Question 1

Sandra directed her employer to withhold $500 of her wages each month for deposit to her mother's checking account.Which of the following concepts,constructs,or doctrines is the least helpful in determining how Sandra should report the arrangement for tax purposes?

Accepted Answer

The ability-to-pay concept is not helpful in determining how Sandra should report the arrangement for tax purposes since it is a general principle of taxation that relates to the fairness and equity of tax laws, rather than the specific reporting requirements for this situation. The other concepts, constructs, or doctrines are all directly relevant to determining how Sandra should report the arrangement for tax purposes. The assignment of income doctrine, for example, would require Sandra to report the income as her own, rather than her mother's, since she is the one who earned it. The claim of right doctrine would require her to report the income in the year in which she had an unrestricted right to it, even if she didn't actually receive it until later. The all-inclusive income concept would require her to report all sources of income, including the amount she directed her employer to withhold each month. The constructive receipt doctrine would require her to report the income as soon as it was made available to her, even if she didn't actually receive it until later.

Question 2

On December 20,2017,Thomas,the CEO of Lifetime Corporation issues a $10,000 bonus check to Ana Maria.Thomas asks Ana Maria to hold the check until at least January 4,2018,when there will be enough deposits to cover the check.Ana Maria is not required to recognize the $10,000 in 2017 because of which of the following?

Accepted Answer

The answer of On December 20,2017,Thomas,the CEO of Lifetime Corporation...

Question 3

Deduction concepts need to resolve certain questions.Some of these are:
I.How much is deductible?
II.When can the deduction be taken?
III.What types of expenditures are deductible?
IV.What entity is entitled to the deduction?
​

Accepted Answer

All four statements are correct as they represent fundamental questions that need to be addressed when considering deduction concepts in taxation. These include determining the amount that can be deducted, the timing of the deduction, the nature of the expenditures that qualify for deductions, and the entity that is eligible to claim the deduction.

Question 4

Deduction concepts include which of the following?
I.Capital Recovery Concept.
II.Legislative Grace Concept.
III.Business Purpose Concept.
IV.Ability to Pay Concept.
​

Accepted Answer

Deduction concepts include Capital Recovery Concept (Statement I), Legislative Grace Concept (Statement II), and Business Purpose Concept (Statement III). The Ability to Pay Concept (Statement IV) is not a deduction concept, it is a principle of taxation. Therefore, statements I, II, and III are correct but statement IV is not, making D the correct answer.

Question 5

Arnold sells a parcel of investment real estate to Oswald for $600,000 in 2017.Arnold will receive $200,000 annually,plus interest at 8%,from 2018 through 2020.Arnold will recognize no gross income on this sale in 2017.Which of the following determines this treatment?

Accepted Answer

The wherewithal-to-pay concept allows income recognition to be deferred until the taxpayer has the means to pay the tax, which applies here as Arnold receives payments over time.

Question 6

In which of the following will the Constructive Receipt Doctrine require reporting income in 2016?
I.Cornell's December 2017 salary check is withheld until January 15,2018,because the employer does not have sufficient cash to cover its December payroll.
II.Donnie is an employee of Holt Corporation.The corporation regularly mails payroll checks to employees to arrive on or before the last day of each month.Donnie's check arrives in the mail at his house on December 31,2017.However,Donnie was vacationing in Cancun and did not return until January 8,2018.Donnie deposited the check into his account the next day.
III.In December 2017,Cory signs a contract to play basketball for the Rhythms.He receives a signing bonus of $2,000,000 to be paid over 5 years beginning in 2018.His regular salary of $800,000 will be paid monthly during the season that begins in 2018.
​

Accepted Answer

The Constructive Receipt Doctrine requires income to be reported when it is made available to the taxpayer without substantial limitations. In statement II, Donnie's check was available to him on December 31, 2017, even though he did not physically receive it until January 2018. Therefore, it must be reported as income for 2017.

Question 7

Tyrone sells his personal-use car that had cost $15,000 for $10,000.Why is the loss realized on this transaction disallowed as a deduction?
I.Legislative Grace is lacking.
II.Personal losses are disallowed.
III.Business purpose is lacking.
​

Accepted Answer

The answer of Tyrone sells his personal-use car that had...

Question 8

The primary difference(s)between the claim-of-right doctrine and the constructive receipt doctrine is/are
I.Claim of right applies when the taxpayer has not yet physically received an item of income.
II.Constructive receipt applies after the taxpayer has received an item of income.
​

Accepted Answer

The claim-of-right doctrine applies when a taxpayer has received income and has an unrestricted right to it, even if they choose not to use or spend it. Constructive receipt applies when income is made available to a taxpayer without restrictions, even if not physically in possession. Both statements as presented are incorrect in describing these doctrines.

Question 9

Silvia is a single individual who has income of $80,000.Todd is a single individual who has income of $35,000.Neither of them itemizes their deductions.Both taxpayers will take a standard deduction of $6,300 in 2016.The concept that allows both Silvia and Todd to take this deduction is

Accepted Answer

The standard deduction is a deduction provided for administrative convenience. It allows taxpayers to simply claim a set deduction amount without needing to go through the time and effort of itemizing their deductions.

Question 10

Occasionally,realized gains are not recognized for tax purposes.These situations occur because
I.certain gains are excluded due to legislative grace.
II.gains are deferred on certain types of property transactions where the wherewithal-to-pay the tax resulting from the transaction is lacking.
​

Accepted Answer

Both statements are correct. Legislative grace may exclude certain gains from being recognized for tax purposes, such as gains on the sale of a personal residence that meet certain criteria. Additionally, gains may be deferred on certain types of transactions, such as like-kind exchanges of property, if the taxpayer does not have the wherewithal to pay the resulting tax.

Question 11

Deduction concepts and constructs include which of the following?
I.Legislative Grace Concept.
II.Business Purpose Concept.
​

Accepted Answer

Deduction concepts and constructs include both the Legislative Grace Concept and the Business Purpose Concept. The Legislative Grace Concept refers to the idea that tax laws are a result of legislative action and not just some inherent obligation of citizens to pay taxes. The Business Purpose Concept refers to the idea that deductions must have a legitimate business purpose in order to be allowed. Therefore, both statements are correct.

Question 12

Tax law generally disallows deductions for personal expenditures.However,due to legislative grace,there are certain exceptions to this general provision of tax law.These exceptions include
I.Itemized Deductions.
II.Standard Deduction amount.
III.Personal Exemption amounts.
IV.Dependency Exemption amounts.
​

Accepted Answer

The answer of Tax law generally disallows deductions for personal...

Question 13

A corporation is allowed to deduct all of its ordinary and necessary business expenses.Which of the following Concepts is least helpful in determining this treatment?

Accepted Answer

The All-inclusive Income Concept, which requires corporations to include all income earned during the tax year, is not directly related to the deduction of business expenses. The Entity Concept establishes the legal distinction between the corporation and its owners, while the Capital Recovery Concept allows corporations to recover the cost of capital assets over time through depreciation or amortization. The Legislative Grace Concept recognizes that deductions are only allowed because they are specifically authorized by the tax code, and the Business Purpose Concept requires that deductions be related to the corporation's profit-seeking activities.

Question 14

Alexis,a cash basis contractor,builds a storage building for Jones.The building is completed,and the bill is given to Jones.Jones pays $60,000 in 2017.Subsequently,Jones files suit for damages based on alleged faulty construction.Alexis required to recognize $60,000 of income in 2017 based upon
I.Constructive Receipt Doctrine.
II.Claim-of-right Doctrine.
​

Accepted Answer

The claim-of-right doctrine applies because Alexis received the payment without restriction, despite the subsequent lawsuit.

Question 15

It was stated in the text that realized gains from certain types of transactions (e.g. ,like-kind exchanges)are deferred for recognition in a future period.The basis of this treatment is the
I.Annual Accounting Period Concept.
II.Legislative Grace Concept.
III.Wherewithal-to-Pay Concept.
IV.Capital Recovery Concept.
​

Accepted Answer

The Legislative Grace Concept is applicable as it is a result of a tax law provision that defers the recognition of gains from like-kind exchanges to a future period. The Wherewithal-to-Pay Concept is also relevant as it allows taxpayers to defer recognizing gains until they have the financial resources to do so. The Annual Accounting Period Concept and Capital Recovery Concept, on the other hand, are not directly related to the deferral of gains from like-kind exchanges.

Question 16

Guzman Corporation has its expenditure of $700,000 for salary to its president and sole shareholder disallowed as a deduction by the IRS.Comparable salaries for presidents of similarly sized firms in the same industry average $300,000.The IRS reclassified $400,000 as a nondeductible cash dividend.Which of the following form the basis for the IRS disallowance?
I.Lack of Business Purpose.
II.Administrative Convenience Concept.
III.Capital Recovery Concept.
IV.Substance over Form Doctrine.
​

Accepted Answer

Statement I is correct because the IRS may disallow a deduction if it determines that there was no valid business reason for the payment.
Statement IV is correct because the Substance over Form Doctrine allows the IRS to reclassify a transaction to its true substance for tax purposes, regardless of how it may have been portrayed by the parties involved.
Statement II is incorrect because the Administrative Convenience Concept is not relevant to this case as it relates to the convenience of the taxpayer in choosing a particular method of accounting.
Statement III is incorrect because the Capital Recovery Concept is not relevant to this case as it relates to the recovery of a taxpayer's investment in property, not salary payments to an individual.

Question 17

Beth is an accrual basis taxpayer.A renter pays Beth the January 2018 rent in December 2017.What are the tax effects of this transaction?
I.Beth will recognize rent income in 2017.
II.The wherewithal-to-pay concept requires Beth to recognize the income in 2017.
​

Accepted Answer

Statement I is correct because Beth is an accrual basis taxpayer, which means that income is recognized when it is earned, regardless of when it is actually received. In this case, the January 2018 rent was earned in December 2017 when the renter paid it.

Statement II is correct because the wherewithal-to-pay concept requires that income be recognized in the year in which the taxpayer has the ability to pay the tax on that income. In this case, Beth received the rent payment in December 2017, which means she has the ability to pay the tax on that income in 2017. Therefore, she must recognize the income in 2017.

Question 18

Jane owns 100% of the stock of Lacy Corporation.Jane's son,Lee,is employed by Lacy Corporation as a consultant.Which of the following concepts or doctrines is least helpful in determining the tax consequences of any payments Lacy makes to Lee?

Accepted Answer

The Entity Concept is least helpful in this context because it primarily deals with the distinction between the business entity and its owners for legal and tax purposes, rather than the specifics of transactions between the company and its employees or consultants. The other options (Arm's-Length Transaction Concept, Substance Over Form Doctrine, Assignment of Income Doctrine, and Business Purpose Concept) are more directly relevant to analyzing the tax implications of payments made to an employee or consultant, especially in situations involving related parties.

Question 19

Mario is an employee of Flores Company.The company regularly pays its employees by direct deposit on or before the last day of each month.Mario's regular paycheck is deposited on December 31,2017,but Mario was away on vacation and didn't return until January 15,2018.The gross amount of the check is included in Mario's 2017 income.Which of the following concepts or doctrines best explains this treatment?

Accepted Answer

The Constructive Receipt Doctrine states that income is taxable when it is made available to the taxpayer, regardless of whether it is actually received. Mario's paycheck was deposited and available to him on December 31, 2017, thus it is included in his 2017 income.

Question 20

When Kerri filed her 2017 tax return on April 15,2018,she did not include a $2,000 bonus received from her employer on January 10,2018relating to her work performance during 2017.What concept,construct,or doctrine supports Kerri's actions?

Accepted Answer

The Constructive Receipt Doctrine requires income to be reported in the year in which it is constructively received, which means when it is made available and within the taxpayer's control, even if not physically received. In this case, the bonus was made available to Kerri on January 10, 2018, and should have been included as income on her 2017 tax return.

Quiz 2: Income Tax Concepts

Sandra directed her employer to withhold $500 of her wages each month for deposit to her mother's checking account.Which of the following concepts,constructs,or doctrines is the least helpful in determining how Sandra should report the arrangement for tax purposes?

Deduction concepts need to resolve certain questions.Some of these are: I.How much is deductible? II.When can the deduction be taken? III.What types of expenditures are deductible? IV.What entity is entitled to the deduction?

Deduction concepts include which of the following? I.Capital Recovery Concept. II.Legislative Grace Concept. III.Business Purpose Concept. IV.Ability to Pay Concept.

Arnold sells a parcel of investment real estate to Oswald for $600,000 in 2017.Arnold will receive $200,000 annually,plus interest at 8%,from 2018 through 2020.Arnold will recognize no gross income on this sale in 2017.Which of the following determines this treatment?

Tyrone sells his personal-use car that had cost $15,000 for $10,000.Why is the loss realized on this transaction disallowed as a deduction? I.Legislative Grace is lacking. II.Personal losses are disallowed. III.Business purpose is lacking.

The primary difference(s) between the claim-of-right doctrine and the constructive receipt doctrine is/are I.Claim of right applies when the taxpayer has not yet physically received an item of income. II.Constructive receipt applies after the taxpayer has received an item of income.

Silvia is a single individual who has income of $80,000.Todd is a single individual who has income of $35,000.Neither of them itemizes their deductions.Both taxpayers will take a standard deduction of $6,300 in 2016.The concept that allows both Silvia and Todd to take this deduction is

Occasionally,realized gains are not recognized for tax purposes.These situations occur because I.certain gains are excluded due to legislative grace. II.gains are deferred on certain types of property transactions where the wherewithal-to-pay the tax resulting from the transaction is lacking.

Deduction concepts and constructs include which of the following? I.Legislative Grace Concept. II.Business Purpose Concept.

A corporation is allowed to deduct all of its ordinary and necessary business expenses.Which of the following Concepts is least helpful in determining this treatment?

Beth is an accrual basis taxpayer.A renter pays Beth the January 2018 rent in December 2017.What are the tax effects of this transaction? I.Beth will recognize rent income in 2017. II.The wherewithal-to-pay concept requires Beth to recognize the income in 2017.

Jane owns 100% of the stock of Lacy Corporation.Jane's son,Lee,is employed by Lacy Corporation as a consultant.Which of the following concepts or doctrines is least helpful in determining the tax consequences of any payments Lacy makes to Lee?

When Kerri filed her 2017 tax return on April 15,2018,she did not include a $2,000 bonus received from her employer on January 10,2018relating to her work performance during 2017.What concept,construct,or doctrine supports Kerri's actions?

Quiz 2: Income Tax Concepts

Sandra directed her employer to withhold $500 of her wages each month for deposit to her mother's checking account.Which of the following concepts,constructs,or doctrines is the least helpful in determining how Sandra should report the arrangement for tax purposes?

Deduction concepts need to resolve certain questions.Some of these are: I.How much is deductible? II.When can the deduction be taken? III.What types of expenditures are deductible? IV.What entity is entitled to the deduction? ​

Deduction concepts include which of the following? I.Capital Recovery Concept. II.Legislative Grace Concept. III.Business Purpose Concept. IV.Ability to Pay Concept. ​

Arnold sells a parcel of investment real estate to Oswald for $600,000 in 2017.Arnold will receive $200,000 annually,plus interest at 8%,from 2018 through 2020.Arnold will recognize no gross income on this sale in 2017.Which of the following determines this treatment?

Tyrone sells his personal-use car that had cost $15,000 for $10,000.Why is the loss realized on this transaction disallowed as a deduction? I.Legislative Grace is lacking. II.Personal losses are disallowed. III.Business purpose is lacking. ​

The primary difference(s) between the claim-of-right doctrine and the constructive receipt doctrine is/are I.Claim of right applies when the taxpayer has not yet physically received an item of income. II.Constructive receipt applies after the taxpayer has received an item of income. ​

Silvia is a single individual who has income of $80,000.Todd is a single individual who has income of $35,000.Neither of them itemizes their deductions.Both taxpayers will take a standard deduction of $6,300 in 2016.The concept that allows both Silvia and Todd to take this deduction is

Occasionally,realized gains are not recognized for tax purposes.These situations occur because I.certain gains are excluded due to legislative grace. II.gains are deferred on certain types of property transactions where the wherewithal-to-pay the tax resulting from the transaction is lacking. ​

Deduction concepts and constructs include which of the following? I.Legislative Grace Concept. II.Business Purpose Concept. ​

A corporation is allowed to deduct all of its ordinary and necessary business expenses.Which of the following Concepts is least helpful in determining this treatment?

Beth is an accrual basis taxpayer.A renter pays Beth the January 2018 rent in December 2017.What are the tax effects of this transaction? I.Beth will recognize rent income in 2017. II.The wherewithal-to-pay concept requires Beth to recognize the income in 2017. ​

Jane owns 100% of the stock of Lacy Corporation.Jane's son,Lee,is employed by Lacy Corporation as a consultant.Which of the following concepts or doctrines is least helpful in determining the tax consequences of any payments Lacy makes to Lee?

When Kerri filed her 2017 tax return on April 15,2018,she did not include a $2,000 bonus received from her employer on January 10,2018relating to her work performance during 2017.What concept,construct,or doctrine supports Kerri's actions?

Deduction concepts need to resolve certain questions.Some of these are: I.How much is deductible? II.When can the deduction be taken? III.What types of expenditures are deductible? IV.What entity is entitled to the deduction?

Deduction concepts include which of the following? I.Capital Recovery Concept. II.Legislative Grace Concept. III.Business Purpose Concept. IV.Ability to Pay Concept.

Tyrone sells his personal-use car that had cost $15,000 for $10,000.Why is the loss realized on this transaction disallowed as a deduction? I.Legislative Grace is lacking. II.Personal losses are disallowed. III.Business purpose is lacking.

The primary difference(s) between the claim-of-right doctrine and the constructive receipt doctrine is/are I.Claim of right applies when the taxpayer has not yet physically received an item of income. II.Constructive receipt applies after the taxpayer has received an item of income.

Occasionally,realized gains are not recognized for tax purposes.These situations occur because I.certain gains are excluded due to legislative grace. II.gains are deferred on certain types of property transactions where the wherewithal-to-pay the tax resulting from the transaction is lacking.

Deduction concepts and constructs include which of the following? I.Legislative Grace Concept. II.Business Purpose Concept.

Beth is an accrual basis taxpayer.A renter pays Beth the January 2018 rent in December 2017.What are the tax effects of this transaction? I.Beth will recognize rent income in 2017. II.The wherewithal-to-pay concept requires Beth to recognize the income in 2017.