Started on Monday, 14 May 2012, 11:29 AM Completed on Time taken Grade Question1 Marks: 10 Internal Revenue Code Section

61 defines gross income for federal income tax purposes as all income except 15 items listed in Section 61. Choose one answer.
A. True B. False

Monday, 14 May 2012, 11:33 AM 3 mins 42 secs 100 out of a maximum of 100 (100%)

Section 61 defines gross income as all income including 15 listed items of income. This broad statement is modified by the phrase "except as otherwise provided" . There are many exceptions found in other sections of the Internal Revenue Code. Correct Marks for this submission: 10/10. Question2 Marks: 10 In anticipation of finalizing a divorce, Jack and Jill have lived apart for the entire taxable year. Both spouse have significant earned income ( greater than $500,000). They reside in California , a community property state. There no transfers between the spouses during the year. Choose one answer.

A. They cannot file a joint return based on the fact that they did no

B. Based on the application of community property law, the incom fedral income tax purposes. C. Both a. and b. are correct D. None of the above.

The general rules for allocating income to the members of the community are not followed on the income from personal services in the case of spouses who (a) live apart for the entire year, (b) do not file a joint return with each other, and (c) have no earned income transferred between them.

Correct Marks for this submission: 10/10. Question3 Marks: 10 Based on the realization concept articulated by the famous Supreme Court case Eisner v Macomber, a taxpayer does not report income when she receives non-cash property for the performance of services. Choose one answer.
A. True B. False

The receipt of value (cash or noncash) for the performance of services will usually cause gross income to be reported. Correct Marks for this submission: 10/10. Question4 Marks: 10 Malcolm's employer pays $40.00 / month towards group term life insurance offerring $50,000 of term life insurance coverage to Malcolm. Choose one answer.

A. For a full year Malcolm will report $480 ($40 x 12) of gro

B. Malcolm will report no gross income during the current ye

C. More information is needed to determine the reportable in D. None of the above GROUP TERM LIFE INSURANCE

Premiums paid by employers for group term life insurance can be excluded from gross income if certain requirements are met. An exclusion is permitted for premiums on the first $50,000 of group term life insurance

Correct Marks for this submission: 10/10. Question5 Marks: 10 Since the US income tax system uses a progressive grdauted rate structure, the amount of tax due will be the same regardless of which taxble year it is reported. Choose one answer.
A. True B. False

A progressive graduated rate structure can result in different marginal tax rates applying in different years. Gross income reported in a high income year could resulted in a greater tax liability than income reported in a low income year. Correct Marks for this submission: 10/10. Question6 Marks: 10 Davina's employer provides free lodging at employer owned apartments. Choose one answer.

A. Davina will report gross income equal to the rental value of the B. Davina reports no gross income. C. More information is necessary to answer the question.

It depends on who employs Davina ( special rules for educational institutions, churches and the military). The spacial facts of any employer could allow for exclusion based on satisfying a list of specific requirements including the requirement that the lodging be provided for the convenience of the employer.

Correct Marks for this submission: 10/10. Question7 Marks: 10 You overhear the following statement: "Here's a great way to minimize the income reported by a corporation compensating employees . Issue stock which is restricted by the condition that the employee gets nothing unless they work for the corporation for five years. Under IRC Section 83 the currently reported income is the fair amrket value of the stock multiplied by a % determined based on how many employees statay with the corporation for five years. If that % is 20% , the employee who will eventually own stock only reports 20% of the value of the stock. " IS THIS STATEMENT TRUE ? Choose one answer.
A. True B. False

Section 83 defers the reporting of income until the risk of forfeiture lapses. In this case that would be five years from issuance. The amount reported is the value on the date of the lapsing of the risk of forfeiture which in this case is the value five years after issuance. There is an election avialble to the employee ( Section 83(b)) but this election requires reporting of the full current fair market value at the date of issuance. Correct Marks for this submission: 10/10. Question8 Marks: 10 Joanna's employer offers a discount to Joanna for the purchase of inventory of the employer. Choose one answer.
A. Joanna must report that discount as gross income.

B. If Joannna's employer is in the business of selling condominiums, without reporting gross income. C. This discount is always tax free regardless of how large. D. b. and c. are correct. E. none of the above

Employee discounts on the purchase of inventory can be tax free but they are not available for real estate and cannot result in a purcahse price below the employer cost for the item. Correct Marks for this submission: 10/10. Question9 Marks: 10 For corporate taxpayers using the accrual method of accounting, gross income for federal income tax is always reported at the same time as income realized pursuant to generally accepted accounting principles. Choose one answer.
A.True B.False

There are important di reporting of income. O nor reported for financ tax purposes.

Correct Marks for this submission: 10/10. Question10 Marks: 10 Interest free loans by employers to employees Choose one answer.
A. Always result in no taxable income effect for te employee B. Never results in an increase in employee taxable income. C. Could result in an increase in employee taxable income. D. Always result in a decrease in employer taxable income.

Interest free loans by employers to employees usually resultin no taxable income affect for the employer ( imputed interest income offset by imputed compensation deduction). The employee could have a taxable income increase based on imputed compensation income but no deduction for the imputed interest expense. The key is how the boroowed finds are used. The use of the borrowed funds will determine whether the imputed interest is deductible. The details of deductiblity of intersst will be discussed later in the courese. Correct Marks for this submission: 10/10.