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 - Gross income is income from any source derived
- © o questions:
a 1) Does it make you ealthier?
a ¦) Is there an exception?
a If no, then it is income.

- p

- Piano case. u is ealthier and there is no express
exception, so this is income. It is income the year they found the money in
the piano b/c that is hen the have control over the money.

- Do not have gross income until realization

a ‘ealization- hen you convert the thing into cash. When you sell
stock. While you held the stock it ent up in price, but you are not
ealthier until you sell the stock. ©his is hen you have income.

- 
p  
pp

 - Employer is paying employee¶s tax

out of employee¶s paycheck. EX: $100,000 paycheck, taxes are $40,000,
Employer is just giving Employee $60,000. ©herefore, Employee only has
to claim $60,000 of income, not the original $100,000. Cannot do this.
Employee has income from his employer satisfying a debt for him (paying
his taxes). He is receiving a benefit- lo er gross income.
a  arter transactions are income
Î 0se the fair market value

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 - Exclude gifts from GI
- must distinguish bet een compensation for services and a gift

- 3 
 n Case- gives us the test- detached and disinterested generosity.
***Have to look at the motive of the gift giver- intent of the transferor
controls***
a  0© transferor¶s characterization isn¶t the only thing. An objective
inquiry must decide there as a gift and not just income disguised as
a gift.

- No employer/employee gifts (10¦(c))

a Compensation for past or future services
a Exception is de minimis fringe or traditional retirement gifts




  


 all excluded from GI
- Person can give a gift inter vivos or after death- all are excluded

- Interest from these gifts A‘E included in GI


 
 


  åringe benefits
- no additional cost services
- employee discount
- de minimis fringe
a small in value, hard to keep track of, occasional in nature

- CASH IS NEVE‘ EXCL0DA LE

- Employees receiving an economic benefit from their employer, but it is for

the employers benefit. EX: clothing store ants its employees to ear their
clothes so they offer them a discount. O‘ hotel chain lets employee stay in
a room for free.

- 13¦(a)(1) benefit is not GI if it is in the same line of ork in hich the

employee is providing services AND does not displace non-employee
customers

- Non-discrimination rule applies- must offer the benefit to all, not just highly
paid employees or it is included in GI

- 13¦(c)(1)(b)- ¦0% discount only. After ¦0%, the rest is GI.

a Ex: Getting a free hotel room. ©he first ¦0% is excludable, the rest
80% is GI b/c you are getting something for free (no
employer/employee gifts).  ut e are on a self-reporting system, so
I‘S doesn¶t care if it is small and unreported.

 
!
""#$%#

"#is an exclusion for Qualified Scholarships
- Has to be from a qualified institution (normal colleges, not internet
colleges)
- ©uition, fees, books, supplies are excluded
- ‘oom and  oard is included
- Portion of the scholarship that represents orking component in order to get
the scholarship is not excluded (included)
a If orking is required for the hole scholarship, the entire
scholarship is included in GI
a Doesn¶t matter if everyone else is also required to some ork (like
research for a professor). Statute speaks to the holder of the
scholarship only
a **Sports scholarships are considered a orking scholarship if the
student is required to play the sport and the scholarship terminates
on non-participation. ©his scholarship is INCL0DED in GI
Î If the scholarship doesn¶t require student to play a specific
sport, there is no activity required in lieu of a sport and it
doesn¶t terminate for non-participation, then the scholarship
can be excluded from GI

"# is for employee assistance programs

- employee may exclude this money from GI, if the employer has a specific
stated plan AND it does not represent compensation for future services
(clause that the employee is required to return back to ork)
- ©he exclusion is for up to $5,¦50


 

"general rule is life insurance is &
'(% % from GI if it comes from a life
insurance contract AND because of death of the insured

- then there are the exceptions- meaning it is 

'(% % in GI
a 101(a)(¦)- transfer for value- When the beneficiary sells his policy
to another the amount is included in GI
a ©he person ho bought the policy can exclude only hat he paid for
it, not the face amount on the policy
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ANNUITY

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3AMAGES
§§ 104 and 105

§ 104 (a)(2)- 

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3ISCHARGE OF IN3EBTE3NESS
§§ 61,108
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§108-3 (V /'03V3 c(

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- Amount realized from a sale of property INCL0DES the amount of
liabilities from ith the transferor is discharged as a result of the sale



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Alimony is included in GI
- Payee has income, payor gets a deduction
- **Has to be cash
- Must meet ALL requirements:
a Payment is under a divorce instrument
a Divorce instrument doesn¶t say that it is NO© alimony
Î Doesn¶t matter if is says alimony or not, but can¶t say that it
isn¶t alimony
a Not members of the same household hen payments are made
a No liability to make payment after death of payee spouse (no
property goes to payee¶s estate)
a Not child support

- Determine Alimony at the time the divorce instrument is made.

a If there is a payment required for 10 years, this is not alimony b/c
the payee spouse could die before 10 years is up
a If there is a clause that says it is non-deductible by the payor spouse
and the payee spouse doesn¶t have income, this is the same as saying
this is not alimony
a Can spilt a lump monthly payment into alimony and not alimony
Î EX: part can be alimony and part can be child support or
payment to an estate.

- Alimony if a cash payment is made for the benefit of the payee spouse by
the payor spouse (EX: rent or house payment)

Child Support is excluded from GI

- 3"  0"  


 
 
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  (Gains, losses, sales exchanges, or other dispositions)
**©reatment of gains and losses is determined based on
1. realization
¦. recognition
3. characterization

)
 (realization event= sale or exchange but not a gift, inheritance or

transfer on divorce or charitable donation)

- If there is no realization event, stop here.

- If there is a realization event- §1001- calculate gain/loss by A  ± A‘

a * ( $'+ %= amount of cash and property received

a %,(- % $--= original basis ± depreciation and + improvements
(§1016)
Î
./$' $-- (Ho did ©P acquire the property?)
R 0 .$
(stepped up basis §1014)
R 
%  %1 .
(carryover basis §1041)
R c2
a Donor¶s basis not greater the åMV=
Carryover basis (1015)

a Donor¶s basis greater then åMV

Î A‘ is greater then donor¶s basis=
carryover basis (1015)
Î A‘ is less then donor¶s basis=
R A‘ less then åMV= no
gain/loss
R A‘ greater then åMV= åMV
is donee¶s basis


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 (What type of transaction generated the gain/loss)

- Gain from Sale of Personal ‘esidence (§1¦1)
a ©P¶s principal residence occupied for at least ¦ of the past 5 years.
a Excludable up to $¦50,000, rest of the gain is recognized
a Can take once every t o years.

- Losses on disposition of ©rade or  usiness or Income producing assets

(§165)

- Net Personal Casualty Losses (§165) (deductible belo the line as itemized
deduction)

- Most other transactions ©P must recognize gain

  )
 (Did the ©P recognize a gain or loss?)

åormula:

Ordinary Income
- Above the line deductions
_____________________
©otal = Adjusted Gross Income
- Personal Exemptions (one PE for ©P, Spouse, and each dependent (phased out))
- ©he Greater of:
Standard Deduction
O‘
Itemized Deduction (belo the line deductions)
_____________________________
©otal x ©P¶s ordinary rate
_________________________
©otal + [Net Capital Gain x ©P¶s Capital Gains ‘ate]
_________________________
©otal ± Credits
__________________
©otal = ©ax Liability (O‘ Alternative Minimum ©ax)

.%$.3
* -
-  *4 -$ 2 .- .1
-
a $-0 and unrestricted property (
'(% )
a  - $-0   2-
Î  $'-$% %//
R åor convenience of employer (&
'(% )
R Not for convenience of employer (
'(% )

Î ./    2-
R No-additional cost service; qualified employment
discount; orking condition fringe; de minimis
fringe; qualified transportation, qualified moving
expense reimbursement or qualified retirement
planning service (&
'(% )
R Not one of the above (
'(% )
 -  . - (
'(% )
a On state or local bonds (&
'(% )

- -
0$./ 2% 5 % -- (
'(% )
a Is the ©P insolvent, the discharge a purchase price adjustment or the
debt qualified real property business debt (&
'(% )

- (3
a ‘eturn of Capital (&
'(% )
a Interest (
'(% )

- 2 -(.$
paid for reason of death (&
'(% )

- $*$/ -
a Compensation for personal physical injuries (&
'(% )
a Compensation for non-physical injuries, punitive damages and lost
business profits (
'(% )

- .$-2 .-
%  1 .

a Alimony (
'(% )
a Child Support (&
'(% )

- 
0 '$.-04-
a Qualified (covering tuition, etc, but not room and board) (&
'(% )
a Not above (
'(% )

- c2- (&
'(% )

- 0 .$
- (&
'(% )

- c$2. *-$'  24. 4 .36

'(% 7
a Ordinary Gain
a Net Short ©erm Capital Gain

5 1 0   %(
 -6"7
- Ordinary Loss
- $3,000 of net losses (rest is carried for ard to next taxable year)
- ©rade or business deductions
- Certain reimbursed expenses of the employee
- Losses from sale or exchange of property
- ‘ents and royalties
- Alimony
- Certain moving expenses
- Interest on education loans
 - Higher education expenses

$%$.% %(
 
- Deduction that every ©P can take if they don¶t take the itemized deduction
- Can take a standard deduction for your dependant, but it is a lo er amount

 *+ % %(