CH. 2 Gross Income: the Scope of Section 61
· Taxable Income = Gross Income less certain authorized deductions
· §61 Gross Income is “all income from whatever source derived”
o Under §1.61-1
Equivocal Receipt of Financial Benefit
Regs: §1.61-1, -2(a)(1), 2(d)(1), -14(a)
I. What is Income?
– all income from whatever source derived, including but not limited to:
1. compensation for services RR 1.61-2a
2. income from business
3. gains from dealings in property
4. interest, rents, royalties, dividends
5. alimony & separate maintenance payments
6. annuities; life insurance, pensions
7. income from discharge of indebtedness
8. distributive share of partnership income
9. interest from trust/estate, inheritance
10. benefits that are not a mere return of capital
11. benefits not accompanied by a contemporaneous acknowledged obligation to repay (loans)
12. benefits not excluded by specific statutory exception
– taxable income = gross income – deductions
Treasure Trove – Cesarini – TP finds $,000 in a piano they bought that they included in taxes originally but then wanted a refund – court argues §61 is not exclusive and this found money is income – an accession to wealth; complexity should not deter us from finding income
Payment of TP income taxes – Old Colony Trust – company agrees to pay the income taxes on the compensation they pay to the President – Court says form of payment doesn’t matter and this is income under §61 because it is compensation for services rendered
any form of payment to employee is income, i.e. paying student loans, groceries, company car, etc.
Punitive Damages – Glenshaw Glass – Court says §61 is intended to be a catch-all – therefore punitive damages received are income because it is a clearly realized accession to wealth and TP has dominion over it (undeniable title)
Embezzled or any other form of illegal gain
§61 is broad – Charley – employee that traveled often had company pay for airline tickets but he kept the frequent flyer miles as a bonus – court says conversion of frequent flyer miles is income from work
Test Drive for $50 – is income because it is for services
Occupying building company owns instead of paying rent – Dean – there is income to the people living in the house rent free in the form of the FMV of the rent – they are benefiting by not having to pay rent to live there
Trading services for services – income is the FMV of what you receive for your services -§1.61-2(d)(1)
§74 Prizes and aw
Gifts and Inheritances
1. Barter services [at FMV] = GI. Rev Ruling 79-24.
a. Situation 1 – FMV of the services rendered by the lawyer & by the house-painter are includible in their gross incomes under § 61.
b. Situation 2 – FMV of the artwork and 6 months fair rental value of the apartment are includible in gross incomes of the apartment-owner and the artist under § 61.
c. Applicable law: Under § 61(a)(1) and § 1.61-2(a)(1) compensation for services is income unless excluded by law; and § 1.61-2(d)(1) provides that if services are pd for by something other than money, the FMV of the property or services taken in payment must be included in income.
CH. 3 Exclusion of Gifts and Inheritances
Rules of Inclusion and Exclusion
General Rule: gross income does not include value of property acquired by gift, bequest, devise, or inheritance; §102(a)