Income

Question 1

What type of interest can be excluded from income?

Answer 1

Interest on state or local governmental obligations is excluded.

Question 2

What is the tax treatment of proportionate stock dividends and splits?

Answer 2

1. Not a taxable event;
2. Taxpayer must adjust basis per share;
3. Option to receive cash instead triggers dividend income to all recipients.

Question 3

Describe the claim-of-right rule.

Answer 3

Requires the taxpayer to include property in income in the period in which an apparent claim to the property materializes, even if it is possible that this income may have to be returned in the future.

Question 4

Describe the constructive receipt rule.

Answer 4

A cash-basis taxpayer must include property in income in the period in which the right to (or control of) the property is acquired, even if no actual cash receipt.

Question 5

For accrual based taxpayers, items generally are included in gross income for the year in which the income is earned. However, for tax purposes, income is earned when

Answer 5

1) all the events have occurred to attach the taxpayer’s right to receive the income and
2) the amount of income can be determined with reasonable accuracy. Cash based taxpayers report income when it is actually received or constructively received (i.e., in the taxpayer’s control).

Question 6

C corporations cannot use the cash method of accounting unless their average annual gross receipts for the previous three years do not exceed

Answer 6

$5,000,000

Question 7

The Uniform Capitalization Rules do not apply to small personal property dealers. Small personal property dealers are defined as those with what about of average sales

Answer 7

10 million or less in gross receipts during the preceding three years.

Question 8

Which one of the following characteristics/requirements differs across traditional IRAs and Roth IRAs?

Answer 8

Contributions to Roth IRAs are never deductible whereas contributions to traditional IRAs are deductible if certain requirements are met.