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Exam 18: Employee Compensation and Retirement Plans

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Question 21

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In order for a retirement plan to be "qualified," retirement benefits must vest immediately in participating employees.

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Question 22

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The employee who exercises an ISO creates a deduction for his employer at that time equal to the difference between the option price and the market price.

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Question 23

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Stock options are always taxed as income to the recipient on the day they are granted.

A taxpayer who is 60 years old on retirement in the current year may use the special forward averaging method of computing his or her income tax on a lump sum distribution from a qualified plan only once.

Which of the following is not a benefit of a qualified employer retirement plan?

A self-employed taxpayer is limited only by the amount of his or her earned income in determining the maximum annual contribution to a defined contribution Keogh plan.

B Inc.has an unfunded deferred compensation program for its employees.In the current year, B employees earned $120,000 in deferred compensation, none of which is taxable to any employee.If B Inc.is an accrual basis taxpayer, the corporation may claim a $120,000 tax deduction in the current year because of its deferred compensation liability.

An accrual basis employer may take a deduction for deferred compensation when the employer promises to pay the deferred compensation, but does not set aside funds for that purpose.

Under § 401, which of the following is true regarding a qualified retirement plan?

During the current year, Corporation P granted an incentive stock option (ISO) to Employee A.The option entitled A to purchase 500 shares of P stock for $150 per share.On the date the option was granted, P stock had a market value of $130 per share.Three years after the grant, A exercised the option when P stock had a market value of $190 per share.Eight months after A acquired the 500 shares, he sold them for $200 per share.Based on these facts, A should report a gain on sale of

The value of an annual employer-sponsored Christmas party may be excluded from an employee's gross income because it is a de minimis fringe benefit.

During the current year, Corporation J granted a non-qualified stock option to Employee E.The option allowed E to buy 1,000 shares of J stock for $100 per share at any time during the next four years.At the date of the grant, the market price of E stock was $110 per share, and thus, the option's value was $10,000.Two years after the option was granted, E exercised the option when the market price of E stock was $160 per share.Based on these facts, E should report

Only corporate employers may have qualified retirement plans for their employees.

During the current year, Taxpayer Q quits her job.As a participant in her employer's qualified retirement plan, Q is entitled to a payment of $100,000.Q never made any contributions of her own to this plan.Based on these facts, which of the following statements is incorrect?

Mr.M has earned income of $125,000 in the current year and is a participant in his employer's qualified retirement plan.Mrs.M is a housewife and has no earned income.During 2011, the Ms may make total deductible contributions to their IRAs of

Employee Q has been a participant in his employer's non-qualified retirement plan for 25 years, during which period Q's employer has made regular annual contributions to the plan on Q's behalf.Q's right to his retirement fund is fully vested.Upon retirement, any amounts withdrawn from this plan will be fully taxable to Q.

Under a defined benefit plan for 2011,

As a general rule, any economic benefit granted an employee by his or her employer and intended to compensate the employee for services rendered represents gross income to the employee.

An employer with a qualified defined contribution (profit sharing) plan is required to make an annual contribution to the plan.

Which of the following fringe benefits may be taxable to the recipient?