Exam 4: Gross Income: Concepts and Inclusions

Thelma and Mitch were divorced.The couple had a joint brokerage account that included stocks with a basis of $600,000 and a fair market value of $1,000,000.Under the terms of the divorce agreement,Mitch would receive the stocks and Mitch would pay Thelma $100,000 each year for 6 years,or until Thelma's death,whichever should occur first.Thelma and Mitch lived apart when the payments were made by Mitch.Mitch paid the $600,000 to Thelma over the six-year period.The divorce agreement did not contain the word "alimony." Then,Mitch sold the stocks for $1,300,000.Mitch's recognized gain from the sale is:

Under the original issue discount (OID) rules as applied to a three-year certificate of deposit:

Wayne owns a 30% interest in the capital and profits of Emerald Company (a calendar year partnership).For tax year 2017,the partnership earned revenue of $900,000 and had operating expenses of $660,000.During the year,Wayne withdrew from the partnership a total of $90,000.He also invested an additional $30,000 in the partnership.For 2017,Wayne's gross income from the partnership is:

After the divorce,Jeff was required to pay $18,000 per year to his former spouse,Darlene,who had custody of their child.Jeff's payments will be reduced to $12,000 per year in the event the child dies or reaches age 21.During the year,Jeff paid the $18,000 required under the divorce agreement.Darlene must include the $12,000 in gross income.

Fred is a full-time teacher.He has written a book and receives royalties from it.Fred's mother,Mabel,is age 65 and lives on her Social Security benefits and gifts from her son,Fred.This year Fred directed the publisher to make the royalty check payable to Mabel because she needs the money for support.Fred must include the amount of the royalty check in his gross income.

The annual increase in the cash surrender value of a life insurance policy:

On January 5,2017,Tim purchased a bond paying interest at 6% for $30,000.On March 31,2017,he gave the bond to Jane.The bond pays $1,800 interest on December 31.Tim and Jane are cash basis taxpayers.When Jane collects the interest in December 2017: ​

The amount of Social Security benefits received by an individual that he or she must include in gross income:

When stock is sold after the date of declaration but before the record date,the buyer must recognize as income the dividend declared.

Green,Inc.,provides group term life insurance for all of its employees.The coverage equals twice the employee's annual salary.Sam,a vice-president,worked all year for Green,Inc.,and received $200,000 of coverage for the year at a cost to Green of $1,500.The Uniform Premiums (based on Sam's age) are $.25 per month for $1,000 of protection.How much must Sam include in gross income this year?

A sole proprietorship purchased an asset for $1,000 in 2017 and its value was $1,500 at the end of 2017.In 2018,the sole proprietorship sold the asset for $1,400.The sole proprietorship realized a taxable gain of $400 in 2018 but an economic loss of $100 in 2018.

Tom,a cash basis taxpayer,purchased a bond on March 31 for $10,000,plus $100 accrued interest.In December,Tom collected $500 interest from the bond.Tom's interest income from the bond for the year is $500.

George and Erin are divorced,and George is required to pay Erin $20,000 of alimony each year.George earns $75,000 a year.Erin is required to include the alimony payments in gross income although George earned the income.

As a general rule: I.Income from property is taxed to the person who owns the property. II.Income from services is taxed to the person who earns the income. III.The assignee of income from property must pay tax on the income. IV.The person who receives the benefit of the income must pay the tax on the income.

Betty purchased an annuity for $24,000 in 2017.Under the contract,Betty will receive $300 each month for the rest of her life.According to the actuarial estimates,Betty will live to receive 96 payments and will receive a 3% return on her original investment.

Sarah,a widow,is retired and receives $20,000 interest income and dividends and $10,000 in Social Security benefits.Sarah is considering selling a stock at an $8,000 gain.What will be the increase in Sarah's gross income as a result of the sale of the stock?

An advance payment received in June 2017 by an accrual basis and calendar year taxpayer for services to be provided over a 36-month period can be spread over four tax years.

Debbie is age 67 and unmarried and her only sources of income are $200,000 in taxable interest and $20,000 of Social Security benefits.Debbie's adjusted gross income for the year is:

On December 1,2017,Daniel,an accrual basis taxpayer,collects $12,000 rent for December 2017 and $12,000 for January 2018.Daniel must include the $24,000 in 2017 gross income.

With respect to the prepaid income from services,which of the following is true?