IRS Income and Assets 2

Question 1

A taxpayer receives a cash inheritance of $50,000 from a deceased relative. How is this treated for federal income tax purposes?

Accepted Answer

It is excluded from gross income

Answer

It is fully taxable as ordinary income

Answer

It is taxable only above $10,000

Answer

It is reported as a capital gain

Question 2

Which of the following is considered 'constructive receipt' of income?

Accepted Answer

A bonus check mailed December 31 that the taxpayer could have picked up but did not

Answer

A check received on January 3 for December services

Answer

Wages earned but not yet paid by year-end

Answer

Deferred compensation that cannot be accessed until retirement

Question 3

A taxpayer sells stock for $15,000 that was purchased for $10,000 two years ago. What is the character of the $5,000 gain?

Accepted Answer

Long-term capital gain

Answer

Ordinary income

Answer

Short-term capital gain

Answer

Section 1231 gain

Question 4

Under the claim of right doctrine, when must income be reported if received under a claim of right?

Accepted Answer

In the year received, even if it may have to be repaid

Answer

When the right to retain it becomes certain

Answer

Only after any obligation to repay has expired

Answer

When the dispute is resolved by a court

Question 5

What is the tax treatment of municipal bond interest received by a US taxpayer?

Accepted Answer

Exempt from federal income tax but may be subject to state tax

Answer

Taxable as ordinary income at all levels

Answer

Subject to the alternative minimum tax only

Answer

Taxable as a capital gain

Question 6

A taxpayer wins $5,000 at a casino. How should this be reported?

Accepted Answer

As other income on Schedule 1, fully taxable

Answer

Not reported if winnings are under $10,000

Answer

As a capital gain

Answer

Only reported if a Form W-2G is received

Question 7

A self-employed consultant receives payment in the form of services (barter) rather than cash. How is this treated for tax purposes?

Accepted Answer

Taxable at the fair market value of the services received

Answer

Not taxable because no cash changed hands

Answer

Taxable only if the services exceed $600 in value

Answer

Deferred until the services are resold