Question

1. What is the taxpayer’s gross income in each of the following situations?

1. Darrin received a salary of $50,000 in 2018 from his employer, Green Construction.
2. In July 2018, Green gave Darrin an all-expense-paid trip to Las Vegas (value of $3,000) for exceeding his sales quota.
3. Megan received $10,000 from her employer to help her pay medical expenses not covered by insurance.
4. Blake received $15,000 from his deceased wife’s employer “to help him in his time of greatest need.”
5. Clint collected $50,000 as the beneficiary of a group term life insurance policy when his wife died. The premiums on the policy were paid by his deceased wife’s employer.

6. Determine the effect on gross income in each of the following cases:

1. Eloise received $150,000 in settlement of a sex discrimination case against her former employer.
2. Nell received $10,000 for damages to her personal reputation. She also received $40,000 in punitive damages.
3. Orange Corporation, an accrual basis taxpayer, received $50,000 from a lawsuit filed against its auditor who overcharged for services rendered in a previous year.
4. Beth received $10,000 in compensatory damages and $30,000 in punitive damages in a lawsuit she filed against a tanning parlor for severe burns she received from using its tanning equipment.
5. Joanne received compensatory damages of $75,000 and punitive damages of $300,000 from a cosmetic surgeon who botched her nose job.

Answer 1

What is the taxpayer’s gross income in each of the following situations?	Gross Income
Darrin received a salary of $50,000 in 2018 from his employer, Green Construction.	50,000.00
In July 2018, Green gave Darrin an all-expense-paid trip to Las Vegas (value of $3,000) for exceeding his sales quota.	$                 3,000.00
Megan received $10,000 from her employer to help her pay medical expenses not covered by insurance.	$               10,000.00
Blake received $15,000 from his deceased wife’s employer “to help him in his time of greatest need.”	$               15,000.00
Clint collected $50,000 as the beneficiary of a group term life insurance policy when his wife died. The premiums on the policy were paid by his deceased wife’s employer.	$                            -	Clint Inc. is the beneficiary of a life insurance policy it purchased and whose proceeds were paid upon the death of the insured.  Therefore, the proceeds are excluded from its gross income
Determine the effect on gross income in each of the following cases:
Eloise received $150,000 in settlement of a sex discrimination case against her former employer.	$             150,000.00	The settlement in the sex discrimination case did not arise out of physical personal injury or sickness.  Therefore, the $150,000 is included in Eloise’s gross income.
Nell received $10,000 for damages to her personal reputation. She also received $40,000 in punitive damages.	$               50,000.00	The damages to Nell’s personal reputation are not for physical personal injury or sickness.  Therefore, Nell must include the $10,000 in her gross income.  She must also include the $40,000 punitive damages in her gross income.
Orange Corporation, an accrual basis taxpayer, received $50,000 from a lawsuit filed against its auditor who overcharged for services rendered in a previous year.	$               50,000.00	The damages of $50,000 are included in Orange Corporation’s gross income under the tax benefit rule, assuming the company received tax benefit from deducting the audit fees in a previous year
Beth received $10,000 in compensatory damages and $30,000 in punitive damages in a lawsuit she filed against a tanning parlor for severe burns she received from using its tanning equipment.	$               30,000.00	The compensatory damages of $10,000 for the physical personal injury are not included in Beth’s gross income, but the punitive damages of $30,000 must be included in her gross income.
Joanne received compensatory damages of $75,000 and punitive damages of $300,000 from a cosmetic surgeon who botched her nose job.	$             300,000.00	Since the compensatory damages of $75,000 arose from a physical personal injury, they are excluded from Joanne’s gross income.  The punitive damages of $300,000 are included in her gross income.