Question

Tommy, a senior at State College, receives free room and board as full compensation for working as a resident advisor at the university dormitory. The regular housing contract is $2,000 a year in total, $1,200 for lodging and $800 for meals in the dormitory. Tommy had the option of receiving the meals or $800 in cash. Tommy accepted the meals. What must Tommy include in gross income from working as a resident advisor?

a. All items can be excluded from gross income as a scholarship.
b. The meals must be included in gross income.
c. The meals may be excluded because he did not receive cash.
d. The lodging must be included in gross income because it was compensation for services.
e. None of these.

Answer 1

The lodging must be included in Tommy's gross income because it was compensation for his services as a resident advisor.

Step-by-step explanation:

The correct answer is d. The lodging must be included in gross income because it was compensation for services. Tommy, a senior at State College, receives free room and board as compensation for working as a resident advisor at the university dormitory. Although Tommy had the option of receiving $800 in cash instead of the meals, he chose to accept the meals. According to tax regulations, the fair market value of compensation in the form of lodging must be included in gross income, regardless of whether it is received in cash or other forms. Therefore, Tommy must include the value of the lodging as part of his gross income.