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Gross Income Outline

Law Outlines > Federal Income Tax (Duke Zelenak) Outlines

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Gross Income

1.1. Source generally does not matter I.

II. III.

IV. Generally, sources does not matter under the definition of gross income (Glenshaw Glass) a. Windfall gains are also taxable, especially because there is no deadweight loss Tax-free capital recovery is allowed a. Amount realized - adjusted basis = gain realized Section 1001 i. Amount realized is the cash received by the taxpayer plus the fair market value of any non-cash property received ii. Section 1012 defines a taxpayer's basis in an asset as the cost of such property b. Tax refund i. Itemize deduction: wage withholding refund taxable to the extent itemized deduction exceeds standardized deduction

1. If the refund is larger than the amount that itemized deduction exceeds standardized deduction, the amount that itemized deduction exceeds the standardized deduction is taxable

2. if smaller, the entirety of the refund is taxable ii. Standard deduction: wage withholding refund not taxable Gifts and Bequests a. Section 102(a) excludes gifts and bequests from the gross income of the donee or heir. b. Section 102(c) stipulates that a gift from an employer to an employee is not excludable c. Section 274(b) denies the transferor a business expense deduction for any business gift, to the extent the total value of gifts exceeds 25 dollars Damages on account of personal physical injuries a. Section 104(a)(2) excludes from gross income any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness b. Applies to all three major types of compensatory damage: i. Nonpecuniary damages for pain and suffering or loss of enjoyment ii. Damages for medical expenses, past and future iii. Damages for lost wages, past and future c. Problem 1 p102 i. IIED, SS104(a) flush language: ii. 10k medical expenses - excludable iii. 90k (lost wages, non-pecuniary damages) - not excludable

iv. Regulation 1.104 - emotional distress not physical injury, but damages for emotional distress attributable to a physical injury are excludable. d. Problem 2 i. Loss of consortium, excludable according to legislative history e. Problem 3 i. Amount realized - adjusted basis = gain realized ii. Amount realized= 120k, adjusted basis= 100k f. Problem 4 i. everything will be excludable ii. Incentive for structured settlement as opposed to trial

1.2. Generally taxable if it isn't cash V.

VI. Non cash income is generally taxable. An objective measure of fair market value must be employed to measure compensation received in goods or services (Rooney) a. If services are paid for in exchange for other services, the FMV of such other services taken in payment must be included in income as compensation, including lodging. Exceptions: a. Prize contest winnings: Rev. Rul. 57-374 If win in prize contest, can choose not to accept it and do not have to include in GI. Constructive receipt does not apply here. b. Section 119 provides an exclusion from gross income for the value of meals and lodging furnished by an employer to an employee, if the meals and lodging are furnished on the employer's business premises for the convenience of the employer. c. Imputed income i. Gratuitous service for yourself or family is imputed income, and is not included in gross income ii. Problem 6 P119: it's imputed income: imputed income also include work you do gratuitously for other people (neighbors looking after each other's lawn when the other goes on vacation) iii. Problem 7: imputed income (babysitting each other's baby) iv. Problem 8: selling the house painted by yourself. If the painting still has value, then you will turn the initial exclusion of the painting into a deferral. v. Problem 9: two visiting professors swapping house, not imputed income, there is an exchange. d. Unrealized appreciation i. Unrealized appreciation is not included in your gross income e. Employer-provided health insurance i. Section 106 excludes from the gross income of an employee the value of employer-provided health insurance coverage (premiums) ii. Section 105(b) excludes from gross income the value of benefits received under employer-provided health

f.

insurance, to the extend the benefits constitute reimbursement of medical expenses (benefits) iii. Section 125 cafeteria plan: a taxpayer who is offered a choice between cash and health insurance coverage, and who chooses insurance, will not be taxed under the doctrine of constructive receipt. iv. For taxpayers not insured through the employers

1. Section 213 allows them to claim their medical expenses as itemized deductions. However, medical expenses are deductible only to the extent they exceed 10 percent of adjusted gross income.

2. Section 36B provides a refundable premium assistance credit for low and moderate income taxpayer purchasing health insurance through a state-based health insurance exchange.

3. Self-employed: section 162(l): taxpayer can claim above-the-line deduction for cost of healthcare (counts as business rather than medical expense) Scholarship and other tax benefits for higher education expenses i. Section 117(a) excludes from gross income any amount received as a qualified scholarship by an individual who is a candidate for a degree at a college or university. The exclusion is limited to the amount of the student's tuition and fees. ii. Section 117(c) provides that the exclusion does not apply to any amount received which represents payment for teaching, research, or other services by the student required as a condition for receiving the qualified scholarship. iii. Scholarship to children of EEs must meet certain requirements to show not based on compensation incentive or expectation: Rev. Proc. 76-47

1. Must be based on merit

2. No more than 25% of eligible children get scholarship in any given year iv. Hope Scholarship Credit: SS25A(b)

1. Per student cap of 100% of first $1000 + 50% of second $1000 = $1500 total cap

2. Tuition and fees for first 2 years of college

3. Claimed by whoever pays the tuition

4. Now in effect is the temporary rule: a. 100% of first 2000 + 25% of next 2000 =
2500 b. Available for first 4 years of college c. Higher p/o range (160,000-180,000) d. 30% refundable v. Lifetime Learning Credit: Section 25A(c)

1. 20% of qualified tuition/fees for first 10,000 (max 2000 per taxpayer per year)

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