Carlotta finds a chest inscribed "Sinbad" that contains $250,000 of cash while diving among the coral reefs off the Virgin Islands. The US Customs and the DEA deny knowledge of the cash, so Carlotta keeps it.
I.Carlotta would not recognize any gross income if the chest contained jewels valued at $250,000, rather than the cash.
II.Recognition is necessary because Carlotta has an increase in wealth.
III.Recognition will not occur because the windfall would not be considered as derived from capital or from labor.
IV.The All-inclusive Income Concept explains the recognition of the cash as income.

A)Only statement I is correct.
B)Only statement II is correct.
C)Only statements I and IV are correct.
D)Only statements I, II, and IV are correct.
E)Only statements II, III, and IV are correct.

Question

Carlotta finds a chest inscribed "Sinbad" that contains $250,000 of cash while diving among the coral reefs off the Virgin Islands. The US Customs and the DEA deny knowledge of the cash, so Carlotta keeps it.
I.Carlotta would not recognize any gross income if the chest contained jewels valued at $250,000, rather than the cash.
II.Recognition is necessary because Carlotta has an increase in wealth.
III.Recognition will not occur because the windfall would not be considered as derived from capital or from labor.
IV.The All-inclusive Income Concept explains the recognition of the cash as income.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Only statements I and IV are correct.
D)Only statements I, II, and IV are correct.
E)Only statements II, III, and IV are correct.

Quizplus · Accepted Answer

The All-inclusive Income Concept dictates that all increases in wealth are considered income, hence Carlotta must recognize the cash as income. This concept applies regardless of whether the increase comes from labor, capital, or even a windfall, contradicting statement III. Statement I is incorrect because the form of the treasure (cash or jewels) does not change the tax implications; both are considered income upon discovery.

Carlotta Finds a Chest Inscribed "Sinbad" That Contains $250,000 of Cash