3. Fringe Benefits. (Obj.

2) The discrimination rule applies to certain fringe benefits, but not to

others.
a. For each category of fringe benefits given, state whether the discrimination rule applies,
and give two examples of specific fringe benefits in that category.
Discrimination Examples of Specific
Fringe Benefit Category Rule Applies? Benefits in Each Category
De minimis fringe benefits _________ ___________________
___________________
Qualified employee discounts _________ ___________________
___________________
Working condition fringe benefits _________ ___________________
___________________
No-additional-cost services _________ ___________________
___________________
On-premise athletic facilities _________ ___________________
___________________
b. What are the tax consequences of violating the discrimination rule?
7. Fringe Benefits. (Obj. 2) A retailer gives a 20% discount to its full-time employees; key

employees are entitled to a 30% discount. During the year, two full-time employees, Fritz
and Tad, each buy goods that sell for $2,000. Fritz is a key employee; Tad is not. Discuss the
tax consequences to Fritz and Tad of the discounts they each received during the year
10. Exclusion for Series EE and I U.S. Savings Bonds. (Obj. 5) Irina cashes in Series I Savings Bonds

during 2014. She receives $18,755, of which $15,000 was principal and the rest interest.
Irina uses the proceeds to pay out-of-state tuition and fees totaling $16,500 for her son, who
is a full-time student during the year. She uses the rest of the proceeds to pay for her sons
room and board. Irinas filing status is head of household. Irinas only other source of income
is her $74,900 salary. Compute Irinas exclusion for Series EE and I interest and her AGI
12. Gross Income Exclusions. (Obj. 1) Indicate, by placing an X in the proper column, whether

each of the following items is includable in or excludable from gross income.

Item Includable Excludable
a. Life insurance proceeds paid because of insureds death _____ _____
b. Workers compensation for a physical injury _____ _____
c. Employer-paid health insurance premiums paid to a
non-key, non-highly paid employee _____ _____
d. FMV of automobile won on television game show _____ _____
e. Free parking in employers lot (valued at $100/month) _____ _____
f. A nonbankrupt taxpayer is forgiven of $1,000 of
credit card debt _____ _____
g. Gold necklace received as a gift _____ _____
h. Health resort fee paid for taxpayer by employer _____ _____
14. Roth IRAs. (Obj. 4) Kenya and Carl Reed are ages 48 and 50, respectively. Their 2014 AGI

is $188,520, most of which stems from taxable wages. Compute the maximum amounts
Kenya and Carl can contribute to their respective Roth IRAs for 2014.

16. Deductions for AGI. (Obj. 3) For each statement, check true or false.

True False
a. Reservists who travel 100 miles or less from home to
perform services as a member of the reserves deduct their
travel expenses as a miscellaneous itemized deduction. _____ _____
b. Qualified performing artists may deduct their business
expenses from gross income to arrive at AGI. _____ _____
c. To receive the tax benefits of a performing artist, the
individuals AGI cannot exceed $14,000 before deducting
business expenses. _____ _____
d. State and local government officials paid on a fee basis
report their business expenses on Form 2106. _____ _____
e. Taxpayers 55-years-old may contribute an additional
$1,000 to their health savings accounts. _____ _____
f. Retired taxpayers may continue to make deductible
contributions to a health savings account. _____ _____
g. Withdrawals from a health savings account that are not used
for medical expenses may be subject to a 6% penalty tax. _____ _____