Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2015.He received $120 interest on the bonds in 2015,2016,and 2017.In 2017,he sells the bonds for a gain of $300.Ferris excludes the value of the bonds received and the bond interest,but must include a $300 capital gain in his 2017 gross income.Which of the following Concepts,Constructs,and/or Doctrines form the basis for this treatment?
I.Capital Recovery Concept
II.Legislative Grace Concept
III.Constructive Receipt Doctrine
IV.Realization Concept

Question

Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2015.He received $120 interest on the bonds in 2015,2016,and 2017.In 2017,he sells the bonds for a gain of $300.Ferris excludes the value of the bonds received and the bond interest,but must include a $300 capital gain in his 2017 gross income.Which of the following Concepts,Constructs,and/or Doctrines form the basis for this treatment?
I.Capital Recovery Concept
II.Legislative Grace Concept
III.Constructive Receipt Doctrine
IV.Realization Concept
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Quizplus · Accepted Answer

The Capital Recovery Concept is not applicable in this case because Ferris did not recover his initial investment in the bonds. The Legislative Grace Concept is not relevant either as it deals with tax exemptions, which are not present in this scenario.

The Constructive Receipt Doctrine is applicable as it states that income is taxable when it is made available to the taxpayer, regardless of whether or not they have physically received it. In this scenario, Ferris did not physically receive the gain on the bonds, but it is still taxable as it became available to him upon the sale of the bonds.

The Realization Concept is also applicable here as it states that income is taxable when there is a realization event, such as the sale of an asset. The gain on the sale of the bonds is a realization event that triggers the recognition of the capital gain in Ferris's gross income.

Therefore, statements I, II, and IV are correct, making option E the correct choice.

Ferris Inherited State of Florida General-Purpose Bonds Worth $2,400 from His