Aem 4940.2 Chapter 5 Gross Income:exclusions P1

Front 1

What is required to exclude an item from gross income?

Back 1

Statutory Authority

Statutory authority for excluding certain items from gross income is provided in SS 101 through 150 of the IRC

Front 2

Are receipts of gifts and inheritances required to include it in their gross income?

Back 2

No

Front 3

If you receive a gift or inheritance and it generates income, are you required to include this income in your gross income?

Back 3

Yes

Front 4

The issue of whether a gift has occurred lies on?

Back 4

the Donor's intent.

Considering, that it is to done without exchange of consideration and out of affection or love

Front 5

Can an employer transfer cash to employee as a gift?

Back 5

No

This prevents employers hiding wages as "gifts." Congress has eliminated any ambiguity

Front 6

When an employer makes payments to a deceased employee's surviving spouse, children, or other beneficiaries, a fundamental question must be resolved?

Back 6

Do the payments represent compensation for prior services rendered or are they gifts?

Front 7

When an employer makes payments to a deceased employee's surviving spouse, children, or other beneficiaries, what has the IRS consider such payments?

Back 7

Compensation for prior services.

In some situation, they side with gifts.

Front 8

Are life insurance proceeds received as a result of death exempt from gross income?

Back 8

Yes

Front 9

If you cancel a life insurance policy, what is the subsequent receipt of cash treated like?

What two situations would provide exceptions?

Back 9

An Investment, and thus you must report the cash received in excess of premiums paid as a gain.

1. Terminally Ill
2. Chronically Ill

Front 10

In the accelerated death benefits for terminally ill, must a gain be realized by the recipient or a third party on the life insurance surrender value?

Back 10

No

Front 11

In the accelerated death benefits provisions, are gains recognized on the excess on premiums for the CHRONICALLY ill?

Back 11

No, BUT! You must be using the proceeds for long term care of the insured.

Front 12

Is a loss on the surrender value of a life insurance policy deductible?

Back 12

No

Front 13

If you are terminally ill, a doctor must reasonably expect the illness to cause death within?

Back 13

24 Months

Front 14

If you purchase a life insurance policy from Carol for $6 and she dies and you receive $10. What amount can you exclude from your gross income?

Back 14

$6

This is how much you paid to acquire the insurance, thus it is simply a return of capital.

Front 15

Explain why a partnership in which the insured is a partner, is one of the four exclusion to the "transfer for valuable consideration" rule

Back 15

Rick and Sam are partners, they both buy life insurance on their own lives. They exchange it their life insurance policies in the event that one dies, the other would be able to buy out the others interest.

Marriage & Corporation follow the premise of this rule and are two more exceptions

Front 16

When you collect insurance proceeds in installments, you use the ____?_____ ____?____ learned in Chapter 4 to apportion the installment payments

Back 16

Annuity Rules

The principal element is excludable from income while the interest portion is includible in income.

Front 17

If you receive a scholarship or fellowship and it's for past, present or future service, is it taxable?

Back 17

It is generally taxable, if it is to represent compensation for service.

Front 18

Are scholarships compensation for services or gifts?

Back 18

No, scholarships are neither

Front 19

Must you be a student to have a scholarship for study excluded from your gross income?

Back 19

Yes

Front 20

Are related expenses (fees, books, supplies, and equipment required) excludible from gross income if paid by a scholarship?

Back 20

Yes

Front 21

Are amounts received for room and board excludible from gross income?

Back 21

No

Front 22

Room and Board scholarship portion is considered...?

Back 22

Earned Income

Front 23

You received a scholarship for $2,500 to cover room and board and you're a dependent. Do you have gross income?

Back 23

No

You standard deduction is the greater of $900 or Earned Income + $300. Which is $2,800 and thus you have no income.

Remember that scholarship money for room and board is considered to be EARNED income.

Front 24

If you cannot determine the value of a scholarship when given, the transaction is said to be held __?__

Back 24

Open

The transaction is held open until the educational expenses are paid.

Front 25

If scholarships are made to key employee's children, this is an example of __?__ ___?___ and is taxable income to___?_____

Back 25

1. Disguised Compensation
2. Parent-Employee

Front 26

An employee of a nonprofit educational institution may exclude from gross income the tuition waiver if the waiver is pursuant to a?

Back 26

Qualified Tuition Reduction Plan

Front 27

Reimbursement for the loss of income is taxed in what manner?

Back 27

It is taxed the same as the income that is replaced.

Front 28

Payment for damaged or destroyed property is treated as ____?_____ if the proceeds received exceed the property's basis.

Back 28

Income

Front 29

In terms of personal injury damages, a distinction is between what?

Back 29

1. Compensatory Damages
2. Punitive Damages

Front 30

Can compensatory damages be excluded gross income?

Back 30

Under specified circumstances

Front 31

Can punitive damages be excluded from gross income?

Back 31

NEVER

Front 32

Compensatory damages are intended to compensate the taxpayer for the ___?___ ____?_____

Back 32

Damages Incurred

Front 33

Are worker's compensation benefits included in gross income?

Back 33

No

Front 34

Under what circumstance are accident and health insurance benefits excludable from gross income?

Back 34

When the premiums are paid by the taxpayer

Front 35

Your employer pays for accident and health insurance, disability insurance and long term care for its employees.

Must you include a portion of this in your gross income?

Back 35

No

This amount is deductible by the employer

Front 36

Your employer pays for accident and health insurance, disability insurance and long term care for its employees.

Must you include benefits received from such plans in your gross income?

Back 36

Yes

Remember, you did not pay for these services and you have no capital to be returned. Thus, this amount is fully taxable.

Front 37

If you do not spend the entirety of your scholarship for eligible expenses, what happens to the remainder?

Back 37

It is included in your gross income

Front 38

A person who suffers harm caused by another is often entitled to?

Back 38

Compensatory Damages

Front 39

Are recovery of expenses included in income?

Back 39

No

Unless, the expense was deducted. The reasoning lies in that you probably paid taxes on the expense, so recovery of expense will be received tax free.

Front 40

Only those compensatory damages received on account of

1.
2.

can be excluded from gross income

Back 40

1. Physical Personal Injury
2. Physical Sickness

Such exclusion treatment amounts received for loss of income associated with the physical personal injury or physical sickness.

Front 41

Is emotional distress compensatory damages gross income excludable?

Back 41

No

Because you are likely to still be able to work. If you are unable to work, then it may be deductible.

Front 42

Why are punitive damages never deductible?

Back 42

Because they are used to punish the party who caused harm and not to compensate the victim

Front 43

Are punitive damages included in gross income of the recipient?

Back 43

Yes

Front 44

If you receive accident and health benefits paid for by the employer for medical care, are these included in your gross income?

Back 44

No

Normally, if you receive benefits from an insurance plan operated and paid for by your employer, you do not include it in your gross income. However, the exception is if it is for Medical Care

Front 45

Is compensation, received for permanent loss or use of a member or function of the boy or permanent disfigurement included in gross income under an employer paid insurance program?

Back 45

No

This is the 2nd exception to the rule that says that you must include in gross income benefits received from an employer paid insurance program.

Front 46

Self-insured reimbursement plans are medical reimbursement plans without insurance. If the plan discriminates, meaning that it is not available to all employees in the organization, is the receipt of this medical reimbursement subject to taxation?

Back 46

Yes

Front 47

What provides an alternative means of accomplishing a medical reimbursement plan for an employee?

Back 47

HSA or Health Savings Accounts

Front 48

Are employees taxed on the contributions to the HSA by the employer?

Back 48

No

Front 49

Are earnings on HSA and withdrawal subject to tax?

Back 49

No

Front 50

Long Term Care Insurance is similar to

Back 50

Accident and Health Insurance

thus it follows many of the same recognition rules

Front 51

What happens when money is received from a Long Term Care Insurance plan?

Back 51

The exclusion from gross income is limited to the greater of

1. $270 for each day the patient receives long term care.
2. The actual cost of care

Front 52

Info Card

The value of meals provided to an employee and the employee's spouse and dependent is excluded from the taxpayer's income if the following three requirements are met

Back 52

a. The meals are furnished by the employer
b. The meals are provided on the employer's business premises
c. The meals are provided for the convenience of the employer

Front 53

Info Card

The value of lodging provided to an employee and the employee's spouse and dependent is excluded from the taxpayer's income if the following four requirements are met

Back 53

a. The lodging is furnished by the employer
b. The lodging is provided on the employer's business premises
c. The lodging is provided for the convenience of the employer
d. If the employee is REQUIRED to accept the lodging as a condition of employment.

Front 54

TRUE or FALSE

"For the Convenience of the Employer" says that if a service is provided to more than half of the employees than it must be provided to all the employees

Back 54

True

Front 55

TRUE or FALSE

If you are given an option between cash or lodging, then lodging being required as a condition of employment is nulled and not satisfied

Back 55

True

Front 56

An employee of an educational institution may be able to exclude the value of campus housing provided by the employer, IF?

Back 56

Employee pays >5% appraised value of the facility.

The deficiency would be included in gross income

Front 57

What tax benefit do ministers of the gospel usually enjoy?

Back 57

Minsters of the gospel can exclude.

1. The rental value of a furnished home as compensation.
2. A rental allowance paid to them as compensation, to the extent the allowance is used to rent or provide a home.
3. The rental value of a home owned by the minister.

The housing allowance must be provided as compensation for the conduct of religious worship, the administration and maintenance of religious organizations, or the performance of teaching and administrative duties at theological seminaries.

The cost of maintaining the house/apt is excluded from gross income

Front 58

What four specific benefits may be received tax free?

Back 58

1. Child and dependent care services
2. On premises athletic facilities by employees
3. Educational assistance to U/G's and Grads
4. Pay or reimburse child adoption expenses

Front 59

Why are employees considered to have gross income if offered a meal plan of cash or some other form of compensation?

Back 59

Because the employee is deemed to have constructively received the cash even when the noncash option is elected

Front 60

What is a Cafeteria Plan?

Back 60

Under such a plan, the employee is permitted to choose between cash and nontaxable benefits.

The cash is taxable and the nontaxable benefits are of course not

Front 61

What are Flexible Spending Plans?

Back 61

Under these plans, the employee agrees to reduce his or her cash compensation in return for the employer agreeing to pay certain costs incurred by the employee (medical/dental expenses) with the employee recognizing gross income.

These plans are largely use it or lose it plans