Question 1

Upon the sale of property,a portion of the selling price equal to the basis in the property is considered a return of capital to the seller and is therefore not taxable.

Accepted Answer

This is correct. The portion of the selling price equal to the basis in the property is considered a return of capital and is not subject to taxation. Any amount received over and above the basis is considered taxable gain.

Question 2

While payments received because a person has been physically injured are excluded from gross income,payments on account of non-physical injury must be included in gross income.

Accepted Answer

This is correct. Generally, payments received due to physical injury or sickness are excluded from gross income, while payments received for non-physical injuries (such as emotional distress or defamation) must be included in gross income.

Question 3

Awards for emotional distress attributable to a physical injury are excluded from gross income.

Accepted Answer

The Internal Revenue Code excludes from gross income the amount of any damages received on account of personal physical injuries or physical sickness. This includes damages awarded for emotional distress that is directly attributable to a physical injury or sickness. Therefore, awards for emotional distress that are attributable to a physical injury are excluded from gross income.

Question 4

Dividends on life insurance policies are generally excludable income because they are considered a return of premium.

Accepted Answer

Dividends on life insurance policies are considered a return of premium because they represent a portion of the insurer's earnings that are being returned to the policyholder. As such, they are not considered taxable income and are generally excluded from the policyholder's taxable income. However, if the dividends exceed the total amount of premiums paid on the policy, the excess may be considered taxable income.

Question 5

Accelerated death benefits received by a terminally ill person may be excluded from taxable income.

Accepted Answer

According to the IRS, accelerated death benefits paid to a terminally ill person are generally excluded from taxable income. However, there may be certain restrictions and conditions that apply, depending on the specific circumstances. It's always a good idea to consult with a tax professional to ensure that you understand the implications of any financial transaction.

Question 6

Loan proceeds are taxable in the year received in cash.

Accepted Answer

Loan proceeds are not taxable in the year they are received in cash, as they are not considered income. However, if the loan is forgiven or canceled, that amount may be taxable as income in the year it is forgiven or canceled.

Question 7

Amounts withdrawn from Qualified Tuition Plans are tax-free if the amounts are used for qualified higher education expenses including tuition,fees,books,and room and board for students attending on at least a half-time basis.

Accepted Answer

Withdrawals from Qualified Tuition Plans are tax-free if they are used for qualified higher education expenses including tuition, fees, books, and room and board for students attending on at least a half-time basis.

Question 8

Any distribution from a Qualified Tuition Plan not used for qualified higher education expenses is both included in income and subject to a 10% penalty.

Accepted Answer

The answer of Any distribution from a Qualified Tuition Plan...

Question 9

Punitive damages are taxable unless they are awarded for physical injuries.

Accepted Answer

The answer of Punitive damages are taxable unless they are...

Question 10

A taxpayer may avoid tax on income by having the payment made to another taxpayer.

Accepted Answer

A taxpayer cannot avoid tax on income by simply having the payment made to another taxpayer. The income would still be subject to taxation and the taxpayer may potentially face penalties for attempting to evade taxes.

Question 11

Sam received a scholarship for room and board.This scholarship is excludable from income.

Accepted Answer

The answer of Sam received a scholarship for room and...

Question 12

Katie,a self-employed CPA,purchased an accident & disability insurance policy.As the result of an auto accident,Katie was unable to work and received $3,000 of disability benefits per month for seven months.The benefits were based on her estimated monthly income and should be reported as gross income.

Accepted Answer

The answer of Katie,a self-employed CPA,purchased an accident & disability...

Question 13

Sumedha is the beneficiary of her mother's $500,000 life insurance policy.She receives $54,000 per year over ten years in settlement of her mother's policy.Sumedha will exclude the $54,000 proceeds received each year from the life insurance company.

Accepted Answer

The answer of Sumedha is the beneficiary of her mother's...

Question 14

Each year a taxpayer must include in gross income the rental value of his or her personal residence.

Accepted Answer

This statement is false. Taxpayers do not have to include the rental value of their personal residence in gross income. However, there are certain circumstances where a taxpayer may have to include a portion of their rental income if they rent out all or part of their personal residence.

Question 15

Amounts collected under accident and health insurance policies purchased by the taxpayer are excludable from income.

Accepted Answer

Amounts collected under accident and health insurance policies are generally excluded from the taxpayer's gross income. This exclusion applies to amounts paid for medical care or treatment of injuries or illnesses, as well as to amounts paid as disability benefits. However, if the premiums for the policy were paid by the employer or were deducted as a business expense, the exclusion may be limited or not apply at all.

Question 16

Many exclusions exist due to the benevolence of Congress or as a result of the government's attempts to encourage particular social behavior.

Accepted Answer

Many exclusions exist in the tax code due to the benevolence of Congress, such as tax deductions for charitable donations. Additionally, the government has created exclusions to encourage certain social behavior, such as tax breaks for homeownership or using clean energy.

Question 17

Except in the case of qualifying accelerated death benenfits,if a life insurance policy is sold or surrendered for a lump sum before the death of the insured,the amount received is taxable to the extent it exceeds the premiums paid.

Accepted Answer

This is true as per the tax laws in the United States. If a life insurance policy is sold or surrendered for a lump sum before the insured person's death, the amount received will be taxable to the extent that it exceeds the premiums paid. However, there are some exceptions to this rule, such as qualifying accelerated death benefits.

Question 18

John,an employee of a manufacturing company,suffered a heart attack and was unable to work for six months.He received $1,500 per month of disability benefits as a result of an employer-provided group policy.The benefits are includible in John's gross income.

Accepted Answer

Disability benefits received through an employer-provided group policy are generally taxable and includible in the recipient's gross income.

Question 19

An individual is considered terminally ill for purposes of the exclusion for accelerated death benefits if a physician certifies that he is reasonably likely to die within 36 months.

Accepted Answer

The answer of An individual is considered terminally ill for...

Question 20

Which of the following items will result in an inclusion in gross income?

Accepted Answer

Bartering services, such as preparing a tax return in exchange for car repairs, is considered income and must be included in gross income.

Quiz 8: Gross Income: Exclusions