Gross Income Flashcards
Elements of Gross Income (Glenshaw Glass Test)
- Accession to wealth
- Clearly Realized
a. Transaction or Event
b. Changed legal relationship with property/wealth
c. Sufficiently fixed and definite = final step in the fruition of economic gain. - Complete Dominion and control
Section 61 Gross Income Categories:
- Compensation for services, including fees, commissions, fringe benefits
- Gross income derived from business
- Gains derived from dealings in property
- Interest
- Rent
- Royalties
- Dividends
- Alimony and Child Support
- Annuities
- Income from life insurance and endowment contracts
- Pensions
- Income from discharge of indebtedness
- Distributive share of partnership GI
- Income in respect of a decedent
- Income from an interest in an estate or trust
Gross Income
ALL income from whatever source derived
Items Considered GI
- Punitive damages
- Treasure Trove
- Income Tax payments on behalf of an employer
4 .Treasure trove - If trip is compensation for services (employer/employee relationship
a. look at if employee had to go or no
b. lavish conferences considered compensation - Qui tam payments
Imputed Income
NOT GI
Benefits resulting from TP’s personal efforts
Bargain Purchase
NOT GI if transaction:
1. at arm’s length
2. and relationship does NOT introduce other elements indicating that the transaction is not simply a purchase, but an exchange of other consideration
[Taxable gain does not accrue to the purchaser of the property until he sells or otherwise disposes of it.
Property may result in taxable income if the bargain purchase may represent compensation where the seller and the purchaser bear the relationship of employee/employer or as a dividend.
Barter and FMV
FMV= price that would be chosen by a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts
If payment other than cash= FMV of property or services is taken as payment
Loans
Not Income
General rule: a bank loan results in (1) no accession to wealth or (3) no dominion and control because of obligation to repay
In a loan: borrower is subject to an UNCONDITIONAL obligation to repay (if unconditional obligation then no income)
Contingent Obligations to Repay
If $ or property received is subject to contingent repayment obligation (claim of right) then = INCOME and taxable
Claim of right doctrine: Claim of right and without restriction as to its disposition: cash or property received is GI even though there is a contingent obligation to return.
Contingent obligation to repay can be in form of litigation
Embezzlement
Embezzler ALWAYS has an unconditional obligation to repay
Rule: gains from illegal business are reported and are taxable
When a TP acquires earnings, lawfully or unlawfully, without the consensual recognition, express, or implied, of an obligation to repay and without restriction as to their disposition, he has received income.
Advance Payment of Income
Income is year received
ex. rent received in advance is GI in year received
Deposits
Sum payable as pledge for a k
NOT GI b/c tp had no dominion over deposit money (repayment depends on condition in obligee’s control
ex. security deposit for property lease, customer deposits to utility companies.
Gains from property dealings
A tp does not have GI until she first recovered her capital investment in the property
Section 1001: Computation of Gain/Loss
Amount Realized
- Adjusted Basis =
Gain
Section 102 Gifts and Inheritances
GI does not include the value of property acquired by gift, bequest, devise, or inheritance.
Exceptions:
1. Income from dividends
2. Employee gifts (close to giving them compensation)
Basis Provisions
Section 1012 : Basis is cost
Section 1014: Basis for inheritances
Section 1015: Basis for gifts
Gifts
Gross income: Excluded per 102
Basis: Generally Donor’s per 1015
Gifts when property received is at a loss
(AB>FMV at time of gift) and then sold at a loss (FMV at time received>FMV when sold)
Inheritances
GI: Excluded per 102
Basis: FMV of property at the date of decedent’s death per 1014 [Stepped up basis]
EXCEPT: if acquired by decedent w/ in year of death 1014(e) Ghoulish giving problem.
Principal Residence Exclusion 121
No gross income up to $250k for individual and $500k for joint returns
Requirements:
1. Owned for at least 2 out of past five years
and
2. used as principal residence for at least two of five years.
*Applies to only 1 sale or exchange every 2 years
*If spouse deceased: surviving spouse may apply $500k exclusion, if sale is not later than 2 years after death of spouse.
Prizes and Awards 74
Generally GI. If services then = FMV
Exception for Prizes and Awards Transferred to Charities 74b
GI does not include amounts received as prizes and awards made primarily in recognition oreligious, charitable, scientific, educational, artistic, literary, or civic achievement, ONLY IF:
- recipient was selected without any action on his party to enter the contest or proceeding;
- the recipient is not required to render substantial future services as a condition to receiving the prize or award; AND
- the prize or award is transferred by the payor to a governmental unit or organization pursuant to designation made by recipient
Prizes and Awards Exception for Certain Employee Achievement Awards 74c
Gross income shall NOT include the value of an employee achievement award (as defined in 274j received by the TP if the cost to the employer of the employee achievement award does not exceed the amount allowable as a deduction to the employer for the cost of the employer award
EXCESS DEDUCTION AWARD- if the cost to the employer of the employee achievement award received by the tp exceeds the amount allowable as a deduction to the employer then GI includes the greater of-
(A) An amt equal to the portion of the cost to the employer of the award that is not allowable as a deduction to the employer (but not in excess of the value of the award ), or
(B) The amount by which the value of the award exceeds the amount allowable as a deduction to employer
The remaining portion of the value of such awards shall not be included in the GI of the recipient
117 Scholarships
Generally included in GI, 177a excludes :
Qualified scholarships received by degree candidates, if not payments for teaching, research or other services.
To be a qualified scholarship, payment must ONLY be used for qualified tuition (tuition and fees) and related expenses (books, supplies, or required equipment) (not room/board, travel)
NOT research assistant positions
127 Exclusion for Education Assistance Programs
Allows employees to exclude up to $5,250 of educational assistance furnished by employers if such assistance is provided through a qualified educational assistance plan.
101 Life Insurance Proceeds
Generally, excluded from GI
Exclusion does NOT apply to proceeds of a policy if the policy has been transferred in life. Exclusion only applies to amt of valuable consideration:
UNLESS: transfer is to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the shareholder is an officer.
any interest collected from principal amount is included in GI
79 Employee Group Term Insurance
may exclude the first $50k of employer provided coverage from GI
