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

 
Federal Income Taxation Outline Fall 2015 – James Musselman
 
 
Imputed Income
·         Monetary value of goods or services produced and consumed by T AND the monetary value of using property that a taxpayer owns
·         RULE: NOT Included in GI
 
Barter Transactions
·         The exchange of property or services between 2 separate people
·         The monetary value of such is INCLUDED in GI
 
Disposition/Sale of Property § 1001
 
Realized Gain/Loss = (Amount Realized) – (Adjusted Basis)
 
·         Not applicable to GIFTS or property DEVISED by will
·         Amount realized: sum of money received; includes services, property, anything of value
 
Adjustments to Basis § 1016
 
(1)  Capital Expenditures
a.    Expenditures made to property that are NEVER deductible
b.    MUST be added to basis
c.    Increases basis, thus decreases taxable gains
 
(2)  Depreciation or Amortization Deductions
a.    Adjusted basis is decreased by depreciation or amortization deductions allowed by taxpayer with respect to property
 
Adjusted Basis = (Cash/Debt paid to acquire property) + (Capital Expenditures) – (Depreciation)
 
Qualified Employee Discount Basis
 
Cost basis à cash/debt paid to acquire property if acquired at arm’s length
Tax basis à amount included in GI by T when property is acquired
 
Basis = cost basis + tax basis; for QED purposes, in order to avoid taxing employee on the discount; or else in theory the discount never applies
 
AB = FMV of property at date received
 
 
 
 
Summary of Basis Rules
 
Basis of property determined at time of acquisition
 
(1)  Purchase of property at arms length with cash or debt
a.    T’s basis = cash/debt paid = presumed FMV of property
 
(2)  Acquisition of property in any other manner NOT at arm’s length
a.    FMV of property included in T’s GI
b.    T’s basis = actual FMV of property acquired
 
 
FRINGE BENEFITS
 
·         Non-cash compensation paid/provided by employer to the employee in the form of property or services
·         Included in GI
·         Main issue: Is Fringe Benefit excludible?
·         Health Insurance FB is excludible §106
·         Employee Includes: current employees, retired employees, surviving spouses, spouses & children of current employees
·         Insurance policies are NOT an excess capacity service
·         Conglomerate and Substantial services: Treas. Reg. § 1.132(a)(1)(iv)
 
(1)  No Additional Cost Service § 132(b)
a.    Excluded from GI if,
                                          i.    Services offered for sale to customers in the same line of business in which employee performs services
                                        ii.    MUST be a service as opposed to property
                                       iii.    Employer MUST incur no substantial additional cost in providing service to employee including forgone revenue
1.    MUST be excess capacity service
a.    Hotel, transportation, telephone service
2.    Labor intensive services do NOT qualify
a.    Law firm providing legal services to employee
3.    Non-excess capacity service eligible for 20% QED
 
(2)  Qualified Employee Discount § 132(c)
a.    Excludable from GI if,
                                          i.    MUST be an employee discount
1.    (Price offered to customers) – (what employee paid)
                                        ii.    MUST be qualified property/service
1.    Same Line of Business Test
                                       iii.    Exclusion is limited as provided §132(c)(1)
1.    Limit on exclusion is 20% of the price at which the service is offered to customers in the ordinary course of business
 
(3)  Non Discrimination Requirements: §132(j)
a.    Applies to No Additional Cost Service & Qualified Employee Discount
b.    Applies to Highly Compensated Emplo

between MARRIED spouses
·         No gain/loss recognized by either spouse in the transaction
·         AB Transferor = AB Transferee; NO EXCEPTIONS
·         Upon disposition at arm’s length, apply §1001 and gain/loss R recognized
·         Transfers MUST be INTER VIVOS
 
§ 1014: Property Acquired from Decedent; Testamentary Gift; Inheritance
 
·         Applies to property acquired by bequest, devise, or inheritance
·         Applies ONLY when the value of bequest, devise, or inheritance was excluded from Transferee’s GI under §102(a)
 
Basis: §1014(a)(1): AB Transferee = FMV at date of decedent’s death
 
§1014(b)(6): Applies to CP between H & W and when the decedent leaves ½ interest to surviving spouse
 
·         Surviving spouse’s ½ interest AB = ½ (FMV at death)  
·         Regardless if decedent leaves surviving spouse ½ interest in CP,
o   Total AB for property = FMV at death
 
§1014(a): Applies ONLY to specific property that is to be inherited; NOT CASH
 
AR = value received from disposition = obligation satisfied
 
 
 
 
§1014 & Trusts
 
·         When trusts are used to hold specific property that is to be disposed of later…
·         Trusts are the owner of the specific property
·         Trusts
o   AR = obligation satisfied
o   AB = FMV of property at date of death; apply §1014
·         3rd party: tax consequences? à No, b/c bequest from will; excluded §102
·         3rd party: Basis in specific property = AB = value of specific property or obligation paid at time of acquisition