Helen receives stock worth $1,000 from her grandfather as a graduation gift in May 2018 (her grandfather paid $100 for the stock many years ago). In December 2018, she receives a $100 cash dividend on the stock. Helen is not taxed on the value of the stock received in 2018, but she must include the $100 cash dividend in her 2018 gross income. Which of the following form the basis for this treatment?
I.Capital Recovery Concept.
II.Legislative Grace Concept.
III.All-inclusive Income Concept.
IV.Constructive Receipt Doctrine.

Question

Helen receives stock worth $1,000 from her grandfather as a graduation gift in May 2018 (her grandfather paid $100 for the stock many years ago). In December 2018, she receives a $100 cash dividend on the stock. Helen is not taxed on the value of the stock received in 2018, but she must include the $100 cash dividend in her 2018 gross income. Which of the following form the basis for this treatment?
I.Capital Recovery Concept.
II.Legislative Grace Concept.
III.All-inclusive Income Concept.
IV.Constructive Receipt Doctrine.
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Quizplus · Accepted Answer

The correct answer is based on the concepts of Legislative Grace and All-inclusive Income. The Legislative Grace Concept suggests that any tax benefits or exemptions (like not being taxed on the stock gift) are a result of specific tax legislation favoring the taxpayer. The All-inclusive Income Concept means that all income, unless specifically excluded by law, must be included in gross income, which explains why the $100 cash dividend is taxable.

Helen Receives Stock Worth $1,000 from Her Grandfather as a Graduation