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1 FEDERAL TAX OUTLINE FALL 2002 PROF ZELINSKY INCOME §61 Commissioner v. Glenshaw Glass (pg 90) s Are punitive damages income? s Glenshaw Glass was awarded punitive damages but reported only non-punitive damages s Holding: Taxpayer looses – Punitive damages are income and taxable s Test: o Accession to wealth o Clearly realized o TP has complete dominion or control over CASH -- NOT INCOME s Cash isn’t included in § 61 LOANS – NOT INCOME s A loan is the most common form of cash – don’t have to pay income taxes on loans bc there is an offsetting obligation to pay s There is no income when you borrow money ILLEGAL INCOME s § 61 doesn’t say legal income only. Gilbert v. Commissioner (pg 220) s Gilbert illegally took money but left a promissory note – His intent was to pay it back. He pleads guilty to embezzlement charges for taking the money. s Holding: Not taxable income bc it was a loan s If it was really stolen, it wouldn’t be a loan, so it would be income BARTER – INCOME Barter is taxable income to both parties. When you barter products or services you are taxed on the FMV of what you receive. Revenue Ruling 79-24 (pg 88) s IRS says both housepainter and lawyer who trade services are income s Imputed Income (self-performed services) are not income DEPOSITS v. ADVANCE PAYMENTS Commissoner v. Indianapolis Power s Requires customers w/ bad credit to make deposits with it to assure prompt payment of future bills. Customers can get a refund or apply amount towards bills if they pass a credit check. Deposits are under the company’s complete use and control. s Supreme Court says its NOT INCOME o Compares it to a loan o Company doesn’t have complete control at time payments are made o Not advance payments www.swapnotes.com
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2 EXCEPTIONS TO §61 §102: GIFTS & INHERITANCE (a) General Rule: NOT INCOME (c) Employer to Employee gifts: INCOME (gifts given in the business relshp are taxable) Commissoner v. Duberstein (pg 95) s Gave business associate a Cadillac as a gift s Holding: Tp loses – Not a gift so INCOME s TEST: Gift is not taxable if: o Given w/ detached and disinterested generosity o Look to donor’s intent Stanton (pg 101) s Retiring priest was given money from ER when he resigned. s Held: NOT INCOME Congress responded to Duberstein w/ Section 102(c)(1) s Overrules Stanton US v. Harris (pg 105) s Man gae gifts to 2 prostitutes and they didn’t pay tax on the money s Held: Gift so NOT INCOME s Based on Duberstein test of intent of donor. s Prof. says this is wrong: Income test purpose is to determine capacity to pay – The women certainly have capacity to pay Olk v. US s Craps dealer receives tips and did not report them as income s Held: Tokes are taxable – Not gifts s Not detached and disinterested generosity Pg 118 Questions 1. (a) Is this a gift, and if so how is it different from Olk?
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