Question 1

Evaluate the following statements:

Accepted Answer

The de minimis exemption is not subject to a nondiscrimination requirement because the amount is too small to make it worthwhile to account for the items.It follows that it would not be worthwhile to apply additional rules.

Question 2

Adam repairs power lines for the Egret Utilities Company.He is generally working on a power line during the lunch hour.He must eat when and where he can and still get his work done.He usually purchases something at a convenience store and eats in his truck.Egret reimburses Adam for the cost of his meals.

Accepted Answer

The meals do not qualify for the meals and lodging exclusion because the meals are not furnished by the employer.

Question 3

The First Chance Casino has gambling facilities,a bar,a restaurant,and a hotel.All employees are allowed to obtain food from the restaurant at no charge during working hours.In the case of the employees who operate the gambling facilities,bar,and restaurant,60% of all of Casino's employees,the meals are provided for the convenience of the Casino.However,the hotel workers,demanded equal treatment and therefore were also allowed to eat in the restaurant at no charge while they are at work.Which of the following is correct?

Accepted Answer

For more than 50% of the employees,the meals are furnished for the convenience of the employer;therefore,all of the meals are excludible.

Question 4

Under the Swan Company's cafeteria plan,all full­time employees are allowed to select any combination of the benefits below,but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

Accepted Answer

The answer of Under the Swan Company's cafeteria plan,all full­time...

Question 5

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities,but reimburses its employee for the cost of parking in a nearby garage,up to $150 per month.

Accepted Answer

As a qualified transportation fringe,both Kristen and Karen's benefit can be excluded from gross income.Karen's reimbursement is less than the maximum exclusion amount allowed.Likewise,the value of Karen's free parking is less than the maximum exclusion amount allowed.

Question 6

The de minimis fringe benefit:

Accepted Answer

Choice a.is incorrect because the exclusion applies to property and services.Choice c.is incorrect because there is no specific dollar amount limitation.Choice d.is incorrect because there are specific rules provided for employee discounts.

Question 7

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime,approximately 25 days each year.The supper money received:

Accepted Answer

The House Ways and Means Committee specifically cited occasional supper money because of overtime work as a de minimis fringe.

Question 8

The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes,provided the privilege is not abused.Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings.The copies made during the year would have cost $150 at a local office supply.

Accepted Answer

Choice b.is incorrect because the employer does incur additional costs.Choice c.is incorrect because there are other circumstances where the cost of the copies would not result in income to Ed."Occasional copies" is a frequently permitted de minimis fringe benefit.

Question 9

Tommy,a senior at State College,receives free room and board as full compensation for working as a resident advisor at the university dormitory.The regular housing contract is $2,000 a year in total,$1,200 for lodging and $800 for meals in the dormitory.Tommy had the option of receiving the meals or $800 in cash.Tommy accepted the meals.What must Tommy include in gross income from working as a resident advisor?

Accepted Answer

Because Tommy had the option to receive meals or cash,the meals were not provided for the convenience of the employer and,therefore,the value of the meals must be included in gross income.The housing on the employer's premises is received as a condition of employment and,therefore,can be excluded from gross income.

Question 10

66.	Ridge is the manager of a motel. As a condition of his employment, Ridge is required to live in a room on the premises so that he would be there in case of emergencies. Ridge considered this a fringe benefit, since he would otherwise be required to pay $800 per month rent. The room that Ridge occupied normally rented for $70 per night, or $2,100 per month. On the average, 90% of the motel rooms were occupied. As a result of this rent-free use of a room, Ridge is required to include in gross income.

Accepted Answer

The room qualifies for the § 119 lodging exclusion.

Question 11

James,a cash basis taxpayer,received the following compensation and fringe benefits in the current year: Salary $66,000
Disability income protection premiums 3,000
Long-term care insurance premiums 4,000
His actual salary was $72,000.He received only $66,000 because his salary was garnished and the employer paid $6,000 on James's credit card debt he owed.The wage continuation insurance is available to all employees and pays the employee three-fourths of the regular salary if the employee is sick or disabled.The long-term care insurance is available to all employees and pays $150 per day towards a nursing home or similar facility.What is James's gross income from the above?

Accepted Answer

The $6,000 paid to the creditor is income to James as it was used to pay his debt.The disability income protection premiums and long-term care insurance premiums are excluded from gross income.

Question 12

All employees of United Company are covered by a group hospitalization insurance plan,but the employees must pay the premiums ($8,000 for each employee).None of the employees has sufficient medical expenses to deduct the premiums.Instead of giving raises next year,United is considering paying the employee's hospitalization insurance premiums.If the change is made,the employee's after­tax and insurance pay will:

Accepted Answer

Each employee's income,less taxes and insurance,would increase by the cost of insurance times the employee's marginal tax rate.The employees who are in the higher tax brackets will benefit more from the change than the employees in the lower tax brackets.

Question 13

A company has a medical reimbursement plan for officers that covers all costs that the insurer will not pay.However,for all employees who are not officers,the medical reimbursement plan applies only after the employee has paid $1,000 from his or her own funds.An officer incurred $1,500 in medical expenses and was reimbursed for that amount.An hourly worker also incurred $1,500 in medical expense and was reimbursed $500.

Accepted Answer

The answer of A company has a medical reimbursement plan...

Question 14

Heather is a full­time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?

Accepted Answer

Choices a.and c.are incorrect because to qualify for exclusion treatment,the employee must either use the funds for the designated purpose or forfeit any unused portion of the salary reduction.Choice d.is incorrect because Heather's gross income is reduced by the full $1,200 salary reduction.

Question 15

An employee can exclude from gross income the value of meals provided by his or her employer whenever:

Accepted Answer

According to the IRS, employees can exclude the value of meals provided by their employer from their gross income when the meals are provided on the employer's premises for the convenience of the employer. This means that the employer must have a valid business reason for providing the meals, such as to ensure that employees can be available during working hours or to meet production deadlines. The meals cannot be extravagant, and there must be no other places to eat nearby. Note that choice D is incorrect, as it is the convenience of the employer, not the employee, that matters.

Question 16

The Royal Motor Company manufactures automobiles.Non-management employees of the company can buy a new automobile for Royal's cost plus 2%.The automobiles are sold to dealers at cost plus 20%.Generally,management employees of Local Dealer,Inc. ,are allowed to buy a new automobile from the company at the dealer's cost.Which of the following statements is correct?

Accepted Answer

The discounts for the non-management employees of Royal Motor Company qualify for exclusion treatment as a "qualified employee discount."

Question 17

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.

Accepted Answer

Louise was in the foreign country for the requisite number of days,at least 330 days out of 365 days.Therefore,the foreign earned income exclusion applies for all of the time she worked in the foreign country.The amount earned is less than the statutory annual ceiling.Choice d.is incorrect because the annual limit is the amount,if earned,that can be excluded.

Question 18

Employees of the Valley Country Club are allowed to use the golf course without charge before and after working hours on Mondays,when the number of players on the course is at its lowest.Tom,an employee of the country club played 40 rounds of golf during the year at no charge when the non-employee charge was $20 per round.

Accepted Answer

The golfing privileges are a "no­additional­cost service." The privilege is not a de minimis fringe because records of Tom's use is readily available at little or no cost.

Question 19

A U.S.citizen worked in a foreign country for the period July 1,2013 through August 1,2014.Her salary was $10,000 per month.Also,in 2013 she received $5,000 in dividends from foreign corporations (not qualified dividends).No dividends were received in 2014.Which of the following is correct?

Accepted Answer

Choice a.is incorrect because the taxpayer was in the foreign country more than 330 days in a 12 month period.The annual statutory limit on the foreign earned income exclusion is $97,600 in 2013and $99,200 in 2014,and the exclusion is prorated on a daily basis;therefore,choice c. ,is incorrect.Choice b.is incorrect with regard to the dividends received in that dividends received cannot be excluded from gross income.

Question 20

Peggy is an executive for the Tan Furniture Manufacturing Company.Peggy purchased furniture from the company for $9,500,the price Tan ordinarily would charge a wholesaler for the same items.The retail price of the furniture was $12,500,and Tan's cost was $9,000.The company also paid for Peggy's parking space in a garage near the office.The parking fee was $600 for the year.All employees are allowed to buy furniture at a discounted price comparable to that charged to Peggy.However,the company does not pay other employees' parking fees.Peggy's gross income from the above is:

Accepted Answer

The furniture purchases were under a "qualified employee discount" plan,but the exclusion is limited to the employer's gross profit.Because Peggy purchased the furniture for $9,500 when the employer's cost was $9,000,she is not required to include anything in gross income as a result of the purchase.The parking space with a value of $600 is a qualified transportation fringe and is not required to be available to all employees (i.e. ,can be provided on a discriminatory basis).

Quiz 5: Gross Income: Exclusions

Evaluate the following statements:

Under the Swan Company's cafeteria plan,all fulltime employees are allowed to select any combination of the benefits below,but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities,but reimburses its employee for the cost of parking in a nearby garage,up to $150 per month.

The de minimis fringe benefit:

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime,approximately 25 days each year.The supper money received:

Heather is a fulltime employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?

An employee can exclude from gross income the value of meals provided by his or her employer whenever:

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.

A U.S.citizen worked in a foreign country for the period July 1,2013 through August 1,2014.Her salary was $10,000 per month.Also,in 2013 she received $5,000 in dividends from foreign corporations (not qualified dividends) .No dividends were received in 2014.Which of the following is correct?

Quiz 5: Gross Income: Exclusions

Evaluate the following statements:

Under the Swan Company's cafeteria plan,all full­time employees are allowed to select any combination of the benefits below,but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

Kristen's employer owns its building and provides parking space for its employees.The value of the free parking is $150 per month.Karen's employer does not have parking facilities,but reimburses its employee for the cost of parking in a nearby garage,up to $150 per month.

The de minimis fringe benefit:

The Perfection Tax Service gives employees $12.50 as "supper money" when they are required to work overtime,approximately 25 days each year.The supper money received:

Heather is a full­time employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?

An employee can exclude from gross income the value of meals provided by his or her employer whenever:

Louise works in a foreign branch of her employer's business.She earned $5,000 per month throughout the relevant period.

A U.S.citizen worked in a foreign country for the period July 1,2013 through August 1,2014.Her salary was $10,000 per month.Also,in 2013 she received $5,000 in dividends from foreign corporations (not qualified dividends) .No dividends were received in 2014.Which of the following is correct?

Under the Swan Company's cafeteria plan,all fulltime employees are allowed to select any combination of the benefits below,but the total received by the employee cannot exceed $8,000 a year. Which of the following statements is true?

Heather is a fulltime employee of the Drake Company and participates in the company's flexible spending plan that is available to all employees.Which of the following is correct?