Federal Income Tax Outline

WISEMAN_FEDTAX_FALL_2013

Gross Income: problems: P. 54 1,2 P. 57 2

1. Would the results to the taxpayers in the Cesarini case be different if, instead of discovering $4,467 in old currency in the piano, they discovered that the piano, a Steinway, was the first Steinway piano ever built and it is worth $500,000? So, TP bought the piano for $15, but finds out its worth $500,000.

Issue: Is there gross income?

Rule:

Application:

· Accession to wealth?

· Clearly realized?

· Complete dominion?

Conclusion: Yes, the results would be different. Gross income includes gains derived from dealings in property. The tax payers would have to pay tax on their realized gain when they decide to sell the piano. Their realized gain would be $500,000-$15=$499,985

2. Winner attends the opening of a new department store. All persons attending are given free raffle tickets for a watch worth $200. Disregarding any possible application of I.R.C 74, must Winner include anything within gross income?

Issue: Is the $200 included in gross income?

Rule: 61(a)

Application:

· Accession to wealth? Yes

· Clearly realized? Yes

· Complete dominion? Yes

Conclusion: Income from all sources is taxed unless the taxpayer can point to an express exemption.

2. Doctor needs to have his income tax return prepared. Lawyer would like a general physical check up. Doctor would normally charge $200 for the physical and Lawyer would normally charge $200 for the income tax return preparation.

A. What tax consequences to each if they simply swap services without any money changing hands?

Issue: What tax consequences to each if they simply swap services without any money changing hands? Does lawyer realize any income when she fills out her own tax return?

Rule:61 (a)

Application:

· Accession to wealth? Yes, lawyer receives $200 in services, which is just like receiving $200 in cash.

· Clearly realized? Yes

· Complete dominion? Yes

Conclusion: Yes. If it would be taxable if paid in cash, it’s taxable if paid in goods or services.

B. Does lawyer realize any income when she fills out her own tax return?

Issue: How much does lawyer include in her income tax?

Rule: 61(a)

Application: She had an accession to wealth that was clearly realized and that she was in complete dominion over.

Conclusion: $200 b/c that’s how much cash she would have received.

Exclusions: Gifts & Inheritances, Employee Benefits. P. 70 1,3 p. 77 1(a)-(e) p.87 1 a,b,g,l,m,o

1. Employer gives all of her employees, except her son, a case of wine at Christmas worth $120. She gives son, who also is an employee, a case of wine, worth $700. Does son have gross income?

Issue: Does son have gross income?

Rule: 102 (c) (1)

Application: It’s included as gross income if she gave it to the son b/c he was an employee, which based on the facts we have it’s that way. Depens if it was a family gift or an employee gift.

Conclusion: Yes. Any amount transferred by an employer to, or for the benefit of, an employee is not excluded from gross income.

3. Retiree receives a $5,000 trip on his retirement. To pay for the cost of the trip, employer contributed $2,000, and fellow employees of Retiree contributed $3,000. Does Retiree have gross income?

Issue: Does Retiree have gross income?

Rule:

Application:

Conclusion:

1. Consider whether it is likely that 102 applies in the following circumstances:

a. Father leaves daughter $20,000 in his will.

Issue: Is $20,000 included as gross income to daughter?

Rule: 102 (a)

Application: The $20,000 was left in a will to the daughter.

Conclusion: No. gross income does not include the value of ppy acquired by bequest.

b. Father dies intestate (not having made a will) and Daughter receives $20,000 worth of real estate as his heir.

Issue: Is the $20,000 included in gross income?