I. Introduction
Gross income
– Certain Deductions
= Adjusted Gross Income
– Standard or Itemized deduction
– Personal Exemptions
= Taxable Income
II. Some Characteristics of Gross Income
A. Definition of Gross Income
Glenshaw Glass
– Income includes all accessions to wealth, clearly realized, and over which the taxpayers have complete domino.
§ 61(a)
– Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, include fringe benefits.
(2) Gross Income derived from business
(3) Gains derived from dealing in property – determine the basis
(4) Interest
(5) Rents
(6) Royalties
(7) Dividends
(8) Alimony and separate maintenance payments
(9) Annuities
(10) Income from life insurance
(11) Distributive share of partnership gross income
(12) Income in respect of a decedent
(13) Income from an interest in an estate or trust
Reg. § 1.61-1(a)
– Gross income includes income realized in any form, whether in money, property, or services (including meals, accommodations, stock, etc.)
Reg. § 1.61-2(d)(1)
– If services are paid for in property, the FMV of the property taken in payment must be included in income as compensation. Similarly, if services are paid for in exchange for other services, the FMV of such other service taken in payment must also be included in income as compensation.
– If the services are rendered at a stipulated price, such price will be presumed to be the fair market value of the compensation received in the absence of evidence to the contrary.
A. Non-Cash Benefits
– On the policy ground, taxing non cash benefits produce a fair result because it reduce the extent people can take advantage of people utilizing the non-cash benefits arrangement to escape tax consequence.
– On the other hand, taxing non-cash benefits raises problems of administrative feasibility or practicality.
Meals and lodging provided to employees
§ 119
(a) Meals and lodging furnished to an employer, his spouse, and his dependents, is excludable from gross income if provided for the convenience of the employer, and
(1) In the cases of meals, the meals are furnished on the business premise of the employer, or
(2) In the case of lodging, the employee is required to accept such lodging on the business premise of his employer as a condition of his employment.
(b) Special rules
(1) In determining whether meals or lodging are furnished for the convenience of the employer, the provisions of an employment contract or a State statute fixing terms of employment shall not be determinative of whether the meals or
the meals are furnished to the employee to promote the morale or goodwill of the employee, or to attract prospective employees. Reg.§119-1(2)(iii)
Lodging –
– When the tests are met, the exclusion shall apply irrespective of whether a charge is made, or whether, under an employment, such lodging is furnished as compensation.
Business premise
– Barrett – every state road and highway, and evidently adjacent restaurants as well, constitute the business premise of their employer, the state
– However, in Kowakski, meal allowance payments to state highway patrol troopers were not excludable under 119 due to the failure to satisfy the furnished by the employer requirement. Officers are free to spend wherever he desires or not to spend at all.
Other Fringe Benefits
§ 79(a) Life insurance
– The employee excludes from gross income employer-paid premiums on group term life insurance in an amount not in excess of $50000 of coverage.
§ 106(a) Medical insurance
Except as otherwise provided in section, gross income of an employee does not include employer-provided coverage under an accident or health plan. See §213
