Income Tax- 2006- Kalamaya - Outline for Income Tax Gross...

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Outline for Income Tax Gross Income – § 61 Generally o Income is interpreted broadly.   Glenshaw Glass o Q: is it an accession to wealth? o It is immaterial if payment is in non-cash goods.   Rooney  – case where CPA firm traded services for meals at restaurant and other  places.  FMV is used to determine income. o Cancellation of Indebtness -  Kirby Cancellation of indebtness is considered income b/c it’s ascension to wealth. Court will examine transaction as a whole to determine if there was actually a  benefit that was received. o Can’t tax someone for receiving a non-benefit. Bradford  – wife assumed husband’s debt for no consideration. Zarin  – guy gambled with debt that he couldn’t do anything  with. Side note: disputed liability doctrine Amount of debt is in question b/c of dispute over value of property. o Proceeds of embezzlement or illegal income is gross income. Collins  – guy bet money on horses using employer’s money. Test for embezzled money:     Realize econ value from stolen property? Sufficient control over stolen property to realize value? o Treasure Trove Found treasure trove must be reported in the year found. Treas. Reg. §1.61-14(a) Gift Exclusion – § 102 o G.I. does not  include value of property received by gift, bequest or inheritance o Policy : donor has already paid tax on $$ that could be used for consumption; gift merely  shifts  ability to consume to donee. o Practice : gifts should always flow from higher to lower tax bracket. o Employee Gifts – § 102(c) Employee gifts are included under G.I.; they are  not  excluded like normal gifts
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§ 274(b) allows business to deduct a gift of up to $25 If business wanted deduction, then it could couch transfer of property for  services rendered.  BUSINESS EXPENSE CITE. Personal Physical Injuries Exclusion – § 104(a)(2) o Damages received from personal  physical  injury lawsuit is not gross income o Types of Damages:     Nonpecuniary – pain and suffering Policy : tort system is zero-sum and just tries to make people “whole” Medical Expenses Policy : similar to § 213 (med expenses) deduction o Can’t have both, though: no § 213 deduction year before and then  exclusion next year for judgment to compensate.  Not fair. Lost wages Policy : difficult to justify; admin difficulty of apportioning  o Punitive damages  is  included as part of gross income o Policy : tort system does not pay people, but, rather, makes them whole after injury.   Life Insurance Exclusion – § 101(a) o Generally No exclusion for premiums
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