Individual ncome Tax Ch 4 Flash Cards

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Title: Individual ncome Tax Ch 4
Description: Individual ncome Tax Ch 4
Number of Cards: 52
Save Count: 0
Author: bthurman7
Created: 2007-02-11
Tags: 4 ch individual ncome tax
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    • Question
    • Answer
    • Side 3
    • the change in net worth added to the goods and services consumed, plus the imputed values for owner occupied home, and the value of food a taxpayer might grow for personal consumption
    • economic income
    • the accounting concept of income is founded on the ___ ___
    • realization principle
    • for realization to occur
    • an exhchange of goods or services must take place between the accounting entity and some INDEPENDENT EXTERNAL group
      in the exchange the accounting entity must receive assets that are capable of being objectivly valued
    • the imputed savins that arise when individuals create assets for their own use are
    • not income because no exchange has occurred
    • ___ and ___ found satisfy the realization requirement and must be _______
    • embezzeled funds;buried treasures, recognized as income
    • Gross income includes income realized
    • in any form, whether in money, property,or services.
    • The supreme court has ruled that ther is no income subject to tax until
    • the taxpayer has recoverd the capital invested
    • the three primary methods of accounting are
    • cash receipts and disbursement
      accrual method
      hybrid method
    • The regulations require the __ for determining purchases and sales when inventory is an income producing factor
    • accrual method
    • when a taxpayer chooses to spread the gain from an installment sale of property over the collection periods by using the
    • installment method
    • when contractors spread profits from contracts over the periods in which the work is done
    • percentage of completion method
    • defer all profit until the year in which the project is completed
    • the completed contract method
    • A change in accounting period requires
    • the consent of the IRS
    • property or services received are included in the tapayers gross income --
    • in the year of actual constructive receipt
    • under the accrual method an item is gernerally included in the gross income
    • in the year in which it is earned
    • under the accrual method the income is earned when
    • all the events have occured that fix the right to receive such income


      the amount to be received can be determined with reasonable accuracy
    • when the rights to income have accrued but are subject to a potential refund claim, then
    • the income is reported in the year of sale and a deduction is allowed in subsequent years when actual claims accrue
    • If the rights to income are being contested, then the year in which the inocome is subject to tax depends on
    • whether payment has been received
    • income that has not actually been received by the taxpayer is taxed as though it had been received and it is constructivley received when
    • the amount is made readily avaiable to the taxpayer

      The taxpayers actual receipt is not subject to substantial limitaions or restrictions
    • If the income is available the taxpayers should not be allowed to postpone the income recognition, this concept is called
    • constructive receipt
    • To have constructive receipt the income must be ___ and ___ may not be placed upon the funds
    • readily available
      substantial limitations or restrictions
    • bond type transactions that have a payment at maturity of more than the original loan requires that
    • the discount be reported when earned, regardless of the taxpayers accounting method, the interest earned is caluclated by the effective interest rate method
    • What can limited income people do to offset the deferral feature of government bonds to limit tax liability the year the bonds come due
    • they can elect to include in gross income the annual increment in redemption value
    • if you elect to report income from US Bonds incrementally you must
    • applly that election to all such bonds, a change in the reporting method requires permission from the IRS
    • A deposit will be ___ if it is held and repaid to the customer when no damage occurs, if it is a prepayment of rent it is___
    • not recognized until deposit is forfeited, recognizes at receipt
    • If the method of accounting for the sale is the same for tax and financial reporting purposes, a taxpayer can
    • elect to defer recognition of income from advance payments for goods
    • The portion of the advance payment for services that relates to services performed in the tax year of receipt is-- The portion that relates to services to be performed after the tax year of receipt is
    • included in gross income; included in gross income in the tax year following the tax year of receipt of the tax payment
    • __ and __ are always taxed in the year of receipt
    • prepaid rent and prepaid interest
    • In the case of a child, the code specifically says that amounts earned from personal services must be included ____. This result applies even thought income is paid to other persons (parents)
    • must be included in the childs gross income
    • Income from property must be included
    • in the gross income of the owner of the property
    • Interest for the period that includes the date of the transfer is allocated
    • between the tranferor and transferee based on the number of days during the period that each owned the property
    • If the transfer of property was a gift, then income from the property must be recognized when?
    • when the income would have normally been recognized by the original owner
    • if the transfer of property was a sale, then the income from the property must be recognized when?
    • at the time of sale
    • Partial releif from the double taxation of dividends has been providced in the
    • jobs and growth tax releif reconcilitaion act of 2003
    • generally dividends received in taxable years beginning after 2002 are taxed at
    • the same marginal reate that is applicable to a net capital gain.

      Dividends receive favorable treatment as compared to interest income
    • Qualified dividends are not treated as
    • captial gains in the captial gains and losses netting process
    • Excluded in the beneficial tax treatment of qualified dividends is
    • SOME dividends from foreign corporations, dividends from tax-exempt entities, and dividends that do not satisfy the holding period requirement
    • A dividend from a foreign corporation is eligible for qualified dividend status if
    • 1) the foreign corporations stock is traded on an established US stock market
      2)the foreign corporation is eligible for the benefits of a comprehensive income tax treaty between its country and the US
    • To satisfy the holding period requirement the stock on which the dividend is paid must
    • have been held for more than 60 days during the 120 day period beginning 60 days before the ex-dividend date
    • Why does the holding period requirement exist?
    • Because someone could buy the stock shortly before the dividend is paid, receive the dividend, and then sell the stock at a loss after the stock goes ex-dividend
    • Unlike interest, dividends do not accrue on a daily basis because __
    • the declaration of a dividend is at the discreation of the corporation's board of directors.
    • If a taxpayer sells stock after a dividend has been declared but before the record date, the dividend generally will be
    • taxed to the purchaser
    • If a donor makes a gift of stock to someone after the declaration date but before the record date, the Tax Court has held that the donor
    • does not shift the dividend income to the donee
    • a __ is not a separate taxable entity
    • partnership
    • the partnership files a Form 1065 which is
    • an information return that serves to provide the data necessary for determining the character and amount of each partners distributive share of the partnerships income and deductions
    • Income must be reported by each partner___ even if
    • in the year it was earned; it was not distributed
    • an small business corporation may elect to be taxed similarly to a ___ this corporation is called
    • partnership; s corporation
    • Congeress has developed a simple spouse or former spouse in a community property state is taxed only on his or her actual earnings from personal services if the following condiditions are met
    • 1. The individuals live apart for the entire year
      2. They do not file a joint return together
      3. No portion of the earned income is transferred between individuals
    • alimony and separate maintenance are _____ by the party making the payments and are___ in the gross income of the party receiving the payments
    • deductible; includible
    • Alimony and separate maintenance payments do what with the income and why
    • income is shifted from the income earner to the income beneficiary who is better able to pay the tax on the amount received
    • In the case of cash payments, payments are classified as alimony only if the following conditions are met
    • 1. The payments are in cash
      2. The agreement or decree does not specify that the payments are not alimony
      3. The payor and payee are not members of the same household at the time payments are made
      4. There is no liability to make payments for any period after the edeath of the payee
    • Transfer of property other than cash is handled HOW
    • the transferor is not entitled to a deduciton and does not recognize gain or loss on the transfer. The tranferee does not recognize income and has a cost basis equal to the transferor's basis