The ___ portion, but not the ____ portion is of amounts cfollected ona life insurance policy rec'd in installments is excluded from gross income.

In order for meals provided by the employer to be excluded from income of the employee what three tests must be met?

1. The meals must be furnished by the employer.

2. Must be furished on the employment grounds.

3. Must be for convienience of the employer.

In order for lodging provided by an employer to be excluded from income of the employee, what 4 tests must be met?

1. must be furnished by employer

2. must be furnished on employers business premises

3. must be for the convenience of the employer

4. employee is required to accept lodging as condition of employment

The maximum amount of foreign earned income that may be excluded from gross income in 2012 by a taxpayer is ____?

1. No-additional-cost services

2. Qualified employee discounts

3. Working condition fringes

4. De Minimis fringes

5. Qualified transportation fringes

6. Qualifed moving expense reimbursements

7. Qualified retirement planning services

What conditions must be met for the "No-additional-cost service" type of fringe benefit

1. The employee receives services not property

2. The employer does NOT incur substantial addional cost, including forgone cost (opportunity cost)

3.The services are offered to customers in the ordinary course of the business in which the employee works.

-Extends to the empee's spouse and dependant children as well as retired and disabled former employees

*can NOT be offered on a discriminatory basis

What is qualified employee discount and when can it be excluded from gross income?

When an employer sells goods or services (other than no-additinal-cost benefits) to the employee for a discount as compared with regular customers, the employee realizes income equal to the discount. 

It can be excluded if:

1. The exclusion is not available for real or personal property of the type commonly held for investment. (house, C.S.)

2. The property or services must be from the same line of business in which the empee works

3.with property, the exclusion is limited to the gross profit component of the price to customers

4.In the case of services the exclusion is limited to 20% of the customer price

*can NOT be offered on a discrimintory basis

Generally an employee is not required to include the cost of property or services provided by the empER in gross income IF the empee could deduct those items anyway if he had actually paid for them

2 exceptions where an exclusion is allowed even though the expense would not be deductible:

1.Car salesman are allowed to exclude the value of certain personal use of company demonstrators (commuting to and from work)

2. The empee business expense would be eliminated by the 2 percent floor on miscellaneous itemized deductions

*can be offered on a discriminatory basis

Benefits that are so small that accounting for them is impractical.

*Can be offered on a discrimitory basis

Purpose: to encourage the use of mass transit to and from work

The following are qualified:

1. Transportation in a commuter highway vehicle between the employee's residence and place of employment

2. A transit pass

(1 & 2 have a limit of $125 for 2012)

3. Qualified Parking

(Limit on exclusion is $240/month)

4. Qualified bicycle commuting reimbursement

(empee can exclude up to $20/month)

-any highway vehicle with a seating capacity of at least 6 adults (excluding the driver)

-AND atleast 80% of the vehicles use must be for transporting employees between their residences and place of employment.

What constitutes qualified parking?

1. Parking provided to an employee on or near the employer's business premises.

2. Parking provided to an employee on or near a location from which the employee commutes to work via mass transit, in a commuter highway vehicle, or in a carpool. 

includes any retirement planning advice or info that an employer who maintains a qualified retirement plan provides to an employee or empee's spouse

To which benefits do the nondiscrimination provisions apply?

1. No-additional-cost services

2. Qualified employee discounts on goods & services

3. Qualified retirement planning services

If it is discriminatory in favor of highly compensated employees, these key employees are denied the exclusion treatment! 

-the non-highly compensated empee's can still enjoy the exclusion

Ex: Highly compensated gets 30% discount where as the non-high only gets a 15% discount. The highly must recognize 30% tax on the item.

What 2 things can a taxpayer elect to do with foreign earned income?

They can either

1. Include the foreign income in his or her taxable income and then claim a credit for foreign tazes paid or 

2. exclude the foreign earnings from his or her U.S. gross income (the foreign earned income exclusion)

To qualify for the foreign earned incom eclusion, the taxpayer must

be either of the following:

1. A bona fide resident of the foreign country (or countries)

2. Present in a foreign country (or countries) for at least 330 days during any 12 consecutive months

Joe had taxable income of $400 before claiming a $700 deduction for Bad Debts. In the next year, the customer unexpectedly paid the $700. How much of the recovery should joe include in year 2's income?

Income is recognized in the year of recovery to the extent the deduction reduced taxable income in the earlier year.

So Joe would have to include $400 in this years income

When are Accident and Health Insurance Benefits excludible?

Benefits collected under a policy purchased by the taxpayer are excludible.

What are the rules about Accident and Health insurance plans that are purchased by the indivudal's employer?

(as well as disibility & long-term care plans)

The Premiums are deductible by the employer and excluded from the employee's income

Employee's must generally include the benefits in GI

BUT, the code excludes payments rec'd for medical care of the employee, spouse and dependant.

If payments are for expenses that do not meet the Code's definition of medical care, the amount rec'd must be included in GI

-TP must also include any amount rec'd for medical expenses that were deducted by the TP on a prior return

-Pmts that are a substitute for salary are includible

What are the tax rule with Long-Term Care Insurance Benefits

The employee does NOT recognize income when the employER pays the premium, subject to annual limits.

When benefits are rec'd (either empee/er purchased), the exclusion from GI is limited to the greater of the following:

1. $310 for each day the patien receives the long-term care

2. The actual cost of the care

The above amount is reduced by any amount rec'd from other third parties (ex. damages rec'd)

*exclusion is not available if it is provided as part of a cafeteria or flex. spding plan*

Housing Rule about Employee's of Educational Institutions

Generally, the employee does not recognize income if he or she pays annual rents equal to or greater than 5% of the appraised value of the facility. If rent payments are less than 5%, the difference is included.

Ex.

Appraised Value of house= $100k

Yearly Rental Value= $12k

Empee pays $3k rent anually

100k*5%= $5k-$3k=$2k must be recognized

As far as housing, what can ministers of the gospel/religious leaders exclude?

1. The rental value of a home furnished as compensation

2. A rental allowance paid to them as compensation, to the extent that allowance is used to rent or provide a home

3. The rental value of a home owned by the minister

1.The facility MUST be on the employer's premises

2. Substantially all of the use of the facilities must be by employees and their family members

A. Qualified Employer-Provided Educational Assitance

-Covers tution, fees, books and supplies NOT meals, lodging and transportation.

-The exclusion is subject to an annual employee statutory ceiling of $5,250

When insurance policy's are transferred for valuable consideration, the insurance proceeds are included in GI less the amount that was paid for the policy. 

What are the 4 exceptions?

1. A partner of the insured

2. A partnership in which the insured is a partner

3. A corporation in which the insured is an officer or a shareholder

(#1-3 another-words, the TP can cash in his personal policy for little or no tax and use it to buy out the share of the partner who died)

4. A transferee whos basis in the policy is determined by reference to the transferor's basis.

Rule about adoption expenses

 -empee can exclude up to $12,650 of expenses incurred tpo adopt a child where the expenses are paid or reimbursed by the employer under a qualified adoption assistance program

When an employee is offered the choice of cash or other compensation they have constructivly rec'd the cash even if they didnt take it EXCEPT with

Cafeteria Plans

The employee can choose between cash and nontaxable benefits. 

(if they choose cash it must still be included in GI)

*Long Term Care insurance is excluded from the excludible benefits

The empee accepts lower cash compensation in return for the employer agreeing to pay certain costs that the emplee doesn't have to include in GI

-The empee must estimate the expenses for the year and  agree to their salary being reduced by that much. The employer pays or reimburses the employee for the actual expenses incurred, up to the agreed salary deduction.

*use it or lose it- They have until the 15 day of the 3rd month after the end of the plan year

Besides the 7 broad categories of employee benefits, benefits are taxable. How do you measure the benefits?

The amount of income to be recognized is the FMV of the benefit

1. A bonafide resident of the foreign country

2. Present in a foreign country for atleast 333 days during any 12 consecutive months

can exclude up to $95,100

What kinds of bonds are exempt from taxation?

Soley state and local government bonds

Federal bonds are still taxed by the feds

Fed doesnt tax state and state doesn't tax fed BUT a state may tax a bond from another state

1. the corporation's current earnings and profits OR

2. accumulated earnings and profits

The SH would realize GI whether he or she receives stock or cash.

The amount of income in this case is the value of the stock received rather than the cash the SH rejected

1.The savings bonds are issued after December 31, 1989

2. The savings bonds are issued to an individual who is at least 24 years old at the time of issuance

*not available to married couples who file separate returns

When can expenses other than tuition and fees (such as supplies, room and board, books, computers) be exempt from income?

Under a Qualified tuition program (section 529 Plan)

The earnings are not included in Federal gross income

What kind of situations does the code allow the debtor to reduce their basis in the assets by the realized gain from the discharge??

-discharges under federal bankruptcy law

-discharges that occur when the debtor is insolvent

-discharge of the farm debt of a solvent taxpayer

-discharge of qualified real property business indebtedness

-discharge of indebtedness on the TP's principal residence that occurs between Jan 1, 2007 - Jan 1, 2013, and is the result of the financial condition of the debtor