Glossary of Federal Income Tax 2
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- What gives Congress the Power to tax?
- Article 1 section 8 of US Constitution
16th Amemdment- created uniformity between the states
- What are the tools of taxation?
- The Internal revenue Code and
Treasury Regualations- helps with interpreation of the Code
- What are the revenue Rulings?
- An official interpretation of the tax law by the IRS for the public's benefit
- what are the characteristics of the US tax court?
- The TP tells the ct where he/she wants the case to be heard; TP does not pay deficiency in advance; no jury trial
- what are the characteristics of the district court?
- TP chooses the judge; jury trial; ct is governed by FRCP- so more discovery. TP pays first then dispute later
- What are the characteristics of the court of claims?
- like district ct; has to pay 1st then sue for refund later; sits in Washington DC; No jury-unlike district ct.
- what is Gross income?
- Section 61: GI is income from whatever source derived (illustrative list)
Reg 1.61 GI could be money, property, services or evn debt relief
- what is the holding of cesarini v. United States?
- Old bills found in a piano is GI. Additionally RR and 1.61-14 says treasure trove is taxable income. Reg
- When is taxes due on a treasure?
- When it is reduced to possession in US currency. look to state law to see when the TP possesses the treasure.
- Hypo: What happens if a student bought property and found old spanish coins on it?
- Tax consequences result when the treasure is realized in US currency. Take it to the bank and figure out what it is worth in US currency.
- Hypo- Student bought property & 1 mth later neighbours found gas reserve on theirs. They told her that hers is now worth $10million. Does she have gain?
- No. Only has gain the year within which the property is sold
- Hypo: Student bought $2500 worth of goods for $1000. Is this GI?
- No. Good bargain does not result in GI
- What is the holding & reasoning of Old colony trust Co. v. Commissioner
- When an employer extinguishes a legal obligation of an employee (like paying his taxes) it results in GI as the employee is wealthier by the amount of money paid. The income tax paid is for services rendered.
- Is punitive damages award GI?
- Yes, as it is gains & income derived from whatever source. It's an undeniable accessions to wealth clearly realized over which the TP has complete dominion"
- Are business travel credits transferred to employee and converted to cash when GI?
- Charley v. Commissioner-
1. they can be characterised as additional compensation or
2. if travel credits belonged to employee who exchanged them for cash then he has GI as it was merely a disposition of his property.
- If frequent flier miles are personally used and not converted to cash, is it GI?
- NO, Revenue Ruling- no taxation if frequent flier miles are converted to a ticket. maybe different if converted to goods or cash
- Does one have GI when they get a loan?
- No, as there is a concurrent legal obligation to pay. However, if they have no intentioin of paying then they have GI.
- Is income from illegal gains such as embezzling, and extortion GI?
- Yes, Section 61 says GI is income from whatever source derived. The government often uses the charge of tax evasion or avoidance to convict many criminals such as drug traffickers, bookies etc.
- Does a landlord who recive a security deposit from a tenant have GI?
- No. as he has the legal obligation to pay it back. Thus he is no wealthier
- Does an employee who recieve a Christmas bonus have GI?
- Yes. Reg 1.61-2 (a) says bonuses are GI
- How much GI does a Salesman have who received a car as bonus with Fair market Value of $16,000, when it only cost the employer $10,000?
- GI of $16,000- the FMV of the car as the car could have been sold for the FMV.
- Are the following GI?
1. severance pay 2. shares in Exon paying dividends 3. Lessee pays $1000/mth
- Section 61- All GI. Severance pay- for services rendered. Shares w/ dividend- GI. Rents- GI
- Does a landlord whose tenant builds a gazebo in the backyard have GI?
- Section 109- Improvements made by lessee is not GI unless they were made in lieu of Rent. However, gazebo would increase the value of the property, at sale of the property the landlord would have to account for the increase in the value of the property. A delay in the realization of income.
- Shares for $1.00/share appreciated to $100/share. GI?
- No. Income is not yet realized. realization occurs when something triggers the disposition of the income.
- Exon's Share value increase, Company gives stock dividend. Thus 1000 shares increase to 2,000 shares. GI?
- No. stock splitting results in all shareholders increaing their shares but Exon would have the same value. Eisner v. Macomber
- landlord has difficulty collecting his rent so decided to collect $500 instead of $1500 from tenant. Does tenant have GI?
- yes, GI of $1000. Section 61 (a) 12 income from discharge of indebtedness is GI. Always look at what the recipient is getting not a what they are giving up.
- Winner of a watch at a raffle. Do they have GI?
- Yes. The FMV of the property is the GI as there is a willing buyer, willing seller = arm's length transaction
- Hypo: A GM cardholder gets back $1000 worth of GM rebate which she applies to the purchase of a GM vehicle. Does the cardholder have GI?
- No. RR 76-78 says that a rebate is only an adjustment of the purchase price. When purchasing items the rebate rebate is built into the price so you actually buy the rebate with whatever item generated the rebate.
- Hypo: A landlord has a 4 unit apartment bldg. he rents 4 & lives in 1. Does he have GI since he could have rented his?
- No. Imputed Income. Regardless of the value TPs are not taxed on services self-rendered or property owned or lived in.
- Hypo: lawyer needs house painted. Painted needs legal service. They both bartered. Do either have GI?
- Yes. The FMV of the services rendered is GI. Look at the value of each transaction separately.
- What does the Dean v. Commissioner case stand for?
- When a TP occupies property of another for free, albeit it was previously his, he has an obligation to provide his family with a home and should have paid rent which is the FMV of the property.
- Does a Huricane Katrina evacuee who gets a $2000 FEMA card have GI?
- NO. RR 75-271 & 76-373 says that paymt under a social benefit program for promotion of general welfare is not GI. Would be counterproductive to turn around & say that it is GI
- Under what circumstances is Section 81 applicable?
- 1. In connection with performance of services
2. transfer of non-cash property to any other person.
- Under Section 83 what is GI?
- The FMV of the property minus amount paid for the property is included in the income of the one rendering the services.
- Under Section 83 when is GI realized?
- 1. when the rights in property are transferable 2. or not subject to a substantial risk of forfeiture. Then the employee is substantially vested & there's GI unless an 82b election was made to pay taxes at inception of the deal or on initial transfer.
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