Income Taxation Principles Flashcards
7 cards from real CLU practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Income Taxation Principles flashcards as text
When an employer provides a split-dollar life insurance arrangement under the economic benefit regime, the employee must recognize income equal to:
Answer: The economic benefit of the pure insurance protection provided
Under the economic benefit regime, the employee recognizes income equal to the cost of the current life insurance protection provided, measured by the Table 2001 rates.
A corporation owns a life insurance policy on a key executive and is the beneficiary. At the executive's death, the death benefit received by the corporation is:
Answer: Generally income-tax-free under IRC Section 101(a)
Corporations generally receive life insurance death proceeds income-tax-free under IRC Section 101(a), subject to COLI rules for post-2006 policies.
Which of the following life insurance policy loans triggers immediate income tax?
Answer: A loan from a MEC that constitutes a distribution
Loans from a Modified Endowment Contract (MEC) are treated as distributions subject to LIFO taxation, making gains immediately taxable.
For a self-employed individual, health insurance premiums paid for themselves, their spouse, and dependents are deductible:
Answer: Above-the-line up to 100% of net self-employment income
Self-employed individuals may deduct 100% of health insurance premiums above the line, but not to exceed net self-employment income.
Which statement correctly describes the income tax treatment of long-term care insurance benefits received?
Answer: Indemnity benefits are tax-free up to the per-diem limit; reimbursement benefits are tax-free for actual expenses
Reimbursement-type LTC benefits are tax-free for actual qualified LTC expenses; indemnity-type benefits are tax-free up to the IRS per-diem dollar limit.
A variable annuity owner age 55 takes a $20,000 withdrawal from a contract with a $15,000 cost basis and $30,000 of gain. Under LIFO rules, how much is subject to the 10% early withdrawal penalty?
Answer: $20,000
Under LIFO, the entire $20,000 withdrawal comes from gain (since gain of $30,000 exceeds the withdrawal), and the full $20,000 is subject to both income tax and the 10% early withdrawal penalty.
The income in respect of a decedent (IRD) rules apply to which of the following assets?
Answer: Traditional IRA balances inherited by a non-spouse beneficiary
Traditional IRA balances represent income the decedent never recognized, making distributions to beneficiaries IRD taxable as ordinary income.