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Gross income, constructive receipt of income, claimed income

1. Which of the following does not have to be included in gross income?
I. Lottery winnings
II. Damages from personal injury suit involving back injuries
III. Prize from church raffle

A. I only
B. II only
C. III only
D. I and II only
E. I, II, and III

2. Which of the following is not considered actual receipt or "constructive receipt" of income in the current year?

A. Taxpayer A was informed his check for services rendered was available on December 15 of the current year, but he waited until January 15 of the following year to pick up the check.
B. A payment on a sale of real property was placed in escrow on December 15 of the current year but not received by Taxpayer A until January 10 of the following year, when the transaction was closed.
C. Earned income of Taxpayer A was received by his agent on December 29 of the current year but not received by A until January 5 of the following year.
D. Taxpayer B received a check on December 30 of the current year for services rendered but was unable to make a deposit until January 4 of the following year.

3. During the previous year, Carrie paid $500 of estimated state income tax payments which she also deducted for federal income tax purposes. Early in the current year, Carrie received a refund of $300 of these state tax payments. Carrie immediately placed an illegal bet at 5-to-1 odds and won an additional $1,500. Later in the year, Carrie was short of money and robbed a tavern of $4,000. How much should Carrie include in her income for the current year?

A. $0
B. $1,500
C. $1,800
D. $5,800

Solution Preview

1. Which of the following does not have to be included in gross income?

I. Lottery winnings
II. Damages from personal injury suit involving back injuries
III. Prize from church raffle

A. I only
B. II only
C. III only
D. I and II only
E. I, II, and III

B. As you can see from the citation below, lottery and prizes are specifically included. The damages from an injury suit are non-taxable but if you itemized deduction for the back injuries you may have some income. We'll ignore this nuisance for this question.
http://www.irs.gov/pub/irs-pdf/p4345.pdf
http://www.irs.gov/instructions/iw2g/ar02.html

2. Which of the following is ...

Solution Summary

Your tutorial gives you the reasons and three references for further explanation of the recommended selection. Taxable income rules are explained.

$2.19