Accounting income is defined as the excess of revenue over costs incurred to producethat revenue. The legal and the accounting definitions are much more practical than theeconomic definition.Economic Benefit and Constructive Receipt Doctrines2.The economic benefit doctrine addresses the concept of "what" is income.The constructive receipt doctrine is concerned with "when" do we have income. Theconstructive receipt doctrine is for cash basis taxpayers, not accrual basis. Rules havebeen established to prevent individuals from simply "choosing" a time to recognizeincome.Assignment of Income Doctrine3.The court in Lucas v. Earlstated that the "fruit" may not be "attributed to a different treefrom that on which it grew." The doctrine is concerned with assignment of income andensuring that the owner of the capital (tree) does not try to reduce tax liability byassigning income.Compensation—Salary Advances4.No. The employee must repay the advance. This is considered a loan and it should notbe confused with compensation for services.5.No. The U.S. savings bonds are purchased with after-tax dollars. Payroll deductionitems are not exclusions from gross income.Chapter 4
7Instructor’s Manualvalue, but out of affection, regard, or pity. Section 102(a) specifically excludes the valueof property acquired by gift.Scholarships7.Scholarships received by a degree candidate are excludable from gross income ifamounts received cover the costs of tuition, books, supplies, and course-related fees.Scholarships for room and board are not excludable from gross income. Also,scholarships to non-degree candidates must be included in gross income.8.Selling and administrative expenses of a business are deducted after gross income hasbeen determined.9.Improvements made by the lessee are income to the lessor if they are made in lieu ofrent. Also, they are based on market value and not cost.10.Normally, stock dividends are not included in gross income. The reason is that therecipient of the stock dividends does not have more equity in the company after thestock dividend than was had before. If the stockholder owned 10 percent of thecompany before the dividend, the stockholder owns 10 percent of the company after thedividend.