Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2011.He received $120 interest on the bonds in 2011,2012,and 2013.In 2013,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 2013 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

Quizplus · Accepted Answer

The Capital Recovery Concept is not applicable in this scenario. However, the Legislative Grace Concept applies as bonds are generally exempted income under the Code. The Constructive Receipt Doctrine applies as Ferris received the interest income even though he did not physically receive the funds. Finally, the Realization Concept applies as Ferris earned a capital gain when he sold the bonds, which he must report in his gross income for the year of the sale. Therefore, statements I, II, and IV are correct, making choice E the correct answer.

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