Exam 3: Determining Gross Income

The installment method of income recognition is an application of the wherewithal to pay concept.

All government bonds are exempt from the application of the OID rules.

Which of the following doctrines does not affect the timing of income recognition for a cash basis taxpayer?

What are acceptable fiscal years for tax purposes?

Up to 85 percent of a person's Social Security benefits may be included in gross income.

Joseph's employer pays 70% of the premiums for a disability insurance policy and Joseph pays for the other 30%.The policy pays Joseph 60% of his normal salary in the event he is injured and cannot return to work for an extended period.Joseph was injured in an accident and was unable to work for several months.During the current year,Joseph collected $75,000 under his disability policy.How much does Joseph include in his gross income?

Elizabeth is the beneficiary of an $800,000 insurance policy on her husband's life.Elizabeth can elect to receive $165,000 per year for 5 years or received the entire $800,000 in a lump sum the first year.If she elects to receive the lump sum,how much is included in income in the first year.

William lives in Delaware but works for a company that has offices in both Maryland and Pennsylvania.William spent four months working in Pennsylvania and 8 months working in Maryland.

Explain the tax treatment of a gift loan.

In 2015,Potrus,an accrual basis corporate taxpayer,received a $40,000 advance for a series of eight lectures by various employees for the Art Institute.After delivering five lectures,the series was cancelled for poor attendance.Potrus refused to return any of the advance payment,so the Art Institute sued.In 2016,Potrus was ordered by the court to repay $15,000.Potrus's net income was $426,000 in 2014 and $298,000 in 2015.How should Potrus treat the repayment to obtain the best tax result?

The completed contract method requires income to be recognized annually based on the costs incurred in that year.

A nonresident alien can only file a joint return with a United States citizen or resident if they both agree to be taxed on their worldwide income.

Qualified dividends are dividends that are eligible for the reduced tax rates for dividend income.

When income is taxed in a different period than it is accrued for financial accounting,there is a timing difference.

What is the purpose of the original issue discount rules?

How is the return of capital principle related to basis?

How does an alien achieve residency status for taxation in the United States?

The completed contract method allows the taxpayer to defer taxes on the contract income.

Naomi was the beneficiary of a $100,000 insurance policy on her mother who died in January 2015.It took the insurance company several months to make the payment so she received $100,206 in May 2015.She was a joint tenant on a bank account with her mother.She inherited the $14,000 in the account that had all been deposited by her mother.After a long battle with her medical insurance company,Naomi received a $7,000 reimbursement in 2015 for an operation that she underwent in 2013.As a result of her high medical expenses,she was able to claim $7,000 in itemized deductions on her 2013 tax return rather than taking the $6,100 standard deduction.What are Naomi's taxable income items from these events for 2015?

Why do tax accounting principles differ from GAAP?