ACC250 Chapter 12

Question 1

The difference between the fair market value of the employer’s stock and the amount employees pay to acquire the employer’s stock.

Answer 1

BARGAIN ELEMENT

Question 2

An employer plan that allows employees to choose benefits from a menu of nontaxable fringe benefits or receive cash compensation in lieu of the benefits.

Answer 2

CAFETERIA PLAN

Question 3

A nontaxable fringe benefit that allows employees to receive occasional or incidental benefits tax free.

Answer 3

DE MINIMIS FRINGE BENEFIT

Question 4

The sale of stock acquired using incentive stock options prior to satisfying certain holding period requirements converting the options into nonqualifying stock options.

Answer 4

DISQUALIFYING DISPOSITION

Question 5

A nontaxable fringe benefit that allows an employer to provide a certain amount of education benefits on an annual basis.

Answer 5

EDUCATIONAL ASSISTANCE BENEFIT

Question 6

A person who is hired to provide services to a company on a regular basis in exchange for compensation and who does not provide these services as part of an independent business.

Answer 6

EMPLOYEE

Question 7

The date employees use their stock options to acquire employer stock at a discounted price.

Answer 7

EXERCISE DATE

Question 8

The price at which holders of stock options may purchase stock in the corporation issuing the option.

Answer 8

EXERCISE PRICE

Question 9

A test used to make subjective determination such as whether the amount of salary paid to an employee is reasonable. Requires the taxpayer and the IRS to consider all the relevant facts and circumstances surrounding the situation in order to make a decision. Relevant factors are situation specific.

Answer 9

FACTS AND CIRCUMSTANCES TEST

Question 10

Social Security and Medicare taxes upon earned income.

Answer 10

FICA TAXES

Question 11

A plan that allows employees to contribute before-tax dollars that may be used for unreimbursed medical expenses or dependent care.

Answer 11

FLEXIBLE SPENDING ACCOUNT

Question 12

Nontaxable benefits employers provide to employees and employee spouses or dependents in the form of meals or lodging if provided on the employer’s premises and are provided for a purpose that is helpful or convenient for the employer.

Answer 12

FOR THE CONVENIENCE OF EMPLOYER BENEFITS

Question 13

Used to report wages paid to employees and the taxes withheld from them. The form is also used to report FICA taxes to the SSA.

Answer 13

FORM W-2

Question 14

A form used by a taxpayer to supply her employer with the information necessary to determine the amount of tax to withhold from each paycheck.

Answer 14

FORM W-4

Question 15

Noncash benefit provided to an employee as a form of compensation. As a general rule, fringe benefits are taxable. However, certain fringe benefits are excluded from gross income.

Answer 15

FRINGE BENEFITS

Question 16

The date on which employees receive stock options to acquire employer stock at a specified price.

Answer 16

GRANT DATE

Question 17

Term life insurance provided by an employer to a group of employees.

Answer 17

GROUP-TERM LIFE INSURANCE

Question 18

A nontaxable fringe benefit covering health and accidents.

Answer 18

HEALTH AND ACCIDENT INSURANCE

Question 19

A type of stock option that allows employees to defer the bargain element for regular tax purposes until the stock acquired from option exercises is sold. The bargain element is taxed at capital gains rates provided the stock is retained long enough to satisfy certain holding period requirements. Employers cannot deduct the bargain element as compensation expense.

Answer 19

INCENTIVE STOCK OPTION

Question 20

A nontaxable fringe benefit that provides employer services to employees with little cost to the employer.

Answer 20

NO-ADDITIONAL-COST SERVICES

Question 21

A type of stock option requiring employees to treat the bargain element from options exercised as oridinary income in the tax year options are exercised. Correspondingly, employers may deduct the bargain element as compensation expense in the year options are exercised.

Answer 21

NONQUALIFIED STOCK OPTION

Question 22

An employer provided benefit that may be excluded from an employee’s income.

Answer 22

NONTAXABLE FRINGE BENEFIT

Question 23

The use of a stock option to acquire employer stock at a specified price.

Answer 23

OPTION EXERCISE

Question 24

A nontaxable fringe benefit that provides employer goods at a discount (but not below the employer’s cost) and services to employees at up to a 20% discount.

Answer 24

QUALIFIED EMPLOYEE DISCOUNT

Question 25

A nontaxable fringe benefit that allows employers to pay moving-related expenses on behalf of employees.

Answer 25

QUALIFIED MOVING EXPENSE REIMBURSEMENT

Question 26

A nontaxable fringe benefit provided by employers in the form of mass transit passes, parking or vanpool benefits.

Answer 26

QUALIFIED TRANSPORTATION FRINGE BENEFIT

Question 27

Stock employees receive as compensation that may only be sold after the passage of time or after certain performance targets are achieved. Because employees are not entitled to immediately sell the restricted stock they receive, the value of the stock is generally not taxable to employees or deductible by employers until the selling restrictions lapse.

Answer 27

RESTRICTED STOCK

Question 28

A fixed regular payment by an employer to an employee in exchange for the employee’s services which is usually paid on a monthly basis, but typically expressed as an annual amount.

Answer 28

SALARY

Question 29

A phrase used to describe s situation where a taxpayer exercises stock options and then immediately sells the stock received through the option exercise.

Answer 29

SAME-DAY SALE

Question 30

A special tax election that employees who receive restricted stock or other property with ownership restrictions can make to accelerate income recognition from the normal date when restrictions lapse to the date when the restricted stock or other property is granted. The election also accelerates the employer’s compensation deduction related to the restricted stock or other property.

Answer 30

SECTION 83b ELECTION

Question 31

The legal price at which employees are entitled to buy or exercise employer stock (aka exercise price).

Answer 31

STRIKE PRICE

Question 32

A noncash fringe benefit provided by employers to an employee that is included in taxable income.

Answer 32

TAXABLE FRINGE BENEFIT

Question 33

To become legally entitled to receive a particular benefit without risk of forfeiture; to gain ownership.

Answer 33

VEST

Question 34

The date on which the taxpayer becomes legally entitled to receive a particular benefit without risk of forfeiture.

Answer 34

VESTING DATE

Question 35

A payment by an employer to an employee in exchange for the employee’s services which is typically expressed in hourly, daily, or piecework rate.

Answer 35

WAGES

Question 36

A nontaxable fringe benefit provided by employers that would be deductible as an ordinary and necessary business expense if paid by an employee.

Answer 36

WORKING CONDITION FRINGE BENEFIT