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Federal Income Tax
University of Connecticut School of Law
Pomp, Richard D.

61
Income
Very broad definition of income. Almost all income will be considered “income” for tax purposes – including in kind. Income in kind is when you receive income that is not a straight $$. Usually there is no complaint when it is actual money, the complaints arise from claims that benefits are not income. 
Old Colony v. Comm. (1929)
Executive got his taxes paid. Court determined that this was a benefit and thus taxable – “
Eisner v. Macomber (
Stock dividend case. (See ________). Addressed the same fundamental Q.
·         “the gain derived from capital, from labor, or from both combined”
Comm. v Glenshaw Glass (1955)
Settlement from suit, included punitive ward as income. TP did not include it and Comm. thought it was.   Even thought this was extracted as a punishment to other side (punitive) it is clearly an accession to wealth.
·         “accession to wealth clearly realized”
Aurthur Benaglia (1937)
Manager of hotel got free room and board. This care turns on the “convenience of the employer”.
·         MAJ – Not income because part of his employment. He is required to be at hotel; to be “on alert”. 
·         MIN – He was enriched; end of story (see Glenshaw).
Reginald Turner (1954)
Won steamboat tickets by identifying songs on the radio — changed for 4 tickets for family. Non-transferable.   
·         Court found that since these tickets were not transferable, the retail cost was not applicable. They could not sell them on the open market, would have to take a hit. But it is still true that they took the tickets and enjoyed the cruise, so they are liable for that income – X,XXX. “Substantial amount should be included.”
The X,XXX was number right between amount of TP and amount of Comm. Found a place in the middle. Very weak rule. (cf. Prize cases)
72
Annuities
Annuity in the present context, is to be taken to refer to specifically to a retirement contract purchased from an insurance company which calls for equal periodic cash payments commencing at a certain date and continuing through the annuitant’s lifetime. (s any periodic payments. Do not limit yourself to the thought of an annuity for retirement. Could be a payout for injury (104(a)(2)); pension; business purchase, etc.).
·         Only taxed on the income from the annuity – But it is prorated in each annuity payment. Effectively makes it so that
Taxable Ratio 72(b)
Cross Multiplication breaks it down to the simple
Basis
Years
72(b)(3)
If an annuitant dies early can deduct the unrecovered cost on the final tax return.
72(b)(2)
If an annuitant outlived the annuity, all of the payment is included in income. 
72(e)(1)
Proceeds of a matured insurance policy must be included in income, but only to the extent that such proceeds exceed the total of the premiums paid by the insured.
















74
Prizes and Awards
74(a)
Prizes are included in gross income
74(b)
To be excluded, the prize must be in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievements AND
1.        Recipient selected without any action on his part
2.        not required to render substantial future services
3.        Prize is transferred by the payor to a governmental unit or organization described in 170(c ).
Pauline Washburn (1945)
Woman got radio prize. Didn’t want any of the publicity and refused all of the publicity. 
·         Court – This was an outright gift, without any of the earmarks of income. The sum was not a gain from capital, for petitioner employed no capital; nor labor (McCaomber)
Paul Hornung (1967)
NFLer got Corvette for being outstanding player in the NFL. TP claimed that this was a gift and therefore properly excluded and (2) car received as nontaxable prize under 74.
·         Court –
(1) Under donor’s motive this was clearly not a gift there were press releases and this was designed to gain publicity for the magazine. “There was no detached and disinterested generosity”
(2) “We believe that the words “education”, “artistic’, ‘scientific’ and ‘civic’ as used in section 74(b) should be given their ordinary, everyday meaning in the context of defining certain type of personal achievement. This was inten

but only to the extent that such proceeds exceed the total of the premiums paid by the insured.
·         Note this is more than you deserve. Part of the premium went to by life insurance, you should only get basis. 
102
Gifts and Inheritance
S.C. has indicated that the term “gift” in 102(a) is largely to be defined by reference to the motives of the payor.
·         Dubertstein v. Comm (1960) – 2 guys CEO-types of corporations who knew each other “personally”. From time to time the guy would ask Duberstein if he knew of any client that might be interested his goods. Duberstein gave him the info and it turned out so well that the other guy gave him a Cadillac. Said he didn’t want it; that he did not intend to get compensated for the information. Court said it was not a gift and thus includable.
·         Gift – If payment proceeds from a “detached and disinterested generosity”, if it is made “out of affection, respect . . . or like impulses” then it is an excludable gift.
·         Not Gift – If the payment, thought voluntary, is “in return for services rendered”, or proceeds from “the constraining force of any moral or legal duty” or anticipated a “benefit” to the payor, then it is taxable to the payee even if characterizes as a “gift” by the payor

“Primary weight in this area must be given to the conclusion of the trier of fact”.
Issue: what are the implications of the transfer of wealth. clearly this is an effort to allow inter-family transfers without taxing. (Aggregately there is no income increase). but what of the effect on the transfer from high-marginal tax rate to lower? won’t that be how the transfer usually occurs?
102(a)
General rule – Income from gift bequest, devise or inheritance is excludable