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Federal Income Tax
Drexel University School of Law
Pardys, David N.

Federal Income Tax 2015; Professor Pardys
I. Characteristics of Income
            A. Noncash Benefits
                        i. Meals and Lodging
Benaglia v. Commissoner – B was manager of hotel in Hawaii. B did not include meals and lodging provided to him. IRS went back and said B owed money… he didn’t pay and went to tax ct. IRS is saying he had more income ($7,845) that should be taxed… but he doesn’t actually have cash to pay it with… there’s no liquidity
o   Where services are paid for other than money, the fair market value is the amount to be included as income…
o   Question of fact:
§  Are living quarters provided by employer included in income?
·              Convenience-of-the-employer test
·              Common Law Convenience of Employer becomes § 119(a)
ii. Another Approach to Valuation
Turner v. Commissioner – T won steamship tickets on radio show. Commissioner determined that there was a deficiency. Ct. decided that the award of the tickets represented $1,400 of income  
o          Petitioner should have included more than they did
o          Ct. basically split the difference
The Regs. talk about how you value non-cash benefits
                                    Regs. under §1.61-21 Taxation of fringe benefits
                                    General rule that they try to imply is:
Fringe benefits = fair market value (start with)
Take out the amount paid (by you)
• This is the Sum
            B. Windfalls and Gifts
                        i. Punitive Damages
Commissioner v. Glenshaw Glass – Winners of punitive damages did not want to pay taxes on it. Ct. says Congress intended to tax all gains besides those exclusively exempted
“Here we have instances of undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”
TAKAWAY: Award of Punitive Damages is included in Income
in personal injury cases §104(a) – punitives still taxable, but not the compensatory damages
                        ii. Gift: Basic Concept
Commissioner v. Duberstein – an employer giving an employee a car as a gift counts as income for the employee
Duberstein Test: Whether the transfer (gift) occurred from the detached and disinterested generosity of the donor. An employer’s transfer of infrequent gifts (small in amounts) however, do qualify as de minimis benefits under section 132, but not as a gift under section 102
United States v. Harris ­– Wealthy old guy fucks twins. Suggardaddy’s them. IRS says the money he gave them was income. They say gift.
TAKAWAY – There is no reason for a criminal case in gift income situation
            C. Recovery of Capital
                        i. Sale of Easements
Inaja Land Co. v. Commissioner – Taxpayer threatened legal action against tortfeasor decreasing

ongress didn’t like this case, so they passed §172
You can use any losses from that year to offset income from previous years and gains for future years (with certain limits) – but you can only deduct each loss once
                                   Net operating loss carryback to up to 2 years
file an amended return for prior year reducing income for that year by loss carryback -> refund
                                   Net operating loss carryover to up to 20 years
Any loss not carried back can be used in offsetting income over the next 20 yrs. -> incentive to invest
ii. Claim of Right
North American Oil Consolidated v. Burnet – US gov’t owned land, NAO operating on it (drilling oil) -> NAO wins case in 1922, but in 1917 you get the final decree from district court (US gov’t can’t oust NAO from the land à profit they receive is profit to them, though presumably they’re paying royalties to US)
·             around $172,000 profits – receiver receives in 1916 à escrow account (earns income during the year) à in 1917 gives it to NAO
§  in 1917, NAO has control over it à even though they might have to give it back