Chapter 5 handout

Chapter 5 handout -...

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Chapter 5  An item is income unless the taxpayer can identify specific authority for excluding it.  1. Gifts     : excluded from taxable income, however, future income generated from income- producing property is taxable Exception:  Employers cannot give non-taxable gifts to employees, however, if death benefits are  provided to the spouse or beneficiary of a deceased employee and the employer was  under no obligation to do so, then these death benefits are not taxable.  2. Life Insurance Proceeds     : Not taxable if received because of reason of death only.  3. Scholarships     : The portion of the scholarship that pays for tuition and supplies is not  taxable to the recipient, however, any portion of the scholarship for room and board is  taxable.  Timing Issues with Scholarships If a recipient of a scholarship receives the scholarship in one year, but does not incur  tuition and supplies costs during that same year in a cumulative amount to equal or  exceed the scholarship funds, typically the excess would be taxable to the recipient.  However, the IRS has made an exception to say that the scholarship monies in excess of  the current year tuition and supplies costs may be “held-open”, that is, not taxable in the 
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This note was uploaded on 12/22/2010 for the course BUSACC 1242 taught by Professor Staff during the Spring '10 term at Pittsburgh.

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Chapter 5 handout -...

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