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Federal Income Tax
South Texas College of Law Houston
Musselman, James L.

Musselman Federal Tax Final Outline Fall 2015
Gross Income §61
Glenshaw Glass
–          ATW
–          Clearly Realized
–          Dominion and Control
GI includes the receipt of any financial benefit which is:
1.       Not a mere return of capital
2.       Not accompanied by contemporaneously acknowledged obligation to pay
3.       Not excluded by a specific statutory provision
–          (Cesarini) Treasure trove must be included in GI for the taxable year in which it is reduced to undisputed possession.
Realization Principle #1
–          Property Increases in value while the taxpayer owns it due to market fluctuations
–          Not realized and not included in GI until realizable event such as sale or disposition
Realization Principle #2
1.       When property is purchased
2.       At arm’s length
3.       For cash or debt
1.       Price paid and value of property presumed equal, thus
2.       No accession to wealth
3.       No gross income at that time
Old Colony Trust – The discharge of a taxpayer’s obligation by a third party is equivalent to direct receipt by the taxpayer = GI
Imputed Income = NOT GI
–          Monetary value of goods or services produced and consumed by a taxpayer and the monetary value of using property that a taxpayer owns. Ex. Using own car mowing own lawn.
Barter Transaction = Included in each Taxpayer’s GI
–          The exchange of property or services between two separate taxpayers. Ex. Owner transferred rental value of property to tenant in exchange for property or services.
Gifts §102
–          GI does not include the value of property acquired by gift, bequest, devise or inheritance
–          Determination of whether a transfer of value is a gift is a fact question based on intent of Donor = Detached and Disinterested generosity
o    Was the transfer made with an expectation of something of value in return (quid pro quo) – if so then not a gift.
–          Bequests and devises – transfer of value at the time of death of the transferor
–          Inheritance – Value received by an heir under the state law of intestacy when decedent dies w/o a will
Exception – §102(c) – does not apply to transfers from an employer to employee – unless the transferor and transferee are closely related = FAMILY
Fringe Benefits §132
–          Noncash compensation paid or provided by an employer to an employee in the form of property or services
–          Fringe benefits are included in GI unless excludible (Not excludible as a gift because of §102(c))
No-Additional Cost Service – §132(b)
1.       Must be a service as opposed to property
2.       Line of Business Test – must be offered for sale to customers in the ordinary course of the line of business in which the employee is performing services
3.       Employer must incur no substantial additional cost (including foregone revenue) in providing the service to the employee
a.        To qualify for no –additional cost service exclusion, service must an excess capacity service = Transportation; hotel accommodations
b.       There must be no substantial additional cost including foregone revenue
c.        Labor intensive services don’t qualify = if substantial amount of time is spent by the employer or its employees providing the service to employees.
Qualified Employee Discount (QED) – §132(c)
1.       Must be an employee dis

rty in any other manner – FMV of property included in T’s GI under §61, or AR if received in exchange for disposition of property, in excess of any amount paid – T’s basis= Actual FMV of the property acquired
§  Philadelphia Park – AR = the FMV of the property it was exchanged for.
–          Basis of property acquired by Gift – §1015
o    Gift made during the lifetime of donor
§  1. Donor – transfer of property by gift not realizable event – §1001 does not apply to donor – not a sale or disposition of property
§  2. Donee – value of property excluded from GI under §102(a)
o    §1015 – Donee’s AB=Donor’s AB at time of the gift
§  Exception – Donee’s AB= FMV of the property at time of gift
·         Only applies when:
o    Application of general rule results in RL; (must be a loss)
o    Donor’s AB at time of gift greater than FMV of property at that time.
–          IF Gift Tax Paid by Donor – only applies if donor pays the gift tax of donee – NOT Net Gift
o    Allows donee to increase Adjusted Basis.
o    Formula = gift tax paid X (appreciation in value of gift ÷ amount of gift) = Increase in basis of property to donee
§  Appreciation in value of gift = amount value increased while donor owned the property – FMV at time of gift
§  Amount of gift = FMV of property at time of gift
o    Thus – AB (of donee) + (Formula amount) = Increase AB of donee