Ferris inherited State of Florida general-purpose bonds worth $2,400 from his grandfather in 2016. He received $120 interest on the bonds in 2016, 2017 and 2018. 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 2018 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 2016. He received $120 interest on the bonds in 2016, 2017 and 2018. 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 2018 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 (Statement I) is applicable in this scenario since Ferris inherited the general-purpose bonds and can exclude the value of the bonds received and the bond interest from his income.

The Legislative Grace Concept (Statement II) is also relevant as the exclusion of the bond value and interest income is allowed by the tax laws passed by the legislature.

The Constructive Receipt Doctrine (Statement III) is not explicitly relevant here since Ferris received the interest income in the same year it was earned. However, if he had the option to receive the interest in a later year but chose not to, then the doctrine would be applicable.

The Realization Concept (Statement IV) is relevant in this case since Ferris realized a capital gain of $300 when he sold the bonds. This gain is included in his gross income in 2018, according to tax law.

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