In Year 1, T receives a parcel of real estate worth $50,000 in exchange for the performance of services. T sells the property in Year 2 for $55,000. a. Although T would realize $50,000 as income in Year 1, she would not recognize any income with respect to her services until Year 2 when she converts the property into cash (i.e., she would recognize $55,000 as income in Year 2). b. T would realize and recognize $50,000 as income in Year 1. c. T would realize and recognize $55,000 as income in Year 2. d. T would realize and recognize $50,000 as income in Year 1, and $5,000 as income in Year 2. T uses frequent flyer miles to take his family on a vacation. T received the miles during business travel paid for by his employer. The normal airfare for his vacation would have cost $7,000. a. T must realize and recognize $7,000 as income. b. Although T has realized income, he will not be required to recognize it because the IRS has chosen, as a matter of administrative convenience, not to require taxpayers to recognize the value of frequent flyer tickets earned during employer-paid travel. c. Had T earned the frequent flyer miles during travel he had paid for himself, the issue of income realization and recognition would not arise. d. Both (a) and (c) are correct. e. Both (b) and (c) are correct.
In Year 1, T receives a parcel of real estate worth $50,000 in exchange for the
performance of services. T sells the property in Year 2 for $55,000.
a. Although T would realize $50,000 as income in Year 1, she would not
recognize any income with respect to her services until Year 2 when she
converts the property into cash (i.e., she would recognize $55,000 as income in
Year 2).
b. T would realize and recognize $50,000 as income in Year 1.
c. T would realize and recognize $55,000 as income in Year 2.
d. T would realize and recognize $50,000 as income in Year 1, and $5,000 as
income in Year 2.
T uses frequent flyer miles to take his family on a vacation. T received the miles during
business travel paid for by his employer. The normal airfare for his vacation would
have cost $7,000.
a. T must realize and recognize $7,000 as income.
b. Although T has realized income, he will not be required to recognize it because
the IRS has chosen, as a matter of administrative convenience, not to require
taxpayers to recognize the value of frequent flyer tickets earned during
employer-paid travel.
c. Had T earned the frequent flyer miles during travel he had paid for himself, the
issue of income realization and recognition would not arise.
d. Both (a) and (c) are correct.
e. Both (b) and (c) are correct.
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