2 72b4 unrecovered investment is equal to original

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2. § 72(b)(4): unrecovered investment is equal to original investment minus any amounts excluded from income in prior years iv. § 72(c)(3) 1. Expected return when based on life expectancy will be determined by tables in § 72; when based on installment payments, should just be the aggregate of those payments v. Result: Better than bank account, which would have more tax at the beginning because interest income would be higher c. Life insurance: under § 101, proceeds will not be taxed if payable by reason of death i. Annuity would only be better if it cont. to be paid into the future, to the point where the after-tax amount is greater than the full amount of the life insurance (both discounted) UNIT V – Restricted Property I. Transfer of Restricted Property, Governed by § 83 a. Two Options: i. 83(a) – pay when there is no longer a substantial risk of forfeiture 1. Good idea when property will be stable in value or if it may go down 2. However, if it has gone down in value, cannot take a loss at that time because the terms of 83a say the “excess of” a. In other words, not a realization b. Cash paid would still be the basis, however 3. Implications: pay tax on the rental value! ii. 83(b) – must elect to do this , pay at the time of initial transfer 1. Would not take a loss or gain at time of transfer, would not be a realization event 2. If property is subsequently forfeited, no loss may be taken either a. § 1.83-2 3. Do this when property is expected to rise in value b. Tricks to § 83 i. 83(h) – When the employer takes the deduction, the employee must realize the income ii. Treas. Reg. 1. § 1.83-1(b)(1) – if you sell nonvested property, then you must realize the gain as the excess of the amount received over the amount paid. ( Means cannot recognize loss on sale of nonvested property ) 2. § 1.83-1(b)(2) – if you sell nonvested property, and the property is not vested, then the buyer is allowed to treat his cost as the basis in the property. 3. § 1.83-1(f)(Ex. 1) – Stock dividends paid to 83(a) stock (no election) will be treated as additional compensation to taxpayer and deductible as such by the corporation. a. Implies giving a good deal on a house, coupled with not taking an 83a election, will lead to taxation of the rental value of the property! 4. § 1.83-2 – details 83b election a. Implication: if forfeited, basis is amount paid , regardless of the amount included in income due to the election
iii. Why doesn’t § 119 apply? 1. Ownership interest to be transferred, and not a condition to employment c. Ask about last question for Unit V . i. Convenience of the employer: must have taken it as a condition of employment & must be premises of the business. 1. Japanese guy gets to claim convenience of the employer when they host people. “Functional, rather than spatial” (if extension of job is entertaining clients, then it would extend to his living space). Adams .

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