False Short answer Questions Provide a brief written answer to each of the

False short answer questions provide a brief written

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23. False Short-answer Questions: Provide a brief written answer to each of the following questions.1. Explain the relationship between realization and recognition of gains or losses.2. Why do tax accounting principles differ from GAAP?3. How is the return of capital principle related to basis?4. What are acceptable fiscal years for tax purposes?5. When is a taxpayer required to annualize income for a short tax year?6. Explain the doctrine of constructive receipt and the claim of right doctrine.7. Explain what is meant by the all-events test.8. Explain the two acceptable methods for recognizing income on long-term contracts.9. What is the purpose of the original issue discount rules?10. Explain the tax treatment of a gift loan.11. What is an annuity? How is annuity income taxed?12. What types of government transfer payments are excluded from gross income?
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Chapter 3: Determining Gross Income 3 13. Explain the difference in tax treatment of child support and alimony.14. What is the tax benefit rule? Provide an example of its application. 15. Explain the normal tax treatment of life insurance proceeds.16. When is money received in the form of a scholarship included in income?17. Briefly identify and define the two principles that guide the determination of who will be taxed by a specific jurisdiction.18. How does an alien achieve residency status for taxation in the United States?Short-answer Questions 1. A gain or loss cannot be recognized unless there is realization through some form of exchange transaction, such as a sale, exchange, casualty, abandonment, or other event for tax purposes. Recognitionof this gain or loss cannot take place unless there first is realization through this exchange transaction. Thus, recognition cannot occur without first having realization.2. Tax accounting principles differ from GAAP because they have different purposes. Financial accounting and GAAP seek to provide information to shareholders, creditors, and other users of financial statements in a way that is understandable and relatively consistent across various firms and industries. The tax system, on the other hand, is designed to collect revenue in an equitable manner.3. Basis, or adjusted basis, is the measure of the capital a taxpayer has invested in an asset that has yet to be recovered (returned) through a sale or other event. The taxpayer is permitted to recover this basis before gain is realized or recognized. 4. Acceptable fiscal years include any 12-month period ending on the last day of any month other than December; a 52-53 week fiscal year that ends on the same day of the week (such as Friday), which is either the last day of the month or the day closest to the end of the month each year.5. A taxpayer must annualize income for a short tax year only when that short tax year is a result of a change in tax years. Annualization is not required in a taxpayer’s first or last tax year.6. Constructive receipt requires a cash-basis taxpayer to recognize income when the cash or cash
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  • Spring '11
  • FRIEND
  • Taxation in the United States

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