Dessin
Tax Law
Summer 2017
Gross Income
61(a): All income from whatever source derived (includes money, property, treasure trove, and services)
61(a)(7): Dividends are gross income
Exclusions – 102: Gifts and bequests
Reg 1.61-2(d)(1): Services in exchange for services are calculated at FMV (price a willing buyer would pay to a willing seller)
1001(b): Realization Requirement: Unfair to tax appreciation in value without selling (realizing the value)
Imputed Income: Value that is not taxed from owning and using one’s property
Arm’s Length Bargain Purchases: Purchasing an asset at lower than FMV is not gross income
Exception – Reg 1.61-2(d)(2)(i): If property is transferred as compensation for services in an amount less than its FMV, the difference between the FMV and the amount paid is gross income
Obligation to Repay
Loans are not gross income, repayment is not a deductible expense
61(a)(12) Exception: Loan forgiveness may constitute gross income
1341(a): Claim of Right Doctrine
Money received under a claim of right is gross income, the contingent repayment obligation does not allow for this to be considered a loan
Funds that only pass through a tax payer are not received under a claim of right
Embezzled funds are gross income (repayment of which is deductible)
Refundable deposits are not gross income because taxpayer must have “complete dominion” to be able to tax it as gross income
Refundability must be within buyer’s control
Reg 1.61-8(b): Rent paid in advance is gross income in the year it is received regardless of the period covered or taxpayer’s method of accounting
61(a)(3): Gains Derived from Dealings in Property
Reg 1.61-6(a): Gain
1001(a): Gain/Loss calculation
Amount realized ($ amount that you get from the property) – Adjusted basis = gain/loss
1011: Adjusted basis for determining gain or loss from a sale or disposition of property shall be the basis under 1012, 1001, 301, 701, 1201, 1016
1012: Adjusted basis of the property (cost of the property)
1016: Adjustments to basis for expenditures, receipts, losses, or others OR wear-and-tear
If the basis is higher, less gain and less taxes
If the basis is lower, more gain and more taxes
Gifts, Bequests (personal property), Devises (real property), and Inheritance
102(a): NOT gross income… “detached and disinterested generosity”
102(b): Gifts of appreciated property may be taxed (i.e. property income)
102(c)(1): Employment to employee transfers cannot be a gift and is gross income
102(c)(1) Exceptions:
74: Certain employee achievement awards
132: De minimis fringe benefits
1014(a)(1): Basis of property acquired from a decedent is FMV at the time of decedent’s death
1014(e): Appreciated property acquired by decedent within a year of death will give the original donor the adjusted basis of the property before the death of the decedent
1015(a): Basis of property acquired by gift is the basis that the donor had in the property
Unless: If the basis is greater than the FMV at the time of the gift
Then: For purposes of loss, use FMV at the time of gift for the basis
Reg 1.1015(a): Part sale/part gift transfers is not income
Sale of a Principal Residence
121: Allows exclusion for gains realized from the sale of one’s home
Single File
Can exclude up to $250k
Must be principle residence for 2 or more years in a 5-year period
Reg 1.121-3(c)(1): Principle residence factors
Place of employment
Principal place of abode of family members
Address on tax returns
Address on bills
Location of bank
Location of religious organizations/clubs
Can only do so every 2 years
Joint File
Can exclude up to $500k
One of the spouses must satisfy ownership requirement
Both must use the residence
Neither could have used the exclusion in t
ves the debtor with assets whose value exceeds remaining liabilities
108(a)(3): Limits insolvency exclusion to the amount by which the taxpayer is insolvent
108(d)(3): Insolvent = excess liabilities – FMV of assets (both immediately before discharge)
If the original amount of a debt is disputed (unliquidated), settlement of the amount does not constitute a discharge of indebtedness
Must be done in good faith
Acquisition of Indebtedness by Person Related to Debtor
108(e)(5): Agreeing to a price paid over time, then after, the agreed upon price is reduced because of irregularities associated with the sale or defects with the property = no income results
108(e)(4): If a person “related” to a debtor acquires indebtedness, the acquisition shall be treated as an acquisition by the debtor (can’t avoid discharge of indebtedness-policy)
108(e)(2): Forgiveness of a debt does not generate income if the payment of the debt would have been deductible
108(f)(1): Discharge from student loan debt (going into public interest)
108(a)(1)(E) and (h): Discharge of qualified principal residence indebtedness
On or after January 1, 2007 and before January 1, 2015
Must be directed related to decline in value of residence OR financial condition of the taxpayer
**A taxpayer taking advantage of this exclusion must reduce their basis (but not below zero) in their principal residence by the amount excluded
102(a): Hardly ever able to establish discharge of indebtedness as an excluded gift, unless a parent-child or other familial relationship
