Federal Taxation Week 2 lecture 2

Federal Taxation - Federal Taxation Week 2 lecture 2 1 2 In the previous lesson we discussed Gross Income Concepts and Inclusions In this lesson we

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Federal Taxation Week 2 lecture 2 1. In the previous lesson we discussed Gross Income: Concepts and Inclusions. In this lesson we will discuss Gross Income: Exclusions. Next Slide: 2. The previous lessons discussed the concepts and judicial doctrines that affect the determination of gross income. If an income item is within the all-inclusive definition of gross income, the item can be excluded only if the taxpayer can locate specific authority for doing so. This session focuses on the exclusions that Congress has authorized. Next Slide: 3. After completing this lesson, you should be able to: Understand that statutory authority is required to exclude an item from gross income. Identify the circumstances under which various items are excludible from gross income. Determine the extent to which receipts can be excluded under the tax benefit rule, and Describe the circumstances under which income must be reported from discharge of indebtedness. Next Slide: 4. For a taxpayer not to include an item as income on the tax return, specific guidance within the Internal Revenue Code must state that the item is excluded. Sections one-oh-one through one- fifty of the code provide the authority for excluding specific items from gross income. In addition, other exclusions are scattered throughout the Code. Each exclusion has its own legislative history and reason for enactment. Certain exclusions are intended as a form of indirect welfare payments. Other exclusions prevent double taxation of income or provide incentives for socially desirable activities. Next Slide: 5. Beginning with the Income Tax Act of 1913 and continuing to the present, Congress has allowed the recipient of a gift to exclude the value of the property from gross income. The exclusion applies to gifts made during the life of the donor and transfers that take effect upon the death of the donor. Gifts are nontaxable to the donee if the transfer is voluntary without adequate consideration and made because of affection, respect, admiration, charity or donative intent. Transfers by employers to employees do not qualify as excludible gifts. Sometimes an employer makes payments, known as death benefits, to a deceased employee’s surviving spouse, children, or other beneficiaries. If the decedent had a non-forfeitable right to the payments, such as accrued salary, the amounts are generally taxable to the recipient just the same as if the employee had lived and collected the payments. Next Slide: 6. In most situations, life insurance proceeds paid to the beneficiary because of the death of the insured are exempt from income tax. Congress chose to exempt life insurance proceeds for the following reasons: For family members, life insurance proceeds serve much the same purpose as a nontaxable inheritance. And In a business context, life insurance proceeds replace an economic loss suffered by the beneficiary. Under the accelerated death benefits provisions, exclusion treatment is available for insured taxpayers who are either terminally ill or chronically ill. A
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This note was uploaded on 02/08/2010 for the course ACC317 adv. feder taught by Professor Man during the Spring '10 term at Strayer.

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Federal Taxation - Federal Taxation Week 2 lecture 2 1 2 In the previous lesson we discussed Gross Income Concepts and Inclusions In this lesson we

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