Federal Income Tax Outline

Hutton Spring 2010 Federal Income Tax Outline
 
CONFIGURATIONS OF GROSS INCOME
 I.      s.61: lists sources, pretty much any increase in wealth
 A.   1.61-14 – misc. items of GI (e.g. treasure trove @ FMV)
 i.      Distinguish from “bargain purchase” = no GI until property sold
 II.   Low-s.100’s – exclusionary provisions from GI
 A.   s.109 – no GI for lessor for improvements on land made by lessee, upon end of lease
 III.Compensation
 A.   Employer withholds tax – GI is amount earned, not taken home.
 B.   Employer pays income taxes – whatever paid is included (see 1.61-14)
 C.   Property received as compensation – income @ FMV of property (see 1.61-2(d))
 i.      Rent free-use of condominium, free to sublet – GI included in year employee gets to use land, include all money owed to employee immediately; basis = compensation owed
 a)    If he rents the condo out, he can amortize this basis over year 2
 D. Cash dividends are included as income; not stock splits or increases in value
 IV.Life Insurance
 A.   s.101(a)(1) – if payable by death to true beneficiary, then proceeds are excluded
 i.      Regardless of whether it’s a term or whole life policy
 a)    term – when policy has run, you have nothing
 b)    whole life – an investment; at end of payment period, you get money back
 B.   s.101(a)(2) – someone buys the policy, proceeds must be included. Purchaser entitled to exclude their basis (cost + premiums paid).
 i.      EXCEPTIONS (i.e. entire amount excluded):
 a)    s.101(a)(2)(A) -transferee who takes a carryover basis from transferor (i.e. gift)
 a)    s.101(a)(2)(B) – transfer is to the insured, his partner/partnership/corporation
 C.   1.1015-4 (part gift/part sale) – if transferor’s basis at the time of the sale/gift is > the amount paid, then the transferee takes the transferor’s basis
 i.      therefore all is excludable when used with 101(a)(2)(A)
 V.   Gifts, Bequest, Devise, Inheritance
 A.   s.102(a) – generally excluded from GI
 i.      Motive of donor is controlling – “mainsprings of human conduct”
 B.   s.102(c) – EXCEPT in the context of employer/employee relationships
 VI.Employer Exclusions
 A.   s.119(a)(1) – exclude meals furnished on business premises
 i.      food prepared @ recognized occasions; payments for groceries not excludable. 
 B.   s.119(a)(2) – exclude lodging, required as a condition of employment, also on premises
 i.      Both of above must be for the convenience of the employer
 VII.     State Municipal Bonds
 A.   s.103(a) – exclude interest on State or local bond
 VIII.   Judicial Settlements/Damage Awards
 A.   s.104(a)(2) – must be attributable to personal physical injuries or physical sickness
 i.      Punitive damages are included
 B.   Damage awards paid now for future medical expenses – can exclude once at beginning
 i.      No s.213 deduction on top of s.104 deduction
 IX.Qualified Scholarships
 A.   s.117 – amounts paid for tuition/fees, books are excluded
 i.      Primary Purpose Test – whether purpose is to further education of recipient in his individual capacity, and amount is not compensation
 B.   Athletic scholarships – PPT – qualifying as long as not conditional on playing the sport
 
EMPLOYEE FRINGE BENEFITS
 I.      s.132 generally – exclusions listed in (a), then subsequently defined
 II.   Working Condition Fringe
 A.   Expense provided to employee which, if paid himself, would be deductible under s.162
 III.No-Additional-Cost Service
 A.   Ordinary course of business in which the employee performs services; AND
 B.   No substantial additional cost to the employer
 C.   s.132(h)(2) – spouse/child treated as use by employee
 D. s.132(i) – Reciprocal Agreements – allows another employer to provide the service to the employee and the employee to still exclude the value of that service.
 i.      Limitations – same line of business, written agreement, no substantial additional cost
 E.   s.132(j) – must be on nondiscriminatory basis – not just highly compensated employees          
 i.      no exclusion whatsoever
 F.   s.132-2(a)(5)(ii) – no substantial additional cost if services incidental to primary service
 i.      e.g. in-flight services of flight attendant
 IV.Employee Discount
 A.   Discount only excludable to the extent of gross profit usually made from sale of goods
 B.   Discount on services excludable up to 20% of price usually given to customers
 i.      e.g. hotel rooms; insurance policies
 C.   s.132(j) applicable (anti-discrimination discrimination clause) – no exclusion whatsoever
 V.   Qualified Transportation Fringe
 A.   s.132(f)(1) – includes 1) transportation in commuter highway vehicle, 2) transit pass, 3) qualified parking, 4) qualifying bicycle commuting reimbursement
 B.   s.132(f)(2) – limitation: shall not exceed $100/month (for #1 and 2 above), and $175/month for qualifying parking
 C.   Parking excludable if on or near business premises
 VI.De Minimis Fringe
 A.   Property/service value of which is so small as to make accounting unreasonable or administratively impracticable.
 i.      Regs: frequency determined in regards to the specific employee
 VII.     On-Premises Athletic Facility
 A.   s.132(j)(4) – excludable if on premises, operated by employer, and substantially all use by employees/family
 VIII.   Contributions by Employer to Accident and Hea