Chapter 3 Review Flashcards
What are 15 items that are specifically included in gross income under the
Internal Revenue Code?
• compensation for services, including fees, commissions, fringe benefits, and
similar items
• gross income derived from business
• gains derived from dealings in property
• interest
• rents
• royalties
• dividends
• alimony and separate maintenance payments
• annuities
• income from life insurance and endowment contracts
• pensions
• income from discharge of indebtedness
• distributive share of partnership gross income
• income in respect of a decedent
• income from an interest in an estate or trust
How is the tax concept of income differentiated from the tax concept of
capital?
Income is taxable return of capital is not
Don purchases stock at $30 a share. The price per share goes up to $50 in
one week. Has he realized income? Explain.
No he has not, only when he sells it will he
Does your client, Mrs. Eidson, have income when interest earned on her life
insurance policy dividends is credited to her policy account? Explain
Interest earned on dividends is taxable. Interest on the dividends are taxable. Accumulated dividends at interest even though they did not take it, it is taxable.
Under what circumstances will an employee be taxed on compensation under
the economic-benefit theory?
They will be taxed on the benefit they receive of value. it you did not do anything for a service rendered you dont get taxed
Paul is the sales manager for the Freeman Corporation. The company pays
premiums on a $100,000 whole life policy owned by Paul insuring his life.
Paul has named his wife as beneficiary. What is the relevant income tax
concept and its implications to Paul?
It is taxable because it is part of compensation it is a taxable event. Employer irrevocable beneficiaries not taxable.
Describe the principle of assignment of income.
Assignment of income you can assign interest or income but you still will be on a pre taxed basis
John Jones, an agent for Podunk Mutual, assigns his renewal commissions
to his 25-year-old daughter, Jane. In this situation, explain who the taxpayer
is for income tax purposes as well as the principle of tax law that applies
here.
John pays the taxes assignment of income doctrine
