Chapter 3 Flashcards
(86 cards)
What are the tests in determining gain?
Severance/Realization
Tax Benefit Rule (Recovery of an Expense)
Economic Benefit
In this test, income is the separation of something from the capital that is of exchangeable value.
Severance/Realization
In this test, prior to the recovery of the expense, the expense was deducted from the income and the recognition of the expense as an allowable deduction resulted to the payment of lower taxes.
Tax Benefit Rule (Recovery of an Expense)
This doctrine applies to cash basis taxpayers who receive compensation for their services. It presupposes that taxpayer is taxed when a taxpayer receives an absolute right to receive property in the future.
Economic Benefit
This is the total amount earned from a sales transaction.
Gross sales
This represents the cost of capital. It is the business expenses directly incurred coproduce the merchandise or bring them to their present location.
Cost of Goods Sold
This is equivalent to gross sales less COGS less sales returns, discounts, and allowances
Gross income
This is regarded as the best measure of a taxpayer’s ability to pay tax.
Income
Under the NIRC, what is taxable income?
It is the gross income less deductions and personal exemptions by the law.
This is broadly defined as any inflow of wealth to the taxpayer from whatever source, legal or illegal, that increases net worth.
Gross income
Is income from illegal means taxable?
Yes
What are the requirements of taxable income?
There must be gain
Gain must be realized, received, and/or earned
Gain must not be excluded by law or treaty from taxation
This means any wealth or property.
Capital
Differentiate return on capital and return of capital
Return on capital increase net worth while return of capital is just returning the capital to the person. It merely maintain net worth.
What are capital items with infinite value?
Health
Life
Human reputation
This is the process of determining if a civil action is readily available of being valued in terms of cash or money.
Pecuniary valuation
Are capital items with infinite value capable of pecuniary valuation?
No since they have infinite and immeasurable value
Are the proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise taxable?
No, they are exempt
Are the proceeds of a life insurance contract collected by an employer as a beneficiary from the life insurance of an officer or any person directly interested with his trade taxable?
No, they are exempt
Is any excess amount received over premiums paid by the insured upon surrender or maturity of the policy taxable?
Yes
Is gain realized by the insured from the assignment or sale of his insurance policy taxable?
Yes
Is interest income from the unpaid balance of the proceeds of the policy taxable?
Yes
Is any excess of the proceeds received over the acquisition costs and premium payments by an assignee of a life insurance policy?
Yes
Are moral damages paid taxable?
No it is a return of capital
