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Unformatted text preview: Chapter 05 - Gross Income and Exclusions Chapter 05 Gross Income and Exclusions True / False Questions 1. Gross income includes all income realized during the year. True False 2. Excluded income will never be subject to the federal income tax. True False 3. The all-inclusive definition of income means that gross income is defined very broadly. True False 4. A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income. True False 5. Income is included in gross income unless a tax provision specifies that it can be deferred or excluded. True False 6. The principle of realization for tax purposes is very different from realization as it is understood for financial reporting purposes. True False 7. Wherewithal to pay represents the principle that a realized transaction should require a taxpayer to sell other assets in order to pay income taxes. True False 5-1 Chapter 05 - Gross Income and Exclusions 8. Barter clubs are an effective means of avoiding realization for tax purposes. True False 9. The cash method of accounting requires taxpayers to recognize income only when that income is received as cash. True False 10. When a carpenter provides $100 of services in exchange for $100 of groceries, the carpenter has realized $100 of income. True False 11. Recognized income may be in the form of cash or property received (but not services received). True False 12. When a taxpayer sells an asset, the entire proceeds from the sale must be included in gross income regardless of the cost of the asset. True False 13. Jake sold his car for $2,400 in cash this year. He will realize a taxable gain of $1,000 if he purchased the car for $1,400. True False 14. When an asset is sold, the taxpayer calculates the gain or loss by subtracting the tax basis of the asset from the proceeds of the sale. True False 5-2 Chapter 05 - Gross Income and Exclusions 15. The tax benefit rule applies when a taxpayer refunds amounts previously included in income. True False 16. Jim received a $500 refund of state income taxes this year. Jim will not need to include the $500 in his gross income this year because he did not deduct state income taxes last year. True False 17. Constructive receipt represents the principle that cash basis taxpayers should be taxed on income when it is made available to them without substantial restrictions. True False 18. Claim of right states that income has been realized if a taxpayer receives income and there are substantial restrictions on the taxpayer's use of the income. True False 19. Community property laws dictate that income earned by one spouse is treated as though it was earned equally by both spouses. ...
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