All income is includible in a taxpayer's gross income unless it is specifically excluded by the Code.
a) True
b) False
a) True
Although there are 15 items listed in the Code that are specifically included in gross income, the definition is not limited to these specifically listed items.
a) True
b) False
a) True
When a taxpayer receives a return of capital, the return of capital is subject to income tax.
a) True
b) False
b) False
A return of capital is not "income" for tax purposes.
The release of an obligation to pay a debt generally results in taxable income to the debtor.
a) True
b) False
a) True
Under the doctrine of constructive receipt, income becomes taxable in the year in which it is constructively received, although it may not actually be in the taxpayer's possession.
a) True
b) False
a) True
The doctrine of constructive receipt determines whether or not a taxpayer has received a taxable economic benefit.
a) True
b) False
b) False
The doctrine of constructive receipt is used in determining when an item is included in income, not in determining which item is income.
When an employer lends an employee a company automobile for personal use, the employee has no income attributable to that use.
a) True
b) False
b) False
The economic-benefit theory taxes as income any economic or financial benefit conferred on the employee regardless of its form, as long as the employee receives something with a current, real, and measurable value. Use of a car for personal purposes constitutes such an economic benefit.
When a taxpayer assigns income to another taxpayer, the burden of the income tax is shifted to the other individual.
a) True
b) False
b) False
Income is always taxed to the person who earns it, creates the right to receive it, or enjoys its benefit, or to the person who earns or controls the property that is the source of the income. Therefore, while it is possible to assign income that one has earned to another person, it will still be taxed to the person who earned the income.
Which of the following items would be considered constructively received in the current year by a cash-basis taxpayer?
I. interest earned from reinvestment of insurance policy dividends that are left with the insurance company
II. income from work performed that has been billed but will not be received until next year
A) I only
II is incorrect because a cash-basis taxpayer reports income when received, not when he or she has completed the work and submitted a bill for services.
At the time of occurrence, which of the following events will require recognition of $1,000 of gross income by the taxpayer?
I. The taxpayer receives $1,000 in cash from his mother for his birthday.
II. A creditor cancels the taxpayer's debt of $1,000.
B) II only
I is incorrect because the $1,000 in this situation is a gift, and gifts are not includible in the gross income of the recipient.
Which of the following statements concerning the doctrine of constructive receipt is (are) correct?
I. The taxpayer has constructively received income when it is credited to his account without restrictions.
II. It is inapplicable to individual taxpayers who report income on a cash basis.
A) I only
II is incorrect because the doctrine of constructive receipt applies specifically to cash-basis taxpayers.
