Exclusions

Question 1

Does gross income include life insurance proceeds paid by reason of death of the insured?

Answer 1

No.

Question 2

When life insurance proceeds are paid in installments, what effect does this have on taxes?

Answer 2

Interest is taxable.

Question 3

A dies and his life insurance policy names his son A2 as the beneficiary. The policy pays A2 #13k in three installments, plus $3k interest. How should A2 treat the $13k? The $3k?

Answer 3

$13k excluded from GI

$3k is taxable.

Question 4

Jr. inherits hit father’s cabin worth $100k and a bank account with a balance of $300k. What tax consequences to Jr? Explain.

Answer 4

None.

GI does not include amounts received by bequest, devise, or inheritance.

Question 5

In Y1, Jr. inherits hit father’s cabin worth $100k and a bank account with a balance of $300k. Jr. uses the house as rental property and earns $20k the following year. What tax consequences to Jr? Explain.

Answer 5

None in Y1 – inheritance.

Tax on rental proceeds in Y2

Question 6

What is the definition of a gift? How is it treated for tax purposes?

Answer 6

A gift is a transfer made out of detached and disinterested generosity.

Gross income does not include amounts received by gift.

Question 7

Gross income does not includes damages received on account of _______ or ____

Answer 7

Physical personal injury OR sickness.

Question 8

By themselves, damages for ______ ______ are NOT considered damages received on account of physical injury.

Answer 8

Emotional distress

Question 9

Punitive damages received in connection with personal injuries are/aren’t taxable?

Answer 9

Are

Question 10

A punches B and causes injuries. While doing so, A made defamatory comments in front of a large crowd. What are the tax consequences if B recovers $25k for personal injuries in a civil suit? What if he also recovers $100k for defamation? $50k in punitive damages?

Answer 10

$25k non taxable.

$100k taxable.

$50k taxable.

Question 11

In a personal injury suit, A accepts a settlement of $8k to cover medical expenses, $1,200 in lost wages, and $100k for emotional distress.

Which of these payments, if any, must A includes as gross income?

Answer 11

None.

Medical expenses are excluded. Lost wages are exclude if due to physical injury. Emotional distress are excluded AS LONG AS the underlying tort is physical.

Question 12

A recovers $100k in emotional distress damages after witnessing a terrible accident. Taxable?

Answer 12

Yes. No underlying physical tort claim.

Question 13

How is the value of an employer-provided health or accident insurance plan treated for tax purposes?

How about insurance reimbursements for medical expenses actually incurred?

Answer 13

Excluded.

Also excluded.

Question 14

How much of employer-provided group term life insurance may a person exclude from GI?

Answer 14

First $50k

Question 15

What 3 conditions must be met for an employer-provided meal/lodging to be excluded from GI?

Answer 15

Provided for the convenience of the employer;

Given “in kind” (actually received, not just the value thereof); and

On the employer’s premises

Question 16

What are the conditions for an employee safety or length of service award to be excluded from GI? (3)

Answer 16

No cash.

No more than $400 value

Must be presented in some sort of ceremony.

Question 17

For a scholarship for tuition and related expenses to be excluded from GI, what cannot be true?

Answer 17

It cannot be payment for past or future services.

Question 18

For a scholarship for tuition and related expenses to be excluded from GI, it must be primarily for whose benefit?

Answer 18

The individual.

Question 19

Can a scholarship for tuition and related expenses be excluded from GI if it is used for R&B?

Answer 19

No.

Question 20

When will employer contributions to qualified pension plans be excluded from GI?

Answer 20

When set aside by the employer.

Question 21

In order for a fringe benefit to be excluded from GI, it must be ___ _____ and cause no additional _____ to the employer

Answer 21

De minimis

Cost

Question 22

For an employer-provided meal and/or lodging to be excluded from GI, it must be provided for the convenience of the employer, it must be IN KIND, and it must be on the employer’s premises.

What does it mean for the benefit to be in kind?

Answer 22

The employer must actually give the meal or lodging directly to the employee. It cannot give the value thereof.