IRC § 61 (a) – Gross income includes all income from whatever source derived including:
i. Compensation for services, fringe benefits
ii. Gross income
iii. Gains from dealings in property
viii. Alimony and separate maintence payments
x. Income from life insurance and endowment contracts
xii. Income from discharge of indebtedness
To be included as income, there has to be a realization of the wealth.
i. Discovery of value does not constitute income. (i.e. Discovering worth of painting after purchase – not recognized as income until sold).
ii. Inducing a third party to pay taxes for you will constitute income.
1. Key: is it a gift or compensation for duties or position. Look to see if third person is unrelated or is receiving some type of benefit in return.
Undeniable ascensions to wealth, clearly realized, and over which the taxpayer has complete dominion will be counted as income.
i. Source does not matter
Reg 1.61-1.4 – “the finder of treasure trove is in receipt of taxable income, for Fed income tax purposes, for the taxable yr in which it is reduced to undisputed possession.
i. i.e. Found money is taxable in the year that it is discovered.
Property or money obtained illegally must be included in GI
Homeowner does not have to include the fair rental value of his house that he lives in as income or the value to him of doing his own taxes.
Reg. § 1.61-2(d)(1) – if services are paid for other than in money, the fair market value of the property or services taken in payment must be included in income. 
i. If the services were rendered at a stipulated price, the price will be presumed to be the FMV of the services performed unless there is evidence to the contrary.
The Exclusion of Gifts and Inheritances
IRC § 102– Gross income does not include property acquired by gift, bequest, devise, or inheritance.
i. This does not exclude from gross income:
1. income from any property received by gift, bequest or inheritance; or
2. if derived form the property if it is income producing property.
A gift in the statutory sense proceeds from a detached and disinterested generosity out of affection, respect, admiration, charity or like impulses, the most critical consideration is the transferor’s intention.
i. Look for voluntary transfer of property without consideration.
Settlements from will contests are inheritance and are excluded under GI Factors to determine if gift or income:
i. Familial relationship; size or type of gift; services performed; employment status (preacher?)
i. IRC § 102(c) – gifts issued to employees by an employer are NOT excludable from income unless they are an employee achievement award OR a de minimis fringe.
ii. Employee Benefits Not Included in Gross Income:
1. Reg . § 102-1(f)(2) — for “extraordinary transfers to the natural objects of an employer’s bounty if the employee can show that transfer was not made in recognition of employee’s employment
a. i.e. like son getting color TV.
2. § 74(c) – Gross income does not include the value of an employee achievement award if the cost to the employer of the award does not exceed the amount allowable as a deduction to the employer for the cost of the award.
a. If it is a length of stay award, it can only be given after employees first 5 years.
3. § 132(b) – No additional cost service which means any service offered by an employer to employee if:
a. the service is offered for sale to customers in the ordinary course of line of business and;
b. the employer incurs no substantial additional cost in providing such service to the employee.
i. This includes forgone revenue.
ii. This applies to family members as well
c. Special Rule – Only apply to officers if no discrimination exists.
4. § 132(c) – Qualified employee discounts à As long as the discount is:
a. Property, and the discount does not exceed the gross profit percentage of the price at which the property is being offered or;
b. Services, 20% of the price at which the services are being offered.
c. Must be in line of business
d. Special Rule – Only apply to officers if no discrimination exists.
5. § 132(d) — Working condition fringe
a. Not income if employer pays for a business sexpense that would otherwise be deductible by the TP
i. i.e Bar dues.
6. § 132(e) – De minimis fringe benefits
i. Secretary typing letters, picknics, occasional events tickets, etc.
ii. Eating facility for employees if 1) the facility is on or near workplace and; 2) revenue produced at the facility normally equals or exceeds the direct operating cost of the facility
b. Does not include
i. Season tickets
ii. Auto for more than 1 day a month
iii. Membership to club
7. § 132(f) – Qualified transportation fringe
a. Commuter highway vehicle if used to travel between residence and place pf employment
b. Any transit pass
c. Qualified parking
8. § 132(g) – Moving expense reimbursement fringe
9. § 132(h) qualified retirement planning services
10. SPECIAL RULES –
iii. Meals and Lodging
1. IRC § 119 — Meals and Lodging can be excluded from gross income but only if:
a. Meals – 1) on Employers Premises and 2) For Convenience of Employer
i. Meals = food, not groceries (Kowalski)
ii. If employee is required to pay charge for such meals, they are deductible under § 119(b)(3).
b. Lodging – 1) Employers premises; 2) for convenience of employer and 3) Condition of employment
2. Employer premises = on or adjacent to (2 block away would not count)
a. If required to live on employer premises for job, then do not have to include value in GI
Bequests, Devises and Inheritances
Property left by will, bequest or devise is not included as gross income.
i. If property is left as repayment for something it could be considered income – analyze facts.
ii. The true test of a gift is whether it is done disinterestedly or done in connection with something else.
IRC § 74 – Generally GI includes amounts received from awards and prizes.
i. Gross income does not include amounts rec’d as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if—
1. The recipient was selected without any action on his part to enter the contest or proceeding
2. The recipient is not required to render substantial future services as a condition to receiving the prize or award; and
3. The prize or award is transferred by the payor to a governmental unit/org pursuant to designation made by the recipient.
ii. (c) Exception for certain employee achievement awards.—
iii. In general.–Gross income shall not include the value of an employee achievement award received by the taxpayer if the cost to the employer of the employee achievement awa
e a dividend. Commissioner v. Duberstien — Duberstien Facts: Dub received a car from a business associate. The business associate said it was a gift for his help. The business associate deducted it from his taxes which alerted the IRS. The IRS said that Dub owed income tax on that the car. Tax court said that it was income and court of appeal reversed. Stanton Facts: Stanton worked for a church and resigned after 20 years. The church gave him 20K as a gift they said. Dist Ct. said it was a gift, the appeal ct reversed. Analysis: A gift in the statutory sense proceeds from a detached and disinterested generosity out of affection, respect, admiration, charity or like impulses, the most critical consideration is the transferor’s intention. An employee shall not exclude from gross income any amount transferred by or for an employer to, or for the benefit of, an employee.  Lyeth v. Hoey — TP contests will of his grandmother, receives a settlement. Does not report the settlement money as income. IRS says it is income because it wasn’t the direct result of an inheritance. Held: Because the settlement came as a result of an inheritance, so it fit the mechanism for the exclusion. If it had been a successful will contest, would have been treated as an inheritance, so this is close enough. Not income. Settlements from will contests are inheritances, and are excluded from gross income  Herbert g. Hatt Case – TP had to live at funeral home.  Wolder v. Commissioner — Atty made agreement with client to perform legal services and he would be paid through her will. She died and atty was given stock of 15K. He cashed in stock and tried to exclude stock from gross income under 102(a). The court disagreed. The true test of a gift is whether it is done disinterestedly or done in connection with something else  Philadelphia Park Amusements Co. v. United States –Facts: TP gave bridge to city for 10 year extension to franchise agreement. Subsequently TP abandoned the 10 year extension with three years left on the contract. TP asserted a deprcision based upon the cost of the bridge and the loss they took by abandoning the franchise. TP needs to basis of the 10 year extension to figure out what their extension is. Issue: What is the basis of the cost of the 10 year extension? Decision: IRS said they did not have a basis in the extension. Ct. of claims said that the TP did have a basis in the extension. TP said franchise was not of any worth. People were no longer using it. The basis of property acquired in an exchange is its fair market value, unless otherwise provided in the Code or regulations. This case is asking how do you determine the cost basis of an asset when you do not pay case to receive an asset. Rule: The basis of property received in an exchange is its fair market value at the time of receipt. If you cannot value that asset, then you look to the value of the asset given in exchange for the asset received.