Federal Income Tax Outline

GROSS INCOME (what to add)

Income: An undeniable accession to wealth, clearly realized, over which the taxpayer has complete dominion and control. Comm. v. Glenshaw Glass Co.

GROSS INCOME, GENERALLY: Except as otherwise provided by law, gross income means all income from whatever source derived. IRC § 61-1.

INCLUDABLE IN GROSS INCOME
1. Qui Tam Money – Roco v. Comm.: π gets a check for $1.6M and does not include in his gross income. His authority for not including is Eisner which had been modified by Glenshaw Glass. Court says §61 is a catch-all provision and therefore if the income is not excluded, it’s included.
2. Treasure Trove – Cesarini v. U.S.: π purchases a piano in 1957 and in 1964, π finds $4,467.00 inside. Originally, π paid taxes on the money found and is now suing for a refund arguing that the found money is not gross income. The court cited a Revenue Ruling stating that treasure-trove is includible in gross income in the year it is reduced to undisputed income and despite π’s argument, § 61 is a catch-all, with the notion that it is income unless the code specifically excludes.
3. Payment of one’s liabilities by another – Old Colony Trust v. Comm.: Employer pays CEO’s taxes directly allowing CEO to take all of its income without paying the taxes from his salary.IRS says that the company paying the tax is income. Court agrees stating that this is compensation for CEO’s services and is therefore includable in gross income.
4. Compensation other than cash – Treas. Reg. § 1.61-2(d)(1): Except as otherwise provided, if services are paid for in property, the fair market value of the property taken in payment must be included in income as compensation.
a. McCann v. U.S.: Insurance agent and other top performers (and spouses) were invited to Las Vegas for a “Seminar”, all expenses paid. The vast majority of the trip was fun with only a few meetings. This is compensation/income because it only goes to the top performers, the π’s spouse had all his expenses paid, it was not mandatory, and only had brief morning meetings. Therefore, the FMV of the trip is includable in π’s gross income.
5. Compensating Employee w/ Property – Treas. Reg. § 1.61-2(d)(2): Except as otherwise provided, if property is transferred by an employer to an employee (or indep. contractor) as compensation for services, for an amount less than its FMV, then regardless of whether the transfer is in the form of a sale or exchange, the differencebetween the amount paid for the property and the amount of its FMV at the time of the transfer is compensation.
a. Example: Attorney purchases a desk and chair from her law firm for $50. The items were 90 years old with a FMV of $500. Is it gross income? $450 is gross income. Because this is an employer-employee relationship, there is a strong possibility that this is compensation.
6. Barter Exchange – Treas. Reg. § 1.61-2(d)(1): Except as otherwise provided . . . If services are paid for in exchange for other services, the fair market value of such other services taken in payment must be included as compensation. If services were rendered at a stipulated price, such price will be presumed to be the fair market value in the absence of evidence to the contrary.
a. Example: Attorney provides legal services to a plumber, who, in return, provides plumbing services. The parties call it even. NO! This is still gross income.
7. Advance Payments – Treas. Reg. § 1.61-8(b): gross income includes advance rentals, which must be included in income for the year of receipt regardless of the period covered or the method of accounting employed by taxpayer.
8. Claim of Right: Earnings received under this doctrine, without restriction as to its disposition, is income. If properly reported as income, taxpayer is entitled to a deduction if subsequently required to refund the money. (Contingent repayment obligation does NOT allow the receipt to be treated as a loan).
a. North American Oil v. Burnet: Receiver was appointed to collect money generated from oil rights, pending resolution of a dispute b/w govt. and oil company. In 1917, trial court dismisses govt. case and turn profits over to taxpayer. Govt. appeals up to 1922 and loses. The issue is when to include. It is not includable in 1916 because he did not receive funds until 1917 judgment, in which the CofR Doctrine is appli