Tax and Income Generally Flashcards
§61
defines gross income
§62
defines adjusted gross income
§63
defines taxable income
Why do we have a tax system
A tax system provides revenue to the government so it can operate
What is the biggest source of tax revenue and how much is it?
Income tax is the largest source of revenue and it accounts for $1.5-1.7 trillion annually.
What is the second biggest source of revenue and what does it fund?
Payroll tax is the second largest form
What is the difference between the tax court and the federal court when challenging a tax issue?
If youre willing to pay, you can take a case to the regular federal court. If youre not willing to pay, you go to the tax court for a ruling.
§119
– Meals or lodging furnished for the convenience of the employer
§132 –
Certain fringe benefits
What is §161’s definition of Gross Income
gross income includes income realized in any form, whether in money, property, or services.”
Haig-Simons defiition of income
the taxpayers personal expenditures plus (or minus) and the increase (or decrease) in the taxpayer’s wealth.
What is a noncash benefit
A noncash benefit can include things like medical care, life insurance, meals, lodging, and other miscellaneous items.
when can a meal be excluded from income?
if (1) the employer furnishes the meal,
(2) the meals are provided for the convenience of the employer, and
(3) the meals are provided on the business premises of the employer.
What additional element does lodging require to be excluded from income?
Same as meals but it also has to be required as a condition of employment.
Bengalia v. Commissioner
Lavish lodging and meals can be excluded despite pricetag. He was a manager of Hawaiian hotel. Req’d him to be on the premises.
How can put a value on noncash benefits?
could do either fair market value, but may not be fair to the employee. Tax the value of alternative arrangements or on the subjective value to the employee, but both are very hard to determine.
When considering a fringe benefit, what should you look for?
if there is additional cost to the employer, in the same line of business, that a discount qualifies, or the value is de minimus., transportation benefits.
When would an employee discount not be allowed as a fringe benefit?
If it is based on performance or not available to all employees,
What is imputed income?
Imputed income is the accession to wealth that can be attributed, or imputed, to a person through non-market transactions, when for example, he avoids paying for services by providing the services to himself.
Why do we care about Imputed Income?
It matters because we care about taxing increases to wealth, and technically this is income. But it is awkward for us as a society to be taxing work done in the home. It also raises seemingly insurmountable problems in regards to valuation.
Are windfalls taxed (case)?
Yes. Glenshaw said that punitive damages needed to be taxed (historically, income was only gain from capital or labor)/
How do you tax windfall from treasure trove? Antiques?
Treasure trove should be taxed once you discover it. Antiques or other items that you discover are worth considerably more than you realized should be taxed once you realize that income (when it is sold)
Gifts are excluded from income. what is the section number and test?
The section is §102. THe test is duberstein which says amounts received must have been given with a “detached and disinterested generosity” to be considered a gift
Can employers give employees gifts to be excluded? why
Generally no. it would incentivize all income to be a ift and avoid taxes.