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NEW QUESTION: 1
DAC Foundation awarded Kent $75,000 in recognition of lifelong literary achievement. Kent was not
required to render future services as a condition to receive the $75,000. What condition(s) must have
been met for the award to be excluded from Kent's gross income?
I. Kent was selected for the award by DAC without any action on Kent's part.
II. Pursuant to Kent's designation, DAC paid the amount of the award either to a governmental unit or to a
A. I only.
B. Both I and II.
C. Neither I nor II.
D. II only.
Choice "c" is correct. Generally, the fair market value of prizes and awards is taxable income. However,
an exclusion from income for certain prizes and awards applies where the winner is selected for the award
without entering into a contest (i.e., without any action on their part) and then assigns the award directly to
a governmental unit or charitable organization. Therefore, conditions "I" and "II" must be met in order for
Ken to exclude the award from his gross income.
Choice "a" is incorrect. "II" is a necessary condition as well. See explanation above.
Choice "b" is incorrect. "I" is a necessary condition as well. See explanation above.
Choice "d" is incorrect. "I" and "II" are both necessary conditions. See explanation above.