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University of California, Hastings School of Law
Field, Heather M.

Tax Spring ’08 Outline
–          Gross income
o        Section 61: Gross Income
§         Income from whatever source – any increase in wealth (see list in statute), unless there is a statute allowing exclusion (See Sections 101-139)
§         Discharge of obligation is income
§         If accession to wealth is non-cash, estimate the FMV of the wealth (ex: winning a prize)
§         Reg 1.61-2d: If non-cash things are given in exchange for a service it is considered income
·         If employer pays your taxes, that is an accession to your wealth so it is still income
·         If employer lets you stay in his condo, still income
§         Stocks and lost property will only be taxed as income when you sell them (as gain)
§         See Regs 1.61-1, 2, & 14 for other things that will be considered GI
o        Section 62: Adjusted Gross Income
§         AGI is gross income minus any of the twenty deductions allowed in Section 62
o        Section 63: Taxable Income
§         You can choose to take either itemized or standard deductions
§         §61 GI – §62 Deductions = AGI – Standard/Itemized Deductions – Personal Expenses = TI
§         If you do not itemize your deductions (standard),
·         TI = §61 GI – §62 Deductions = AGI – Standard Deductions – Personal Expenses
·         Standard deductions are a set amount that everybody in that category has to deduct (single female between ages 18 and 250
·         Standard deduction = basic standard deduction + additional standard deduction
o        Basic: $6,000 for married indivs filing jointly, $4,400 for heads of households, $3,000 for singles, $2,500 for marrieds filing separately
o        Additional: allowed for blind and elderly people
§         $1200 if indiv is blind and over 65
§         If you itemize your deductions
·         TI = §61 GI – §62 Deductions = AGI –Itemized Deductions – Personal Expenses
·         Itemized deductions are the ones we were going through during class…the separate choices you can deduct
·         63d1: itemized deductions are the deductions allowed in arriving at AGI (Section 62 deductions) & deductions for personal exemptions (Section 151)
·         Combine all deductions that are not above the line
·         Section 67 imposes a 2% floor under many itemized deductions…those other than Section 62 (above the line), exemptions, and those under 67b, are miscellaneous 
§         Choose between standard and itemized based on whichever one will give you the biggest deduction
o        Sections 71-90: Specific Inclusions  
o        Helvering v. Ind Life Ins Co – cannot be taxed the value of living in your own home bc goes against 16th amendment….it would be a direct tax.
o        Dean v. Commissioner – this is different from Helvering b/c although the taxpayer was living in his own home, it is in the corp’s name, thus corporate house (remember corp is a taxable individual/entity).
–          Exclusion for fringe benefits Section 132
o        61a1 says fringe benefites are included so it it is not listed under 132, then it must be included in GI
o        Generally, compensation for services is included in GI, but sometimes they are excluded as fringe benefits
o        Must be in the same line of business
§         Ex: Flight attendant gets a discount staying at a hotel. Still included in income because hotel is in a different line of business…so if room was $200 and she paid $80, she has to include $120 in her GI (because that was $ she saved)…unless hotel and airline are owned by same conglomerate
o        132b: No additional cost service
§         (1) Service is normally offered to customers & (2) E’er incurs no substantial additional cost
o        132c: Qualified employee discount
§         Discount is only excludable to the extent of the gross profit usually made from the sale of goods 
·         (c2): (Revenue – Cost)/Revenue = profit
·         Ex: (1million – 600k)/1million = 40%…employee can only deduct up to 40% from his discount. If he gets a 50% discount (so saved 1k), then 40% of that is excludable ($800) but the remaining 10% ($200) must be included in income
§         (c1B): Services allowed to discount up to 20% of normal price
o        132d: Working conditions
§         Property/services provided to employee on the condition that if employee paid for them he would be able to deduct it un Sections 162 (t/b expense) or 167 (depreciation)
§         Nondiscrimination rule doesn’t apply here
§         Ex: if company pays for A’s flight and accommodations in training, and A improves in skill and talent because of the training in t/b, then it is excludable
o        132e: De minimis fringe
§         Any service whose value is so small as to make required accounting for it unreasonable or administratively accountable is excluded as a fringe benefit
§         Ex: coffee or lunch near by
o        132f: Qualified transportation
§         Benefits provided to an employee by an employer in the form of transportation
§         Ex: token, fare card, transit pass
o        132g: Qualified moving expenses reimbursement
§         If employee gets money from employer as reimbursement for moving expenses and this m

, bequest, devise and inheritance. 
§         Based on donative intent. Usually not applicable in employer/employee context.
o        § 103: Excludes interest on state and local bonds, except where:
§         Issued for private purpose (e.g. construction of factories).
§         Distinguish between state/local and federal. Fed interest is included.
o        § 104: Excludes compensation from:
§         Workmen’s comp for personal injuries or sickness;
§         Damages received (other than punitive) for physical injuries or physical sickness;
§         Amounts receive through accident or health insurance; see others also.
o        § 106: Contributions by employer to accident / health plans
§         Excluded, “plan” defined broadly. Family covered.
o        § 109: Excludes improvements by lessee on lessor’s property.  
§         Any gain is deferred until sale of the land, per § 1019. 
§         Meant to prevent situation where landowner must sell to cover tax liability.
§         If the improvements were a form of rent, then the value of improvements would be income to the lessor.
o        § 117: Excludes amounts received from qualifying scholarship. 
§         Only amounts attributable to tuition / fees or textbooks are excluded.
§         Important: “primary purpose test”. See above.
o        § 119: Excludes meals and lodging provided by employer to employee. See above.
o        § 132: Excludes employer provided fringe benefits. 
§         Working condition fringes
§         No additional cost
§         Employee discount
§         Transportation
§         De Minimis
§         Athletic facility
o        § 305: Excludes stock dividends, stock splits. Except where:
§         S/H takes stock instead of money, at his option.
§         Disproportionate distributions – affects ownership %’s.
§         Some S/H receive common, others receive preferred.
o        § 307: For distributions under 305, basis of old shares is apportioned amongst old and new shares.
§ 1001: Requires realization event before gain from sale of property is included as income.