Tax Outline

Monahan

Tax

Fall 2011

I. Gross Income

A. Introduction: 61: all income from whatever source derived whether in money, property, or service.

Ø The receipt of any financial benefit which is:

· Not a mere return of capital,

· Not accompanied by a contemporaneously acknowledged obligation to repay, and

· Not excluded by a specific statutory provision.

Ø Receipt and use by spouse is considered receipt and use by the Employee (Reg. 1.61-21(a)(4))

Ø EXAMPLES of GROSS INCOME:

a. Cash

1. Treasure (Cesarini, 1.61-14a)

b. Salary / Wages (1.61-2a)

1. Cash, Property, and Services

2. Bonuses

3. Most Employer-Employee transfers (Old Colony Trust)

4. Insurance adjuster referrals

5. Assignable Loyalty Programs

c. Property

1. Treasure

2. Property is problematic

3. FMV of property Received (1.61-2d1)

A. Unless that value is unclear, THEN use the property given up

d. Services

1. Bartered services (Revenue Ruling 79-24)

2. FMV of services Received

e. Meals

f. Accommodations

1. Corporate housing (Dean)

g. Stock

1. If property (stock) given as salary weren’t taxed, companies would have an easy tax avoidance mechanism

a. Other

1. Discharge of Taxpayer’s Obligations to a third party (Old Colony Trust, 1.61-14a)

A. If someone pays a legal obligation of yours, even if you never see the money, that payment is gross income too

i.Because your financial situation is improved

2. Punitive Damages (Glenshaw Glass, 1.61-14a)

3. Illegal Gains (James (despite restitution obligation), Al Capone, 1.61-14a)

A. “any source whatsoever”

Ø 1.61 -14

· Another person pay t/p income tax is income

· Illegal gain

· Treasure trove to the extent its value, income for the year reduced to undisputed possession

1. Cesarini v. US

v Reduced to undisputed possession: actual discovery.

2. Treasure trove:

v Appreciation: normally not pose tax on the property until you sell, otherwise may be forced to sell

3. Old colony Trust

v Company pay tax for the president

v Discharge of obligation: is the liability of employee to pay

Could be a gift, but here employee, part of the package

4. Glenshaw Glass:

v Punitive damage under anti-trust

v Broad construction

v Accessions to wealth (increase net wealth),

Found, earned.

v clearly realized and

Realization: throw, destroy, (change fundamentally relationship with your property).

a. Sell, give away, property destroyed.

v over which have complete dominion

Loan: need repay, negate accession

Deposit: loan, there is possibility to refund

a. Power company: But when you know that this is your money: when customer not paying the bill

B. Income without receipt of cash or property: Service

Ø Property: FMV

Ø Service: FMV; if stipulated price, presumed to be FMV

Ø Imputed income: No taxation

· Income from the use of household durables: Rental value of property you own: it is property tax, not income tax

· Income from the value of household services:

Ø Dean V. commissioner:

· Transfer title to the corporation wholly owned by the taxpayer. For the tax purpose, consider different entity. live in “someone else” ‘s house.

C. Exclusion of Gifts and Inheritances

Ø 102 (a): Gross income not include gift, bequest, devise, or inheritance

Ø 102 (b) but include income from the gift, or gift is the income from property

Ø Commissioner v. Duberstein

· Duberstein Argue: there is no obligation to give the car

· Not enough for no legal or moral obligation

· Not common law definition of gift.

o Business motivated

If from the any moral or legal duty

Incentive of anticipated benefit of an economic nature

o Generosity out of disinterest: affection, respect, admiration, charity or like impulses

o Transferor’s intention:

Ø Olk v. US: tips received from gambler

· not detached and disinterested

· tokes received by t/p as result of being employed as a dealer.

Ø Employee gifts: 102 (c): not exclude by employer to or for the benefit of employee

· Three situations:

1. Employee during ongoing employment relationship

2. To employee upon or after retirement

3. To survivors upon the death of employee

· Exception:

1. 74(c): employee achievement award

v If cost not exceed the amount of deduction to the employer.

2. 132 (e): de minimis fringe benefits

3. 274(b)1: limit deductible amount of business gifts to $25 /done/year, but only apply to items excludable from GI under 102, thus applicable to non-employee business gifts

· Reg:

1. If employee can show that the transfer was not made in recognition of employment

2. If purpose of transfer can be substantially attributed to the familial relationship and not to the employment

· For the benefit of employee

1. If employer give the car to the wife of employee

Ø Bequests, devises and inheritances

· Paid under marriage settlement is a gift

· Lyeth v. Hoey

1. Facts:

v Petitioner inherited property from his grandmother. When the will was offered for probate in Massachusetts, the heirs objected, citing lack of testamentary capacity and undue influence. A compromise agreement was en