Income - Gross Income - Concepts, Interest, Dividends

Question 1

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

Answer 1

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 2

Describe the claim-of-right rule.

Answer 2

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 3

What type of interest can be excluded from income?

Answer 3

Interest on state or local governmental obligations is excluded.

Question 4

Describe the tax-benefit rule.

Answer 4

Requires a taxpayer to include an expense reimbursement in income if the expense was deducted in a prior period and provided a tax benefit in that period.

Question 5

Describe the constructive receipt rule.

Answer 5

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 6

When can interest on Series EE savings bonds be excluded?

Answer 6

1. Taxpayer incurs higher education expenses in year bonds are cashed in;
2. The exclusion is available only for bonds that are issued to individuals who are at least 24 years old.

Question 7

How does one determine the amount of property dividend that should be included in income?

Answer 7

Value received to extent paid from earnings and profits.