! ray- tax and pr Flashcards
MAJOR RULE/ intro
GROSS INCOME
RULE
Section 61 of the Internal Revenue Code is broadly defined so as to include ANY economic benefit, or realized accession to wealth, irrespective of its derivation.
Exclusion?
R: Income is taxable unless specifically excluded under IRC 1986. Exclusion categories include: ** GILT PIPE **
Deduction?
Before arriving at taxable income, a taxpayer may qualify for certain deductions. These deductions are subtracted from gross income to arrive at adjusted gross income.
Accounting?
There are two basis of accounting: (i) cash method (“car”) and (ii) accrural method (“awe”).
Under the CASH BASIS of accounting, receipts of income are reportable when activelyRECIEVED. Under ACCRURAL income is reportable when EARNED.
Gain or loss on property?
is only realized upon its sale or disposition. (realized)
Fed tax: taxable gross income”gapc”
Section 61 of the Internal Revenue Code is broadly defined so as to include ANY economic benefit, or realized accession to wealth, irrespective of its derivation.
Income is taxable unless specifically excluded under IRC 1986. Exclusion categories include: ** GILT PIPE **
- GIFTS
- GAMBLING/WINNING TREASURE TROVE=
- Income from betting, such as D’s $5,000 winning ticket, constitutes gross taxable income.
- if T itemizes deductions, he can offset the losses to the extent of his net winnings. - ALIMONY
– Whether alimony payment/child support is excludable as income hinges on whether the instrument was executed post the amendments of 2019.
–If post 2019, alimony/maintenance/child support are excludable as income to the payee, and the payor is not
entitled to deduction.
4. PRIZES / AWARDS constitute taxable income, except: (i) recognition awards + (ii) employee achievement awards. Recepient must be (1) recognized for literary/artistic/relgious charity, (2) without action on his part, (3) not for future service
- CANCELLATION OF DEBT
A debtor whose debt is discharged or cancelled at less than full amount is taxable income to the extent of differences between full and principle amount unless:
(i) discharge occurs in bankruptcy or tax payer insolvent
(ii) the reduction of indebtendess is an adjustment of the purchase price
Exclusions from GI:
GILT PIPE
Gifts, inheritence, life insurance may be excluded from income for tax purposes.
However, exclusion does NOT apply to ( ). those are taxable. GILT + PIPE
gift (property)
inheritence (installment property recieved),
life insurance (property)
tort awards (emotional damages, punitive)
Exclusion from GI: PARLAMENT
Exclusions to GI include PARLAMENTS
P:remium paid for insurance are excludable
A:ctual Medical care expenses,
reimbursement of medical costs
R:ecovery of bad debts. prior taxes are excl so long as did not reduce taxpayer tax.
L:ife insturance up to 50 k
E:ducation expenses, including:
- qualified scholarship
- fees, books, and supplies for courses
- grants received for GRAD/UNDERGRAD are excludable from GI up to $5,250 received so long as the PRIMARY PURPOSE is to further education; cannot be compensation for past or future service.
M:eals and lodging furnished, are excludable if (1) provided for convenience of employer, (2) in kind, (3) on employers premises
E:mployee Tax Free benefits are not taxable including (i) qualified employee discounts, (ii) working condition, de minimus fringes (donuts) and (iv) qualified transporation
Tuition
II. DEDUCTABLE?
ABCDE MOC
UM CC SHADE
GI- above the line = AGI
Section 61 of the Internal Revenue Code is broadly interperets income as any economic benefit from whatever source derived. Before arriving at taxable income, a taxpayer may qualify for certain deductions. Some deductions are allowable to all taxpayers (whether they decide to itemize or take the standard deductions). These deductions are subtracted from gross income to arrive at adjusted gross income. One such deduction is for ordinary and necessary business expenses, which it appears is the deduction that Tom used for his unreimbursed business expenses in prior years.
For individuals, there are two levels of deductions:
1. Above the Line: ABCDE MOC* items deducted from GI arriving to AGI
2. Below Line: UM CC SHADE itemized/standardized
items deducted from AGI to arrive to taxable income
For corporations, there is not AGI.
DEDUCTIONS
GI - “above the line” = AGI
ABCDE MOC above the line income
Section 61 of the Internal Revenue Code is broadly interperets income as any economic benefit from whatever source derived. Before arriving at taxable income, a taxpayer may qualify for certain deductions. GI- “above the line deduction”= AGI and AGI- below the line deductions= taxable income. Deductions that are included in “above the line deductions” include: ABCDE MOC
Alimony
Business expenses: ordinary business expenses incurred in carrying on business are deductible. (**Not Deductable– Salaries over 1 million)
Capital losses: are deductible up to $3,000 of net losses from “sale or exchange of capital assets”
Deductions From Rents or Royalties: for property held in production of rent or royalties and rental income are deductible expenses. deductions for expenses incurred in connection with that property. **NOTE ! if vacation home is rented out for fewer than 15 days per year it is not subject to income or expenses
Education-Related Expenses: “Qualified Student Loans” are deductable from AGI up to $2500 for interest paid during year for any educational loan, $80,000. Note! you may not claim interest unless your not a dependent and your personally liable for the loan
DEDUCTIONS
AGI- “below the line” = taxable income
HINTC
Section 61 of the Internal Revenue Code is broadly interperets income as any economic benefit from whatever source derived. Before arriving at taxable income, a taxpayer may qualify for certain deductions. GI- “above the line deduction”= AGI and AGI- below the line deductions= taxable income. Deductions that are included in “below the line” include: **HOPC MINT*
- home equity interest (second mortgage) is deductible “loan”
- deductable even if the proceeds of the loans are not used on a personal residence, are deductible if the loans are secured by a mortgage on the borrower’s equity in his personal residence - original purchase money mortgage interest is deductible on loans up to $750,000.
- personal credit card interest NOT deductable
- Non Business Losses
may be deductible including: (i) casualty losses: deductible only if in conjunction with a federally declared disaster. (ii) wagering losses incurred in gambling are deductible but only to extent of wagering gains for the year (iii) loss on sale of personal use asset is NOT deductible** Note Home Office: if space is used EXCLUSIVELY for business space - Taxes: State, local income, real property and personal property taxes are deductible up to $10,000.
- Charity Contributions: up to 60% of AGI is deductible so long as qualifying organization ** if taxpayer receives something in return for his gift, only difference in gift received and contribution is deductible**
- Medical Expensesdeductible to the extent they exceed 7.5 of AGI. * includes cost of drugs
III. Allocation of Income
- income to person:Earned income is taxable to one who earns it. As SCOTUS has emphasized, “fruit cannot be attributed to different tree than THAT from which it grows”
- Income from Trust: A trust is seperate taxible entity. If propert is IRREVOCABLY transferred to a trust, the trust or its beneficiaries will be taxed on income. If grantor or spouse retains any benefit from trust income, then it will be taxed tohim.
IV. Accounting
When must X report it?
RULE:
There are two basis of accounting for income (i) cash method (“car”) and (ii) accrural method (“awe”).
Under the CASH BASIS of accounting, receipts of income are reportable when actively or constructively RECIEVED, distinguished from the ACCRUAL basis of accounting where income would be reportable when EARNED Thus, at least the non-refundable portion of Abel’s advance is taxable in 1999 when received.
HERE:
As a ‘cash method’ taxpayer, Abel is required to report and recognize income in the year that he receives it.
Able certainly has constructive receipt of this income, (he knows the bills are due) and his only reason for not having actual receipt is his own delay in paying himself. Thus, because Able is in receipt of income, he may not defer the taxability of his legal fees, which are income under the Internal Revenue Code.
IV. GAIN/LOSS
Gain and losses on disposition of property are only given tax affect when they are realized.
- (Gain loss= AR-AB))
- – The gain or loss is measured by the difference btwn the amount realized and the tax payers adjusted basis. - AMOUNT REALIZED: equals the amount of cash FMV and any cash recieved for property/services recieved)
- NOTE
No gain or loss is recognized when tax payer exchanges real property for (1) productive use in business or(2) for investment for like kind property also held for productive use for business or investment
PR: Duty to Client
Competence
Communication
Pa. R.P.C. Rule 1.4, Communication, provides:
(a) A lawyer shall keep a client informed about the status of a matter and promptly comply with reasonable requests for information.
(b) A lawyer shall explain a matter to the extent necessary to permit the client to make informed decisions regarding the representation.
Frank could have lodged a complaint against Abel under Pa. R.P.C. Rule 1.4, Communication with the Pennsylvania Disciplinary Board.
Communication
A Lawyer owes duty of competent representation that requires the necessary knowledge skill and thoroughness for necessary representations. To maintain requisite knowledge and skill, must keep abrest with technology changes.
- DUTY TO REJECT + CT
lawyer is allowed to reject cases, unless court appoints the case (not financially burdensome) - SHOULD NOT REJECT CASE bc “ALE”
Also, you SHOULD take the case, if you can “ALE” However there exceptions to this rule such as when the court appoints a case or there is a duty to reject.
PR: Duties to Clients Competence Communication Diligence Loyalty Fees
L must act with Competence Communication Diligence Loyalty Fees
I. PR: Duty to Client
Competence
Diligence
I. Diligence:
L must act with reasonable diligence and promptness in representing C
II. Competence:
L must have legal knowledge, skill, thoroughness and preparation reasonably necessary to represent C (this duty cannot be cannot be waived by under any circum (doesn’t matter if pro bono, reduced fees)
(i) if ct appoints: must unless financial
(ii) L may gain competency by..
* *ALE**
1) Associating w/ lawyer reasonably believed to be competent, or
2) learning, acquiring sufficient and skill before performance w/o undue expense or delay
3) But may advise or assist in a true emergency (e.g., impracticable to reach another L) to extent
reasonably necessary
PR: Duty to Client
conflict of interest
- between clients +
- with firm
- CONTINUING REP
L may not accept or continue representation of C, without informed, written consent (IWC) from C, if
(1) the representation is directly adverse to another C or
(2) there is a significant risk that representation of C will be materially limited by L’s responsibilities to another C, former C, or personal interest of L
- FIRM imputed disqual
L’s COI disqualifies entire firm, unless it’s
a) due to L’s personal interest, and
b) L is screened from participation in subject matter of former representation, given no fee, and former C
notified in writing, or
c) L is leaving the firm
PR: Duty to Client
- conflict of interest with clients ie: gifts, money, sex
- Gift from client:
- A lawyer cannot induce or solicit a substantial gift from a client.
- Cannot prepare an
instrument giving himself a gift unless related to client
- Pecuniary interest in litigation subject matter:
Only allowed as lien to secure fees, contingency agreement
v. Loans (advancing money to C): L cannot provide financial assistance to C in connection w/ lit, except for…
- – Advancing litigation expenses in contingency case (no personal loans), paying for an indigent C
- Sexual relation with C: L may not have sexual relation with C, unless it existed before AC relationship. L’s
conduct not imputed to firm.
- If C is an organization, rule applies to any constituent of org who supervises,
directs or regularly consults with L concerning org’s legal matters. [Consider COI (2) above]
I. PR: Duty to Client
duty of loyalty/conflict
- joint clients
- Joint clients
(concurrent conflict):
i) L cannot represent C if there’s a concurrent COI, unless L reasonably
believes he can competently and diligently represent both Cs + each affected client gives IWC
ii) Concurrent COI exists where:
1) representation of C is directly adverse to another C’s interests or
2) significant risk that representation of C will be materially limited by interests of another
- Former clients: If relationship w/ former C will “substantially affect” relationship w/ new C, must give written disclo to new C
- – “Substantially affect”? Law or facts overlap, or confidences of one would hurt one to help another
I. PR: Duty to Client Fees - fee agreement - contingency fees - retainer fees
Fees: Fees cannot be “unreasonable.” Factors include novelty and difficulty of legal issues, time limitation, nature of
relationship w/ client, experience, contingency
i. Fee agreement - preferably in writing, except contingent cases or with a regular client with same basis or rate
ii. Contingency fees-
Not allowed for criminal or domestic relation cases (divorce, alimony. property settlement)
iii. 3P compensation:
can comp from non-C, only if 1) 3P not interfere with independence of
professional judgment or with lawyer-client relationship, 2) C info is kept confidential, and 3) C gives informed consent
iv. Retainer fees:
L may not keep unearned fees
(L may recover unpaid fees if fired by C (but not after withdrawal by L)
v. Fee splitting only happen btwn lawyers:
Division is restricted unless 1) client agrees in writing, 2) fees are proportional to work done by each lawyer, and 3) is overall reasonable
vi. Duty to safekeep client funds:
Must keep separate funds in trust account. Comingling with L’s funds is permitted to
the extent reasonably necessary to pay bank charges. Any disputed portion must remain in the trust account
PR: Duty to Client
Confidentiality
Confidentiality:
A L must not reveal information relating to the representation of a client.
EXCEPTIONS: To prevent death or serious bodily harm, prevent - subs financial harm, - has informed consent, - for ethics advice, - suit v. client, - collect fees, - compelled by ct , law ethics rules
- Att-client privilege:
evid privilege that allows C to refuse to testify and prevent L from testifying in court about communications.
This Extends to preliminary consultation w/ L.
EXCEPTIONS: duty of confidentiality (may conflict, discuss!) Crime/fraud (conflicts w/ duty of confidentiality), suit v. client, joint clients, competency or intention of testator client
