Art has worked for Denver's Diamond Dealers (DDD) for ten years. During the current year, Art marries and moves from his downtown apartment to a house in the suburbs. Before he was married, Art always rode the bus to work. Because there is no bus service to his new home, Art needs to purchase a car. Wayne, the owner of DDD gives Art $17,000 to purchase a used car. Which of the following statements concerning the $17,000 payment is/are correct?
I.If DDD does not require Art to repay the $17,000, Art has $17,000 of compensation income.
II.If DDD requires Art to repay the $17,000, Art has no compensation income from the receipt of the $17,000.

Question

Art has worked for Denver's Diamond Dealers (DDD) for ten years. During the current year, Art marries and moves from his downtown apartment to a house in the suburbs. Before he was married, Art always rode the bus to work. Because there is no bus service to his new home, Art needs to purchase a car. Wayne, the owner of DDD gives Art $17,000 to purchase a used car. Which of the following statements concerning the $17,000 payment is/are correct?
I.If DDD does not require Art to repay the $17,000, Art has $17,000 of compensation income.
II.If DDD requires Art to repay the $17,000, Art has no compensation income from the receipt of the $17,000.
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Quizplus · Accepted Answer

If DDD does not require Art to repay the $17,000, Art has $17,000 of compensation income because it is a payment from his employer to cover a personal expense (buying a car). This is considered taxable income for Art. 
If DDD requires Art to repay the $17,000, Art would not have any compensation income as the payment was not a true gift or bonus from the employer, but instead a loan. Therefore, it would not be considered taxable income for Art.

Art Has Worked for Denver's Diamond Dealers (DDD) for Ten