1. INTRODUCTION
· What is Income.
· Unless excluded by a statute, all income included in gross income. §61(a).
But: benefit derived by TP from the use of his own property or service is not income.
· E.g., living in his own house, shaving his own face, making a cabinet for himself, etc.
· Examples
Miscellaneous items of gross income,
· Including: another person’s payment of the TP’s income taxes, unless excluded by law.
· One popular test – increase in net worth
Income equals the amount of wealth accumulated plus the value of personal consumption. Haig-Simons definition.
· Compensation for services
· Cash compensation
Including bonus, holiday bonus, vacation pay, severance pay, tips, etc.
Tips included.
· Included even if received in violation of state law.
· Employers who operate a large food and beverage establishment must report an estimate of the employee’s tip income.
· Non-cash compensation – property or services
Generally
· Treated as income in the amount of FMV of the property or service received.
· Service as payment for service
· FMV of service received is included.
· If price stipulated, this price is presumed to be FMV unless evidence to the contrary.
· Property as payment for service
· FMV of the property is included.
· Basis is the property’s FMV.
Employment context
· Uncompensated loan of property in kind
· Employee’s use of non-cash properties of his employer, such as an automobile, without charge or for an inadequate rental is his income.
· Constructive receipt: this can be viewed as the employer receiving the FMV of the use of the property but immediately repays the employee as part of his wages.
· Bargain purchases by employee or IC § 1.61-2(d)(2)
· The difference between price paid and FMV is disguised compensation and is taxable.
2. FRINGE BENEFITS & BARTER
· Meals and Lodging. § 119
· Provided to whom:
This section applies to employee, his spouse and his dependents. §119(a)
Definition of dependents in §152.
· Rules
§119(b)
· Employment K or state statute
· Whether these two say something is compensation is not determinative.
· More than half employee can exclude
· Then all employees can exclude
§1.119-1(e)
· In-kind
· Meals and lodging must be provided in-kind.
· So if reimbursed then included in income, unless can exclude under de minimis rule. See §1.132 occasional meal money.
· Option to receive additional compensation
· If employee has the opt
attract prospective employees.
· Furnished before or after working hours
· Usually not for the convenience of the employer
· Furnished on non-working days
· Do not qualify.
· If employee required to live on premises as a condition of his employment
· Any meals provided without charge is excluded.
If furnished with a charge
· If employee has a choice between purchasing or not:
· Then not for the convenience of the employer.
· If employee does not have a choice, and is charged a flat fee regardless of he accepts the meal or not:
· Amount of such flat fee is not included in income.
That is, subtract from wage such flat fee.
· Whether value of meal is included
Treat the meal as if it were furnished without charge and use the rules above.
My note: this is just to say: subtract from your wage the flat fee and treat the meals as if they were free.
· If value of meal included
Then the amount charged is the value of the meal, absent evidence to the contrary.
