2011 Comp Topics IM Ch04 - 47 Chapter 4 Gross Income SUMMARY OF CHAPTER Gross income according to the Internal Revenue Code includes all income unless

2011 Comp Topics IM Ch04 - 47 Chapter 4 Gross Income...

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© 2010 CCH. All Rights Reserved. Chapter 4 47 Chapter 4 Gross Income SUMMARY OF CHAPTER Gross income, according to the Internal Revenue Code, includes all income unless speci fi cally exempted by law. This comprehensive de fi nition requires a more probing discussion of what must be included in income. Two further concerns are how much must be included in income and what portion of total income may be excluded. The Concept of Income ¶4001 Economic Income Economists de fi ne income as the maximum amount that an individual can consume during a week and remain as well-off at the end of the week as the individual was at the beginning of the week. This de fi nition is not practical for tax purposes. ¶4015 The Legal/Tax Concept of Income The tax concept of income derives from the Code, which states that gross income includes “all income from whatever source derived” unless speci fi cally exempted by law. (Code Sec. 61(a).) The legal concept of income is best described in the Eisner v. Macomber case as “gain derived from capital, from labor, or from both combined.” ¶4025 Accounting Income Accountants measure income as the excess of revenues over costs incurred to produce those revenues. As in fi nancial accounting, all gains must be “realized” before they are includible in income. Under the accrual method, income is recognized when a transaction is consummated. Under the cash method, income is recognized only when cash is received. Economic Bene fi t, Constructive Receipt, and Assignment of Income Doctrines ¶4101 Economic Bene fi t Doctrine The economic bene fi t doctrine focuses on what is income. ¶4125 Constructive Receipt Doctrine The constructive receipt doctrine focuses on when income is received. A distinctive feature is that the doctrine affects only cash basis taxpayers. ¶4201 Assignment of Income Doctrine The assignment of income doctrine focuses on the person to whom income is taxable. For tax purposes, income is taxed to the individual who has earned it. The assignment of income is disregarded unless the source of the income is also assigned. ¶4215 Community Property Income There are nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin). In these states all property acquired by a husband and wife after marriage is considered as owned by them in common. ¶4225 Tenancy by the Entirety If property is held by a married couple as tenants by the entirety, all income from the property must be included by the husband in his return, or must be shared equally by the spouses, depending on state law.
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48 CCH Federal Taxation—Comprehensive Topics Chapter 4 © 2010 CCH. All Rights Reserved. ¶4235 Joint Tenants and Tenants in Common Parties holding property as joint tenants each report one-half of the income.
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