Tax Outline
I) Overview- §1-tax outlines for various brackets
A) Progressive-social policy-which should help more
B) Procedure-if a deficiency is assessed taxpayer has two options
1) Refused to pay and petition tax court for redetermination-bounded by local precedent but courts move around
2) Pay tax and file and administrative claim for refund, and upon denial sue in federal District Court or U.S. Claims Court. Then you can appeal to the federal Court of Appeals
C) Important terms
1) Shifting or assigning income
2) Realization-tax consequences evaluated when sold or transferred
3) Step up and bases-if held to death
D) Gross income-very broad, all income from whatever source derived. Glenshaw Glass
1) Gross income –
2) Deductions =
3) AGI –
4) Standard deductions –
5) Personal exemptions =
6) Taxable income — tax –
7) Credits =
8) liability
E) Adjusted gross income- gross income minus above the line deductions such as expenses
F) Taxable income = adjusted gross income minus section 63 standard deductions which are below the line.
1) Itemize- section 67 two percent floor
2) Section 68 overall limit
3) The section 151 personal exemptions
G) Tax credits-marginal tax rates as compared to overall
II) Chapter 2-gross income
A) Definition- Glenshaw Glass undeniable accessions to wealth, clearly realized, and which the taxpayer has complete dominion
1) Anything they would have to pay but didn’t
2) Realized- no accession to wealth until realized
3) Imputed income-self-help activities, are not taxable
4) Bargain purchases-Peller not income, profited accrues at sale because basis is cost and it cost less than it is worth
B) Treasury regulations-
1) 1-income from all sources
2) 2-compensation for services the
3) 6-gains from dealing in property
4) 8-rents and royalties
5) 14-miscellaneous
C) Old Colony-Company paid income tax-if it employer/employee relationship, probably compensation
D) McCan-once again in job context, the value was equal to the FMV of thing being received
E) To not be income-Must be an arm’s length transaction and relation of parties doesn’t suggest other considerations
III) Chapter 3 -an obligation to repay
A) Loans are not income because of the obligation to repay
1) If not repaid then look to discharge of debt
2) G/R- No Am Oil- when a taxpayer receives earnings under a claim of right and without restriction to its disposition, this equals income
(a) Even though appeal was pending, District Court ruling gave them possession.
(b) Section 1341-choice for current deductions or credit from year included if forced to repay later.
(c) The greater the restriction the greater likelihood that it is not income
(d) Must not be self-imposed
B) Other
owe.
2) The treatment of the debt as recourse or nonrecourse doesn’t affect. Crane
3) Tax cost basis, the amount included as income at received equals the basis when sold. Ex. Dr. was owed $1000, patient gave painting to satisfy. His basis at sale was $1000 regardless of FMV
(a) If received property at a discount and had to pay tax then you can add that amount included in income to his basis for a subsequent sale under section 1.61 –2 d 2.
V) Chapter 5 gifts and bequests.
A) Defn.- Duberstein- pg 87-detached and disinterested generosity
1) Out of affection, respect, charity or like impulses
2) What controls is the intention with which payment has been made. It is an objective inquiry as to whether what is called a gift really is.
3) Section 102-gifts are not income
4) Employer/employee-section 102c-looks too much like compensation
(a) Section 74-prizes and awards-taxable unless-
(i) (b)-certain charity donated
(ii) (c)-employee achievement awards-section 274j
(b) Section 117-scholarships
(c) Section 102b-income from property excluded
B) Basis of property acquired by gifts
