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52 Cards in this Set

  • Front
  • Back
the change in net worth added to the goods and services consumed, plus the imputed values for owner occupied home, and the value of food a taxpayer might grow for personal consumption
economic income
the accounting concept of income is founded on the ___ ___
realization principle
for realization to occur
an exhchange of goods or services must take place between the accounting entity and some INDEPENDENT EXTERNAL group
in the exchange the accounting entity must receive assets that are capable of being objectivly valued
the imputed savins that arise when individuals create assets for their own use are
not income because no exchange has occurred
___ and ___ found satisfy the realization requirement and must be _______
embezzeled funds;buried treasures, recognized as income
Gross income includes income realized
in any form, whether in money, property,or services.
The supreme court has ruled that ther is no income subject to tax until
the taxpayer has recoverd the capital invested
the three primary methods of accounting are
cash receipts and disbursement
accrual method
hybrid method
The regulations require the __ for determining purchases and sales when inventory is an income producing factor
accrual method
when a taxpayer chooses to spread the gain from an installment sale of property over the collection periods by using the
installment method
when contractors spread profits from contracts over the periods in which the work is done
percentage of completion method
defer all profit until the year in which the project is completed
the completed contract method
A change in accounting period requires
the consent of the IRS
property or services received are included in the tapayers gross income --
in the year of actual constructive receipt
under the accrual method an item is gernerally included in the gross income
in the year in which it is earned
under the accrual method the income is earned when
all the events have occured that fix the right to receive such income

the amount to be received can be determined with reasonable accuracy
when the rights to income have accrued but are subject to a potential refund claim, then
the income is reported in the year of sale and a deduction is allowed in subsequent years when actual claims accrue
If the rights to income are being contested, then the year in which the inocome is subject to tax depends on
whether payment has been received
income that has not actually been received by the taxpayer is taxed as though it had been received and it is constructivley received when
the amount is made readily avaiable to the taxpayer

The taxpayers actual receipt is not subject to substantial limitaions or restrictions
If the income is available the taxpayers should not be allowed to postpone the income recognition, this concept is called
constructive receipt
To have constructive receipt the income must be ___ and ___ may not be placed upon the funds
readily available
substantial limitations or restrictions
bond type transactions that have a payment at maturity of more than the original loan requires that
the discount be reported when earned, regardless of the taxpayers accounting method, the interest earned is caluclated by the effective interest rate method
What can limited income people do to offset the deferral feature of government bonds to limit tax liability the year the bonds come due
they can elect to include in gross income the annual increment in redemption value
if you elect to report income from US Bonds incrementally you must
applly that election to all such bonds, a change in the reporting method requires permission from the IRS
A deposit will be ___ if it is held and repaid to the customer when no damage occurs, if it is a prepayment of rent it is___
not recognized until deposit is forfeited, recognizes at receipt
If the method of accounting for the sale is the same for tax and financial reporting purposes, a taxpayer can
elect to defer recognition of income from advance payments for goods
The portion of the advance payment for services that relates to services performed in the tax year of receipt is-- The portion that relates to services to be performed after the tax year of receipt is
included in gross income; included in gross income in the tax year following the tax year of receipt of the tax payment
__ and __ are always taxed in the year of receipt
prepaid rent and prepaid interest
In the case of a child, the code specifically says that amounts earned from personal services must be included ____. This result applies even thought income is paid to other persons (parents)
must be included in the childs gross income
Income from property must be included
in the gross income of the owner of the property
Interest for the period that includes the date of the transfer is allocated
between the tranferor and transferee based on the number of days during the period that each owned the property
If the transfer of property was a gift, then income from the property must be recognized when?
when the income would have normally been recognized by the original owner
if the transfer of property was a sale, then the income from the property must be recognized when?
at the time of sale
Partial releif from the double taxation of dividends has been providced in the
jobs and growth tax releif reconcilitaion act of 2003
generally dividends received in taxable years beginning after 2002 are taxed at
the same marginal reate that is applicable to a net capital gain.

Dividends receive favorable treatment as compared to interest income
Qualified dividends are not treated as
captial gains in the captial gains and losses netting process
Excluded in the beneficial tax treatment of qualified dividends is
SOME dividends from foreign corporations, dividends from tax-exempt entities, and dividends that do not satisfy the holding period requirement
A dividend from a foreign corporation is eligible for qualified dividend status if
1) the foreign corporations stock is traded on an established US stock market
2)the foreign corporation is eligible for the benefits of a comprehensive income tax treaty between its country and the US
To satisfy the holding period requirement the stock on which the dividend is paid must
have been held for more than 60 days during the 120 day period beginning 60 days before the ex-dividend date
Why does the holding period requirement exist?
Because someone could buy the stock shortly before the dividend is paid, receive the dividend, and then sell the stock at a loss after the stock goes ex-dividend
Unlike interest, dividends do not accrue on a daily basis because __
the declaration of a dividend is at the discreation of the corporation's board of directors.
If a taxpayer sells stock after a dividend has been declared but before the record date, the dividend generally will be
taxed to the purchaser
If a donor makes a gift of stock to someone after the declaration date but before the record date, the Tax Court has held that the donor
does not shift the dividend income to the donee
a __ is not a separate taxable entity
the partnership files a Form 1065 which is
an information return that serves to provide the data necessary for determining the character and amount of each partners distributive share of the partnerships income and deductions
Income must be reported by each partner___ even if
in the year it was earned; it was not distributed
an small business corporation may elect to be taxed similarly to a ___ this corporation is called
partnership; s corporation
Congeress has developed a simple spouse or former spouse in a community property state is taxed only on his or her actual earnings from personal services if the following condiditions are met
1. The individuals live apart for the entire year
2. They do not file a joint return together
3. No portion of the earned income is transferred between individuals
alimony and separate maintenance are _____ by the party making the payments and are___ in the gross income of the party receiving the payments
deductible; includible
Alimony and separate maintenance payments do what with the income and why
income is shifted from the income earner to the income beneficiary who is better able to pay the tax on the amount received
In the case of cash payments, payments are classified as alimony only if the following conditions are met
1. The payments are in cash
2. The agreement or decree does not specify that the payments are not alimony
3. The payor and payee are not members of the same household at the time payments are made
4. There is no liability to make payments for any period after the edeath of the payee
Transfer of property other than cash is handled HOW
the transferor is not entitled to a deduciton and does not recognize gain or loss on the transfer. The tranferee does not recognize income and has a cost basis equal to the transferor's basis