TAX3701 Assignment 1 (COMPLETE ) Semester 1 2026 - DUE 26 March
2026
1
,when is excluded income taxed?
never
when is deferred income taxed?
when it is recognized in a subsequent year
what kind of income to taxpayers report on their tax returns for the year?
recognized income
what is included in gross income?
all income from whatever source derived
what does the concept of legislative grace mean when it comes to defining gross
income?
when defining gross income, congress made it clear that any exceptions are a
matter of legislative grace.
what is included in gross income? (7)
1. compensation for services, including fees fringe benefits and similar items
2. gross income derived from businesses
3. gains derived from dealings in property
4. interest
5. rents
2
,6. royalties
7. dividends
when do taxpayers recognize gross income?
1. they receive an economic benefit
2. they realize the income
3. the tax law does not provide for exclusion or deferral
are borrowed funds gross income?
no, these represent a liability not gross income
what does the realization principal say about gross income?
the realization principal occurs when taxpayers engage in a transaction and the
transaction results in a measurable change in property rights
how is realized income recognized?
realized income is assumed to be recognized absent a deferal or exclusion
provision
do transactions have to include an exchange of cash to be recognized income?
no!!
what is an example of a non- cash transaction?
If I agree to do my neighbor's taxes in exchange for painting my house, tax law
views me as having paid my neighbor to paint my house and him as having paid
me
3
, back to do his taxes for him.
is this taxable? Al works at Walmart and steals $50 from his register.
yes taxable, income earned illegally is still gross income so it is taxable
is this taxable? The Cesarini's purchase a piano for $15 and find $4,500 inside
yes this is taxable, income found is included in gross income so it is taxable: this is
known as the treasure trove doctrine
is this taxable? Lucas wins an Oklahoma casino sweepstakes and receives a new
truck as his prize.
yes, it is taxable the truck is equal to its fair market value so he will pay taxes on
that fmv of the truck.
what determines the applicable rates to income/ loss in a current year?
the character of the income/ loss
what does it mean for something to be tax exempt
you do not have to pay tax on it
what does it mean for something to be tax deffered?
you do not have to pay tax on it in the current year
what does it mean for something to be taxed ordinary?
it is taxed at ordinary rates from a tax schedule
how are capital gains/losses taxed?
at preferential rates, 0%, 15%, 20%
4
2026
1
,when is excluded income taxed?
never
when is deferred income taxed?
when it is recognized in a subsequent year
what kind of income to taxpayers report on their tax returns for the year?
recognized income
what is included in gross income?
all income from whatever source derived
what does the concept of legislative grace mean when it comes to defining gross
income?
when defining gross income, congress made it clear that any exceptions are a
matter of legislative grace.
what is included in gross income? (7)
1. compensation for services, including fees fringe benefits and similar items
2. gross income derived from businesses
3. gains derived from dealings in property
4. interest
5. rents
2
,6. royalties
7. dividends
when do taxpayers recognize gross income?
1. they receive an economic benefit
2. they realize the income
3. the tax law does not provide for exclusion or deferral
are borrowed funds gross income?
no, these represent a liability not gross income
what does the realization principal say about gross income?
the realization principal occurs when taxpayers engage in a transaction and the
transaction results in a measurable change in property rights
how is realized income recognized?
realized income is assumed to be recognized absent a deferal or exclusion
provision
do transactions have to include an exchange of cash to be recognized income?
no!!
what is an example of a non- cash transaction?
If I agree to do my neighbor's taxes in exchange for painting my house, tax law
views me as having paid my neighbor to paint my house and him as having paid
me
3
, back to do his taxes for him.
is this taxable? Al works at Walmart and steals $50 from his register.
yes taxable, income earned illegally is still gross income so it is taxable
is this taxable? The Cesarini's purchase a piano for $15 and find $4,500 inside
yes this is taxable, income found is included in gross income so it is taxable: this is
known as the treasure trove doctrine
is this taxable? Lucas wins an Oklahoma casino sweepstakes and receives a new
truck as his prize.
yes, it is taxable the truck is equal to its fair market value so he will pay taxes on
that fmv of the truck.
what determines the applicable rates to income/ loss in a current year?
the character of the income/ loss
what does it mean for something to be tax exempt
you do not have to pay tax on it
what does it mean for something to be tax deffered?
you do not have to pay tax on it in the current year
what does it mean for something to be taxed ordinary?
it is taxed at ordinary rates from a tax schedule
how are capital gains/losses taxed?
at preferential rates, 0%, 15%, 20%
4
