Transcript Chapter 3 - Gross Income

Chapter 4 - Gross Income
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Gross Income - Definition (Is it income
issue)
Section 61
Eisner v. Macomber (gains from capital
or labor or both combined)
generally not income: mere
appreciation, imputed income
Tax Accounting (when is it
income issue)
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Taxable year
accounting methods (tax acctg not
necessarily GAAP) - cash & accrual
cash: constructive receipt (readily available);
cash equivalents - (checks, property) (notesFMV)
Accrual: notes-face; if contested-inc when
receive; deductions - all events test and
economic performance (chap 6)
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Hybrid; inventory (material income
producing factor); IRS power
Exceptions to cash rules - constructive
receipt v. negotiating not to receive;
OID; E and EE bonds
Exceptions to accrual rules
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Prepaid income
(financial deferred
liability) - prepaid
services exception:
(Rev. Proc. 04-34) /
inventory exception:
adv paym for goodstreated same tax&fin
(election)
Types of Income & To Whom
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Personal services (Lucas v. Earl)
interest and dividends (allocation between
t/p’s)(stk-gen-to recholder)
flow throughs (S corps, p’ships)
trust and estates
community property rules - important for MFS
- separate property, marital property, sep inc,
pers serv inc, which states (9) (La, Tex, NM,
Ariz, CA, WA, Idaho, Nev, Wis)
Gross Income-specific inclusions
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Alimony: post 84 conditions,
antifrontloading, v. child support (cash,
paid under a divorce decree or
separation agreement, and NOT
identified as NOTalimony)
Imputed Interest - below market loans
(low and no int)
model, AFR, imputations, exceptions
(see later slides)
Annuities
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Collection after start date - exclusion =
investm/expec’d ret x annuity paym;
early or late death
Simplified method (QRP’s): exclus =
inves/# payms (from table), STG date
after 11/18/96
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Prizes and awards - inc unless: proper
purp, proper transfer, no action, no
services
group term life insurance (calculate
inclusion, value of coverage >50,000)
unemployment compensation = inc
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Step 1 - Social Security - no more than
1/2 taxable
1/2 (mod GI + 1/2SS - base)
Step 1 bases: 32000, 0, 25000
Step 2 - Social Security - no more than
.85 taxable
.85 (mod GI + 1/2SS - base) & plus
Step 2 bases: 44000, 0, 34000
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Plus :lesser of Step
1 (limited to 1/2SS)
or 4500 (6000MFJ)
Imputed Interest 
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Below market loans (low and no int) (all
hypothetical - Alice Through Looking
Glass - With Real Tax Consequences)
AFR - MODELS (imputations) (demand
loans) - All start with lender should have
income
4 types - gift, compensation, corp/sh,
tax avoidance
Gift Loan - F to D, 90000, no int,
AFR 5%
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F
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D
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1) int inc 4500
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2) int exp 4500
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3) gift made 4500
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4) gift rec’d 4500
(2) Compensation Loan ER to
EE, 90000, no int, AFR 5%
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ER
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EE
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1) int inc 4500
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2) int exp 4500
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3) comp pd 4500
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4) comp rec’d 4500
(3) Corp/Shareholder Loan-Corp
to SH, 90000, no int, AFR 5%
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CORP
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SH
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1) int inc 4500
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2) int exp 4500
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3) div paid 4500
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4) div rec’d 4500
Exceptions
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Loans  10,000: Gift loans - no
imputation unless purchase inc
producing prop
Loans  10,000: Comp, corp/sh loans no imputation unless tax avoid purp suspect by IRS - can be OK if not
merely for tax purposes
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Loans 100,000 only betw indivs (not
corp/sh, comp)
impute int inc + exp  borrower’s net
investm inc unless <1000 net inves inc,
imputation = 0;
or prin purp tax avoid, impute