A new client approaches you and explains that after speaking to another tax preparer he is uncomfortable with the amount of gross income the tax preparer has calculated. Your new client explains that he asked the tax preparer for information on the following items but the tax preparer simply indicated that "he knows the Code".
- Gain from sale of residence: The tax preparer included in gross income the gain from the sale of the residence. This is the first home the taxpayer and his wife have sold and the gain is $350,000.
- Combat pay: The tax preparer included in gross income the tax payer's combat pay. The tax payer is considered noncommissioned personnel.
- Roth IRA distributions: The tax preparer included in gross income the tax payer's Roth IRA distribution that had been in the account for seven years.
- Student loan forgiveness: The tax preparer included in gross income $10,000 of the taxpayer's spouse's student loan that was forgiven. The taxpayer's spouse is a teacher.
Required:
For each of the items noted above write one to two paragraphs that addresses:
- Identifying the Code Section and
- Explain why the item is or is not considered gross income.