Question 1

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.
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Accepted Answer

The legislative grace concept is applicable in deferring the recognition of gains from like-kind exchanges to a future period. The wherewithal-to-pay concept is also relevant in this case as the taxpayer may not have the resources to pay the taxes resulting from the gain at the time of the transaction. Finally, the capital recovery concept is also applicable as the gain is deferred until a future period when the taxpayer can recover their investment in the property. However, the annual accounting period concept is not applicable to this particular treatment of deferred gains.

Question 2

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. Certain gains are excluded due to legislative grace, such as the exclusion of up to $250,000 ($500,000 for married couples) of the gain on the sale of a principal residence. Gains can also be deferred on certain property transactions, such as like-kind exchanges, where the taxpayer does not receive cash or other property that could be used to pay the tax resulting from the transaction, thus allowing them to defer recognition of the gain until a later date when they may have the wherewithal to pay the tax.

Question 3

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 31,2016,but Mario was away on vacation and didn't return until January 15,2017.The gross amount of the check is included in Mario's 2016 income.Which of the following concepts or doctrines best explains this treatment?

Accepted Answer

This scenario is best explained by the Constructive Receipt Doctrine, which holds that income is taxable in the year the taxpayer has control over it, even if they do not physically possess it. Mario had the right to receive the paycheck on December 31, 2016, even though he was not physically present to receive it until January 15, 2017. Therefore, the gross amount of the check is included in Mario's 2016 income.

Question 4

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 5

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 provided for administrative convenience. It simplifies the tax filing process for taxpayers who do not have enough itemized deductions to justify itemizing.

Question 6

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 7

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

The disallowance by the IRS is based on the Lack of Business Purpose and Substance over Form Doctrine. The high salary paid to the sole shareholder and president of the company is seen as an attempt to shift income from the corporation to the individual, and therefore, lacks proper business purpose. The reclassification of $400,000 as a nondeductible cash dividend is based on the Substance over Form Doctrine, which allows the IRS to disregard the form of a transaction and consider its economic substance in determining the tax consequences. The Administrative Convenience Concept and Capital Recovery Concept are not applicable in this scenario.

Question 8

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 applicable in this scenario as it is a principle that relates to setting tax rates and determining a taxpayer's ability to pay taxes, rather than the reporting of income. The other concepts are relevant to determining how Sandra should report the arrangement for tax purposes. The assignment of income doctrine determines who is taxed on income earned, the claim of right doctrine addresses the timing of income recognition, the all-inclusive income concept requires reporting of all income, and the constructive receipt doctrine addresses income that is constructively received but not yet physically received.

Question 9

Beth is an accrual basis taxpayer.A renter pays Beth the January 2016 rent in December 2015.What are the tax effects of this transaction?
I.Beth will recognize rent income in 2015.
II.The wherewithal-to-pay concept requires Beth to recognize the income in 2015.
​

Accepted Answer

Beth, as an accrual basis taxpayer, must recognize income when it is earned or when she has the right to receive it, which is in 2015. The wherewithal-to-pay concept supports recognizing income when the taxpayer has the means to pay the tax, which is also in 2015 when she receives the rent.

Question 10

When Kerri filed her 2016 tax return on April 15,2017,she did not include a $2,000 bonus received from her employer on January 10,2017 relating to her work performance during 2016.What concept,construct,or doctrine supports Kerri's actions?

Accepted Answer

The answer of When Kerri filed her 2016 tax return...

Question 11

On December 20,2016,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 4,2017,when there will be enough deposits to cover the check.Ana Maria is not required to recognize the $10,000 in 2016 because of which of the following?

Accepted Answer

The answer of On December 20,2016,Thomas,the CEO of Lifetime Corporation...

Question 12

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

Accepted Answer

Both the Legislative Grace Concept and the Business Purpose Concept are integral to understanding deductions in tax law. The Legislative Grace Concept suggests that deductions are allowances by the government, not inherent rights, while the Business Purpose Concept requires that expenses must be ordinary and necessary for a business to be deductible.

Question 13

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

All four statements are examples of deduction concepts. The Capital Recovery Concept allows for the deduction of the cost of an asset over its useful life. The Legislative Grace Concept states that deductions are only allowed if explicitly allowed by the tax code. The Business Purpose Concept allows for deductions that are made for the purpose of earning income. The Ability to Pay Concept allows for deductions based on the taxpayer's ability to pay taxes.

Question 14

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 is not directly related to determining the deductibility of business expenses. It is a broader concept that suggests that all sources of income should be included in the taxpayer's gross income, regardless of their origin. The other concepts listed are more directly relevant to determining the treatment of business expenses.

Question 15

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 16

Arnold sells a parcel of investment real estate to Oswald for $600,000 in 2016.Arnold will receive $200,000 annually,plus interest at 8%,from 2017 through 2019.Arnold will recognize no gross income on this sale in 2016.Which of the following determines this treatment?

Accepted Answer

The Wherewithal-to-Pay Concept allows for deferral of income recognition until the taxpayer has the means to pay the tax, which applies here as Arnold receives payments over time.

Question 17

In which of the following will the Constructive Receipt Doctrine require reporting income in 2016?
I.Cornell's December 2016 salary check is withheld until January 15,2017,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 31,2016.However,Donnie was vacationing in Cancun and did not return until January 8,2017.Donnie deposited the check into his account the next day.
III.In December 2016,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 2017.His regular salary of $800,000 will be paid monthly during the season that begins in 2017.
​

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, 2016, even though he did not physically receive it until January 2017.

Question 18

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 19

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 20

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 2016.Subsequently,Jones files suit for damages based on alleged faulty construction.Alexis required to recognize $60,000 of income in 2016 based upon
I.Constructive Receipt Doctrine.
II.Claim-of-right Doctrine.
​

Accepted Answer

The Claim-of-right Doctrine applies here because Alexis received the $60,000 without restriction, and it was not contingent upon the outcome of the lawsuit. The Constructive Receipt Doctrine does not apply because Alexis actually received the payment.

Quiz 2: Income Tax Concepts

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.

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?

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

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.

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?

Beth is an accrual basis taxpayer.A renter pays Beth the January 2016 rent in December 2015.What are the tax effects of this transaction? I.Beth will recognize rent income in 2015. II.The wherewithal-to-pay concept requires Beth to recognize the income in 2015.

When Kerri filed her 2016 tax return on April 15,2017,she did not include a $2,000 bonus received from her employer on January 10,2017 relating to her work performance during 2016.What concept,construct,or doctrine supports Kerri's actions?

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

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

Arnold sells a parcel of investment real estate to Oswald for $600,000 in 2016.Arnold will receive $200,000 annually,plus interest at 8%,from 2017 through 2019.Arnold will recognize no gross income on this sale in 2016.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.

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?

Quiz 2: Income Tax Concepts

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. ​

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?

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

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. ​

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?

Beth is an accrual basis taxpayer.A renter pays Beth the January 2016 rent in December 2015.What are the tax effects of this transaction? I.Beth will recognize rent income in 2015. II.The wherewithal-to-pay concept requires Beth to recognize the income in 2015. ​

When Kerri filed her 2016 tax return on April 15,2017,she did not include a $2,000 bonus received from her employer on January 10,2017 relating to her work performance during 2016.What concept,construct,or doctrine supports Kerri's actions?

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

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

Arnold sells a parcel of investment real estate to Oswald for $600,000 in 2016.Arnold will receive $200,000 annually,plus interest at 8%,from 2017 through 2019.Arnold will recognize no gross income on this sale in 2016.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. ​

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? ​

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.

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.

Beth is an accrual basis taxpayer.A renter pays Beth the January 2016 rent in December 2015.What are the tax effects of this transaction? I.Beth will recognize rent income in 2015. II.The wherewithal-to-pay concept requires Beth to recognize the income in 2015.

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

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.

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?