Question

Nonrecognition provisions refer to specific types of income that taxpayers realize but are allowed to permanently (1) from gross income or temporarily (2) until a later period.

a. Exclude, defer

b. Deduct, claim

c. Exclude, recognize

d. Deduct, exclude

Answer 1

The correct answer to the student's question about nonrecognition provisions is 'a. Exclude, defer,' which allows taxpayers to either permanently exclude or defer certain income from taxes.

Step-by-step explanation:

Nonrecognition provisions refer to specific types of income that taxpayers realize but are allowed to temporarily or permanently exclude from their taxable income. After reviewing the options, the correct answer is: (a. Exclude, defer). These provisions in the tax code allow taxpayers to not include certain types of income in their gross income permanently or to defer the recognition of income until a later period.

For example, certain contributions to retirement accounts can be excluded from gross income, lowering taxable income in the current year but are taxed upon withdrawal, illustrating a deferral of income recognition. On the other hand, some types of income, such as proceeds from the sale of a principal residence up to a certain limit, may be excluded permanently under certain conditions.