Gross Income

Question 1

When are discharges of indebtedness not included in gross income?

Answer 1

When the discharges of indebtedness
Occur in bankruptcy,
Occur when the debtor is insolvent but not in bankruptcy,
Are related to qualified farm indebtedness,
Are a discharge of qualified real property business indebtedness, or
Are related to principal residence indebtedness.

Question 2

How may a taxpayer avoid including a prize or award in gross income?

Answer 2

An award recipient may exclude the fair market value of the prize or award from his or her gross income if
The amount received is in recognition of religious, scientific, charitable, or similar meritorious achievement;
The recipient is selected without action on his or her part;
The receipt of the award is not conditioned on substantial future services; and
The amount is paid by the organization making the award to a tax-exempt organization designated by the recipient.

Question 3

What is an adoption assistance program?

Answer 3

A written plan that
1. Benefits employees who qualify under rules set up by
the employer that do not favor highly compensated
employees or their dependents,
2. Does not pay more than 5% of its payments each year
to shareholders or owners of more than 5% of the stock,
3. Provides for adequate notice to employees of their
eligibility, and
4. Requires employees to provide reasonable
substantiation of qualified expenses that are to be paid or reimbursed.

Question 4

Under what circumstances is an employee allowed to exclude reimbursed employee expenses from income?

Answer 4

If reimbursements equal expenses and the employee makes an accounting of expenses to the employer, the reimbursements are excluded from the employee’s gross income, and the employee may not deduct the expenses.

Question 5

An employee’s gross income does not include the cost of any fringe benefit supplied or paid for by the employer that qualifies as a(n)

Answer 5

1. No-additional-cost service
2. Qualified employee discount
3. Working condition fringe
4. De minimis fringe
5. Qualified transportation fringe
6. Qualified moving expense reimbursement (active
   military only)
7. Employer-provided educational assistance

Question 6

What is a no-additional-cost fringe benefit?

Answer 6

A no-additional-cost fringe is a service or product that the employer offers for sale to customers in the ordinary course of business in which the employee performs substantial services.

Question 7

What is the maximum amount of employee discount that may be excluded on the selling price of qualified property or services of their employer?

Answer 7

The employee discount may not exceed the gross profit percentage in normal offers by the employer to customers or 20% of the price offered to customers in the case of qualified services.