PH4ky412

PH4ky412 - CHAPTER 4 NON-INCOME ITEMS 1 UNREALIZED INCOME 2...

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Unformatted text preview: CHAPTER 4 NON-INCOME ITEMS 1. UNREALIZED INCOME 2. SELF-HELP INCOME 3. RENTAL VALUE OF PERSONAL-USE PROPERTY 4. SELLING PRICE OF PROPERTY EXCLUSIONS FROM GROSS INCOME 1. GIFTS-- Nontaxable ---> they must truly be gifts, not compensation for past services. 2. INHERITANCES-- Nontaxable 3. LIFE INSURANCE PROCEEDS-- Nontaxable unless the policy is transferred to a third party ---> the third party then has income to the extent that the proceeds exceed the purchase price plus any premiums paid. Exception--the proceeds remain tax-free after transfer, for transfers to: 1. Partners of the insured individual. 2. Partnerships of the insured individual. 3. Corporation in which the insured is a shareholder or officer. 4. Tax-free exchanges (transactions in which the basis of the policy is determined by reference to the transferor's basis). Additional Provisions-- A. Interest on life insurance proceeds is taxable. B. If a life insurance policy is cashed-in (surrendered) before death apply ROC doctrine to determine the taxable amount. C. Apply the ROC doctrine to determine the taxability of endowment contracts. If payments are received in installments use the same procedures as for annuities and pensions. 4. ADOPTION EXPENSES-- (exclusion or credit) - a maximum exclusion of $12,170 (not to exceed actual expenses) phased out at modified AGI levels of $182,520 to $222,520. Special needs children qualify for the full $12,170 regardless of actual expenses. Modified AGI – 182,520 Reduction =-------------------------------- X exclusion 40,000 5. PRIZES AND AWARDS-- Nontaxable if awarded for religious, charitable, scientific, education, artistic, literary, or civic achievement IF: a. The recipient was selected without his/her own actions. b. The recipient does not have to perform substantial services. c. The recipient forwards the prize or award to a governmental unit or charitable organization. 6. SCHOLARSHIPS AND FELLOWSHIPS-- Recipient must be a candidate for a degree Exclude amounts for tuition and related expenses. Include amounts for room and board. 7. QUALIFIED STATE TUITION PROGRAMS-- 8. COURT AWARDS FOR INJURY OR SICKNESS-- COMPENSATORY PUNITIVE Lost Income Taxable Taxable Personal Injury Physical injury or (assault, battery, sickness—Nontaxable physical injury (except for lost income) Taxable or sickness) (age discrimination, Non-physical—Taxable libel, slander, (except for medical emotional distress) reimbursements for emotional distress) Property Loss Apply ROC Doctrine Taxable Murphy v. IRS (CA DC 12/22/06), No. 05-5139, 99 AFTR 2d ¶2006-324 vacating (CA DC 8/22/2006) 98 AFTR 2d 2006-6088 The Court of Appeals for the District of Columbia Circuit has vacated its controversial decision that taxing awards for non-physical personal injury unrelated to lost wages or earnings violated the Sixteenth Amendment and was unconstitutional. Facts. In an action against her former employer, Marrita Murphy was awarded compensatory damages ($45,000 for...
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PH4ky412 - CHAPTER 4 NON-INCOME ITEMS 1 UNREALIZED INCOME 2...

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