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Temple University School of Law
Abreu, Alice G.

Temple Law, Tax, Abreu, Spring 16
Tax Outline

SUBSTANCE OVER FORM – pervades the entire tax law
HORIZONTAL EQUITY – those with the same ability to pay should pay the same
VERTICAL EQUITY – those who can pay more, should
Tax inclusive, you pay tax on GI and get no deduction for the income tax, income tax is part of base.
Tax Expenditure- Government allows someone to keep money they would otherwise tax. Can be through an exclusive tax. Encourages people do do things the government wants.
2015 federal zero bracket = $0 – $20,600 (married joint)→ Zero bracket is standard deduction(12,600) + personal exemptions(4000 each)
Key types of calculations

ID’ing the Taxpayer
Druker v. Commisioner pg. 448
2 earner married couple, sue over the marraige penalty. (tax rate higher for couple than 2 singles)
Court held penalty is constitutional
Currently huge marriage penalty for high earners. bonus for low wage earners
Common law state- each person’s earned property is there individual property
Community Property state- half of all earnings belongs to the spouse
To fix difference between states made married filing jointly. Mimics comm. prop. w/o divorce drawbacks
Divorce’s only to avoid tax are not valid
If you are married at any point in year you are married all year
Divorced during year, single all year
Widow whose spouse dies still considered married that year
Gregory v. Helvering
Woman reorganized shares of stock across three companies she owned, and then sold them. Claimed she had a cost in acquiring from one company to the next should only pay tax on gain
Court Held: Owned tax on full amount
Business Purpose Doctrine: When a transaction has no business purpose but to avoid or reduce tax, the tax law will not regard the transaction
Substance over form: A taxpayed is bound by the economic substance of a transaction whne it varies from legal form
Lucas v. Earl (pg. 470)
husband and wife signed contract giving half of husbands income directly to wife. Husband claims should only be taxed on the half of income he kept
Court Held; valid contract. But taxed on whole amount. Person who earns it tax on it. Wife’s part a gift
Poe v. Seaborn: In community property states married couple may divide income. No choince unlike Lucas
Helvering v. Horst (pg. 476)
Man gave interest coupons from his negotiable bond to his son. Said he shouldn’t be taxed on the interest his son should.
Court Held: Liable for the taxes. Power to dispose of income is the equivalent of ownership
Blair v. Commissioner (pg. 474)
Inherited a right to income from a trust when his father died. Assigned a portion of the rights to his children. Says shouldn’t be taxed on income assigned to kids
Court Held: tax liability attaches to ownership. He lost ownership of portion so not liable for income from that portion.
Diff. from Horst: Only income beneficiary, not equitable owner of trust. Horst owned property and assigned income from the property
Gross Income – § 61
§61 – “gross income means all income from whatever source derived” → unexhaustive list
so it ends up being defined by analogy given their inclusions
T. Reg. 1.61-1 – adds “unless excluded by law” – presumption is that it’s income unless there is a positive section that specifically excludes it
so you ask 1)is it income? 2) is it excluded by law?
Haig-Simons Income
income (Y) = fair market value of a person’s consumption (C) + Δ net worth for the year (“property rights”) (S) → Y = C + S
realization requirement is an example of a departure from H-G ideal (as are tax-deferred savings)
valuation problem → a thing might have different values to different people
in practice fmv can sometimes be assumed away → fact question
if services rendered for stipulated price, that price is presumed to be fmv unless there’s evidence to the contrary (burden shifts to IRS)
so always state the price → undervalue reasonably
imputed income and leisure would be included
Eisner v. Macomber
“income is the gain derived from capital, from labor, or from both combined” – wasn’t meant to be exhaustive, but people tried to get out of it a lot
Glenshaw Glass
income is, “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”

Non-Cash Benefits
Old Colony Trust – p. 85 – 1929
employer’s payment of employee’s income taxes constitutes income to employee
in theory extended to anything paid to employee in compensation for services rendered unless there’s a specific exclusion of it
Benaglia – p. 90? – 1937 – guy lives in hotel he manages, though he manages 3 properties
court finds that room and board are not part of the income → they were for the “convenience of the employer”
burden of proof is on the taxpayer – distinguishing Ralph Kitchen case
evidence of them having to be there all the time → testimony of both employee and employer (even though they both have incentive to go the same way → self-serving testimony)
horizontal and vertical equity → should they pay less because of the form of compensation, and other people have to pay room and board themselves
contract was irrelevant → only negotiable term was wages
wife → she was probably his partner in some way, doing hostessing type work
§ 119 – present post-Benaglia rule
(a) room and board not included in GI if for the convenience of the employer
for meals, the meals are furnished on the business premises of the employer
lodging, employee is required to accept it on the business premises as a condition of employment
no longer be subject to self-serving testimony → mostly a fact-intensive analysis and is not about intent of the parties (119(b))
(b)(4) – non-discrimination requirement → if meals of > half for convenience of employer, all meals furnished for convenience of employer – so you can’t just benefit all the top guys

Fringe Benefits
medical insurance and payments (§§ 105(b), 106), group term life insurance (§ 79), dependent care assistance (§ 129)
§ 132 – certain fringe benefits not included in gross income
ceasefire in place → not necessarily horizontally equitable
no-additional cost services (a)– free services in ordinary line of business of the company and you have to be working in that particular service for it to non-taxable (no incentive to conglomerate)
qualified employee discount – service specific
working condition fringes – business use of company car, magazine subscription (job-related)
something that if employee paid, they could deduct it under §§ 162 or 167
de minimis fringe – if no exclusion, always try to argue this
if an eating facility – even if amount of money is large → can still be de minimis if eating facility doesn’t make a profit
qualified transportation fringe
parking, transit cards, certain commuter highway vehicles (at least 6 people, at least ½ seating capacity full)
moving expenses, on premises gyms, airline affiliate deals, retirement planning
default rule is fair market value → what you would pay in an arm’s-length transaction
“safe harbor” provisions – tables for making calculations
Cafeteria Plans – §

ngs, can be offset by gambling losses (up to amount of gambling winnings) §165(d)
Gifts – § 102
no income to donee, no deduction to donor → if other way around, it would provide planning opportunities given the different tax brackets
§102 – if you receive property as a gift, income derived from property is taxable → transferred basis
in general gifts not taxable
employer-employee exception – §102(c) – categorical rule → certain exclusions for employee achievement awards (§ 74) (and also small gifts could qualify as § 132 de minimis fringe)
Duberstein – p. 120 – under Duberstein – most answers will be maybe
president of company received a Cadillac for having referred some potential customers to supplier, president of supplier called it a gift, but that company deducted it as a business expense
IRS – not gift; TC – Not gift, 6th Cir. – Gift, they reverse Duberstein – TC not clearly erroneous
gift with business undertones
statute doesn’t use gift in common law sense, but in a more colloquial sense (not about consideration or legal or moral obligations), gift for gift tax purposes can be different than gift for income tax purposes
“a gift in the statutory sense proceeds from a detached and disinterested generosity out of affection, respect, admiration, charity, or like impulses” (LoBue)
most critical is the transferor’s intention → must be an objective inquiry as to their subjective intention
super-deference to finders of fact → but they say maybe finders of fact will be persuaded by similar fact patterns (or Congress can fix it)
Stanton – joined case, same question → comptroller or Church corporations, there was possibly some ill-feeling, but they said that it was a gratuity to be paid each month after resignation provided that all rights and claims and retirement benefits released (there were none)
IRS – Not gift, TC – Gift (conclusory opinion), 2nd Cir. – Not gift, they remand – just have to give some basic reason why
Harris – the sisters and the skeazy old man Kritzik → criminal case so intent is important (mens rea)
failure to file and willful evasion
his letters → not hearsay, because offered to show her intent → she reasonably viewed them as gifts because of his professed love for her (what she thought he thought)
also no fair warning given state of law on mistresses → seems to be income if payment each and every time or if it’s clearly a brothel
should have been done in a civil context → maybe Duberstein provides enough guidance → but you can’t put someone in jail for it (Duberstein doesn’t give people enough notice to know that they’re in violation)
Tipping – taxable
tips for servers – fully expected, employers pay less → it’s considered for services rendered
Regs. §1.61-2(a)(1) – they basically report 10%
§274(b) – business gifts
donee doesn’t pay taxes on it, business can deduct up to $25