Cunningham F03 TAX OUTLINE


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GROSS INCOME Basic Structure of the Tax System - (1) Gross Income ( §61 ) - Deductions ( §162, 212 ) = AGI ( §62 ) - (2) AGI ( §62 ) - Itemized Deductions = Taxable Income ( §63 ) Definition of Gross Income - GI includes all income (wages, interest, dividends, rents, and gains for dealing in property) from whatever source derived - §61 - accessions to wealth realized when TP has dominion and control – Glenshaw Glass - taxation of imputed income ! included GI - GI includes income in any form: money, property, or services – R §1.61-1(a) - includes illegal gains – R 1.61-14(a) - if services taken as payment b included in GI; If services rendered at stipulated price b that’s the value of the service, else it’s service’s FMV - R § 1.61-2(d)(2)(i) - if LS places improvements on real estate, which constitute a substitute (of any level) of rent, improvements constitute rental income to the lessor – R 1.61-8(c) - rent free space included in gross income – Rev 79-72 Haigs-Simon Definition of Income - GI = consumption + d(wealth) Windfalls - taxpayers must include in income any windfalls (“treasure trove”) they receivable, b/c recognized at time of discovery – R 1.61-14(a) (Ex: if TP buys piano and finds diamond ring in piano b value of diamond ring realized and included in GI) - if taxpayer receives bargain b income ! realized until sale; Ex: if TP buys Steinway for 100k and turns out to be rare Steinway worth 1mil. TP does not include 900k spread until sale. Gifts and Bequests - §102 - Baseline Rule: gifts included in donor’s tax base and excluded from donee’s tax base - §102(a) - Justified: most gifts are made to family members, therefore makes sense to treat the family as single taxable unit, and easier to administer - Definition of Gift: “detached & disinterested generosity out of affection, respect admiration, charity or like impulses”; determinative ? what donors intent - Duberstein - Exception: transfer from employer to employee ! gift (unless gift under $25, which deductible under §274(b) - §102(c) - WRINKLES: (1) if the purpose of transfer can be substantially attributed to familial relationship of the parties and ! to circumstances of employment b §102(c) applies – R 1.102-1(2) (2) Retiring minister can exclude gift from a congregation – Rev. 55-42 (2) inheritances = gift even if derived from settlement or ct action – Lyeth v. Hoey (3) written agreement contains some sort of hint of consideration b ! gift; (4) even if you enforce a claim against the estate, since you are an heir, constitutes a gift (5) income derived from an estate by an executor must be included in gross income (6) if executor also bequested property/money b ? of whether gift - inheritor will argue that doesn’t have to perform services as executor - if there was such an agreement but the person leaving the money died intestate where inheritor is the only beneficiary, could waive this money at the beginning and inherit the rest tax free. - even if she was not the only beneficiary it may still be worth it for her to waive her
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