CIA Tax Planning & Compliance 4

Question 1

Which IRC provision allows a surviving spouse to exclude up to $500,000 of gain from the sale of a principal residence following a casualty if they sell within 2 years of the spouse's death?

Accepted Answer

Section 121

Answer

IRC Section 121 provides the principal residence exclusion ($250,000 single / $500,000 married), with special rules for surviving spouses who sell within 2 years.

Question 2

A business owner's commercial building is destroyed by a tornado and receives $800,000 in insurance proceeds. The adjusted basis was $600,000. If the owner spends $750,000 on a replacement building, how much gain is recognized?

Accepted Answer

$50,000

Answer

Under Section 1033, gain recognized equals the excess of proceeds over replacement cost: $800,000 − $750,000 = $50,000.

Question 3

Health Savings Account (HSA) contributions are tax-advantaged in which of the following ways?

Accepted Answer

Contributions are tax-deductible, earnings grow tax-free, and qualified withdrawals are tax-free

Answer

HSAs offer a triple tax advantage: deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

Question 4

For federal income tax purposes, life insurance death benefit proceeds paid to a named beneficiary are generally:

Accepted Answer

Excludable from gross income under IRC Section 101(a)

Answer

IRC Section 101(a) excludes life insurance death benefit proceeds from the gross income of the beneficiary.

Question 5

A C-corporation transfers a life insurance policy with a cash value of $80,000 to a key employee as compensation. The tax consequence to the employee is:

Accepted Answer

Ordinary income of $80,000 in the year of transfer

Answer

Transferring a policy with cash value to an employee as compensation results in ordinary income equal to the policy's fair market value (cash value) at transfer.

(CIA) Certified Insurance Appraiser Practice Test

(CIA) Certified Insurance Appraiser Practice Test

CIA Tax Planning & Compliance 4