EXAM II REVIEWQUESTIONS
Indicate whether the statement is true or false.
A gift made by an employer to the employee can be excluded from the employee’s gross income.
Ed died while employed by Violet Company. His wife collected $50,000 on a group-term life insurance
policy that Violet provided its employees, and $5,000 of accrued salary Ed had earned prior to his death. Ed’s
required to recognize any income from the receipt of the $55,000.
Amber received an academic scholarship that was to pay her tuition, room and board, and books. Amber is
required to recognize gross income from the scholarship proceeds.
The room and board part does not qualify for exclusion treatment under § 117. The amount received for
tuition and books is excludible.
In December 2006, Tonya, a cash basis taxpayer, received a $3,000 cash scholarship for the Spring semester
of 2007. In January 2007, she used the $3,000 to pay her college tuition. Tonya must include the $3,000 in her
2006 gross income, but she is allowed a $3,000 deduction in 2007.
Graduate teaching assistantships are generally scholarships and therefore are excluded from gross income.
In 2006, Joyce was in an automobile accident and suffered physical injuries. The accident was caused by
Ramon’s negligence. In 2007, Joyce collected from the insurance company. She received $15,000 for loss of
income, $5,000 punitive damages, and $8,000 for medical expenses which she had not deducted on her 2006
tax return. As a result of the above, Joyce’s 2007 gross income is increased by $28,000.
Worker’s compensation benefits are excluded from gross income.
Sam received $25,000 of salary, interest, and dividends in 2006. He also received $10,000 as worker’s
compensation benefits. Sam must include either 50% or 85% of the worker’s compensation benefits in gross
income for 2006.
Sarah’s employer pays the hospitalization insurance premiums for a policy that covers all employees and their
family members. The premiums for Sarah’s medical coverage can be excluded from her gross income, but the
premiums for her family members must be included in her gross income.
Meg’s employer carries insurance on its employees that will pay an employee his or her regular salary while
the employee is away from work due to illness. Meg was absent from work for two months as a result of a
kidney infection. Meg’s employer’s insurance company paid Meg’s regular salary of $8,000 while she was
away from work. Meg is required to include the sick pay in her gross income.
The insurance premiums paid by the employer may be excluded from gross income, but the benefits received
of $8,000 must be included in Meg’s gross income.