Chapter 4 Notes

Chapter 4 Notes - TAX 4001 CHAPTER 4 NOTES 2011/2012 MAJOR...

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TAX 4001 CHAPTER 4 NOTES 2011/2012
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MAJOR CONCEPTS Definition of Gross Income Accounting Methods Constructive Receipt Prepaid Income (Claim of Right Doctrine) Who is Taxed on Income (Assignment of Income Doctrine) Specific Exclusions Municipal Bond Interest Life Insurance Proceeds
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MAJOR CONCEPTS (CONT’D) Specific Inclusions Below-Market Rate Loans Items Both Included and Excluded Leasehold Improvements Discharge of Indebtedness TAX BENEFIT RULE Specially Taxed Items Dividends Capital Gains
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DEFINTION OF GROSS INCOME The Internal Revenue Code generally regards all items of income taxable unless otherwise provided. Similarly, no items are deductible unless specifically allowed (more on these rules in Chapter 5). One major distinction between the concept of taxable income and accounting income is the “ability to pay concept”. If a taxpayer is involved in a transaction where cash or cash equivalents are not received, non-
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(CONT’D): Examples: Installment Sales and Like-Kind Exchanges Alternatively, when a taxpayer receives cash with no binding obligation for repayment, that amount is often recognized as income. Examples:
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Chapter 4 Notes - TAX 4001 CHAPTER 4 NOTES 2011/2012 MAJOR...

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