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Federal Income Tax
University of South Carolina School of Law
Hellwig, Brant J.

Gross Income
Cash Receipts: Does source matter? -Generally, No
I.         Glenshaw Glass – Issue: are punitive damages part of GI?
A.    Looked @ §61 “from whatever source derived” leads the statute
B.    Source irrelevant, except as otherwise provided
C.    3 factors used to determine if its income: (not exhaustive & don’t need all)
                              i.      Undeniable accessions to wealth
                            ii.      Clearly realized
                          iii.      TP has complete dominion
D.    Ruled: Yes, Windfalls are included in GI
                              i.      Doesn’t matter if TP earned it
                            ii.      What matters: that item increased TP’s wealth
II.       Cesarini – Treasure troves are taxed (held $ found in piano was GI for year found)
A.    §1.61-14(a) “yr it was reduced to undisputed possession”
B.    Different from benefit of the bargain
                              i.      Not covered under the treasure trove regulation
                            ii.      Bought for $10, worth $10,000 – see §§1001(a-c), 1012 (gain from dealing in property (§61(a)3). 
III.     Old Colony Trust –
A.    Issue: employer paid employee’s taxes, is that part of employee’s GI – YES
B.    Do not interpret §61 narrowly – congress wants to tax everything
IV.    Taxing windfalls
A.    Efficient b/c it doesn’t alter TPs behavior
B.    TP didn’t have to do anything to get – always better to take it
C.    Does distort income if you tax too much
V.      §61(a)(3) – GI includes gains derived from dealings in property
VI.    §1001
A.    (a) – Gain on sale of property – excess of AR on a sale – AB (cost of property)
B.    (b) – amt realized on a sale = cash received + FMV of any non-cash prop received
VII. Logic: TP originally bought w/ after tax dollars
VIII.            Basis & adjusted basis are tax accounting devices to keep track of after tax dollars
IX.    Source Matters When Congress Says It Matters: Statutory Exclusions
A.    §102 –“GI doesn’t include: value of prop by gift, bequest, devise, or inheritance”
                              i.      Duberstein – sup/ct defines ‘gift’ – No single test b/c cases have diff facts, & facts are determinative HELD: Car is part of GI b/c it wasn’t a gift but payment for past & future services in a business context – plus the donor excluded as business expense which shows his intent wasn’t that the car was a gift t
                            ii.      Lack of legal/ moral obligation doesn’t est a gift was made – Gifts come from detached & disinte

person physicalinjuries or physical sickness” Excluded from GI:
                              i.      Non-pecuniary damages for pain & suffering or loss of enjoyment
1.Tort law – put victim in as good as if never happened
a.     Lose arm and get $1m for it
b.     Cash basis is 0 (spent no after tax $ on your arm),
c.     Arm was FORCED sale at $1m
2.Absent 104(a)2 he would have to include in GI
                            ii.      Damages for medical expenses, past and future
1.If no exception, then include in GI, but offset inclusion w/ med exp deduct (§213) – exclusion just simplifies process
2.104(a) – denies exclusion for damages received as compensation for medical exp. deducted by TP under §213 in an earlier year, if not double deduction would be allowed
3.104 is better than 213 – 213 only allowed for med exp over 7.5% of AGI & only if Stand Deduct isn’t taken
                          iii.      Damages for lost wages, past and future
Hardest part to justify, if no injury would have to include reg wages in GI