solvent.

Question 14

Connie received a $1,000 scholarship to attend State University from a local civic group based on her grades and community activities.The $1,000 is included in income.

Accepted Answer

Scholarships received for tuition and fees required for enrollment or attendance at an educational institution, or for books, supplies, and equipment required for courses at the educational institution, are not taxable and therefore not included in income.

Question 15

When Rick found out that Ryan's liabilities exceeded his assets by $15,000,he forgave Ryan the $1,000 he owed Rick in hoping that Ryan might get back on his feet.Ryan is allowed to exclude the $1,000 from income.

Accepted Answer

When debt is forgiven, it is usually considered taxable income. However, in this case, Rick forgave the debt out of generosity, not as part of a business transaction. Therefore, Ryan is allowed to exclude the $1,000 from income under the "gift exclusion" rule.

Question 16

Matt,a U.S.citizen,can exclude all of his $110,000 salary he earned as a bullfighter in Spain where he lived all year,from his U.S.tax return.

Accepted Answer

While Matt may qualify for the foreign earned income exclusion, the maximum exclusion amount for 2019 is $105,900. Therefore, he would not be able to exclude all of his $110,000 salary from his U.S. tax return.

Question 17

Systech offered its stockholders a choice between stock and cash for their annual dividend.Since Carol has chosen stock,she does not have to include the dividend in income.

Accepted Answer

Regardless of whether a stockholder chooses to receive their dividend in cash or stock, the dividend is still considered taxable income and must be reported on their tax return. Choosing to receive the dividend in stock instead of cash does not exempt the stockholder from reporting it as income.

Question 18

Health Savings Accounts are available only to self-employed individuals or small businesses.

Accepted Answer

Health Savings Accounts (HSAs) are available to anyone with a qualified high-deductible health plan (HDHP), regardless of employment status or business size. However, there are certain eligibility requirements and contribution limits that apply.

Question 19

On April 1,Sally is given $20,000 worth of General Motors bonds for her 18^th birthday.On June 30,Sally receives the $800 annual interest payment on the bonds.How much income should Sally recognize due to these two events?

Accepted Answer