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Exam 4: Gross Income: Concepts and Inclusions

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Question 41

True/False

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In the case of a gift loan of less than $100,000,the imputed interest rules apply if the donee has net investment income of over $1,000.

A) True
B) False

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Question 42

True/False

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In 2012,Juan,a cash basis taxpayer,was offered $3 million for signing a professional baseball contract.He counteroffered that he would receive $900,000 per year for 4 years beginning in 2013.The team accepted the counteroffer.Juan constructively received $3 million in 2012.

A) True
B) False

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Question 43

Multiple Choice

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Sarah,a majority shareholder in Teal,Inc.,made a $200,000 interest-free loan to the corporation.Sarah is not an employee of the corporation.

Jim and Nora,residents of a community property state,were married in early 2010.Late in 2010 they separated,and in 2012 they were divorced.Each earned a salary,and they received income from community owned investments in all relevant years.They filed separate returns in 2010 and 2011.

In the case of a below-market loan between family members,if the imputed interest rules apply,which of the following is not true?

On December 1,2012,Daniel,an accrual basis taxpayer,collects $12,000 rent for December 2012 and $12,000 for January 2013.Daniel must include the $24,000 in 2012 gross income.

On January 1,2012,an accrual basis taxpayer entered into a contract to provide termite inspection service each month for 36 months.The amount received for the contract was $2,400.The taxpayer should report $1,600 of income in 2013.

Ralph purchased his first Series EE bond during the year.He paid $709 for a 10-year bond with a $1,000 maturity value.The yield to maturity on the bonds was 3.5%.Ralph is not required to recognize the $291 ($1,000 - $709)original issue discount until the bond matures.However,Ralph can elect to amortize the discount over the ten-year period.

Father made an interest-free loan of $25,000 to Son who used the money to buy an SUV.If Son's investment income for the year is less than $1,000,Father is not required to impute interest income.

A sole proprietorship purchased an asset for $1,000 in 2012 and its value was $1,500 at the end of 2012.In 2013,the sole proprietorship sold the asset for $1,400.The sole proprietorship realized a taxable gain of $400 in 2013 but an economic loss of $100 in 2013.

Determine the proper tax year for gross income inclusion in each of the following cases.

Jake is the sole shareholder of an S corporation that earned $50,000 in 2012.The corporation was short on cash and therefore distributed only $15,000 to Jake in 2012.Jake is required to recognize $15,000 of income from the S corporation in 2012.

Terri purchased an annuity for $100,000.She was to receive $8,000 per year and her life expectancy was 20 years.She died after receiving 15 payments.Terri's final return should reflect a loss of $40,000 (5 payments not made ´ $8,000).

The B & W partnership earned taxable income of $100,000 for the year.Bryan is entitled to 50% of the profits,but Bryan withdrew only $40,000 during the year.Bryan must include in gross income his $50,000 share of the profits from the partnership.

Turner,Inc.,provides group term life insurance to the officers of the corporation only.Janet,a vice-president,received $400,000 of coverage for the year at a cost to Turner,Inc.of $5,600.The Uniform Premiums (based on Janet's age) are $15 a year for $1,000 protection.How much of this must Janet include in gross income this year?

Wayne owns a 25% interest in the capital and profits of Emerald Company (a calendar year partnership) .For tax year 2012,the partnership earned revenue of $900,000 and had operating expenses of $560,000.During the year,Wayne withdrew from the partnership a total of $90,000.He also invested an additional $20,000 in the partnership.For 2012,Wayne's gross income from the partnership is:

The effects of a below-market loan for $100,000 made by a corporation to its chief executive officer as an enticement to get him to remain with the company are:

Betty purchased an annuity for $24,000 in 2012.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.

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

The alimony rules: