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federal income tax law outline

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Definition- All income from whatever source derived including but not limited to: 15 items listed in code including compensation for services rendered, etc.

IRC Does Not elaborate, but following cases do: 1. Glenshaw Glass v. Commissioner, S. Issue here was, are punitive damages collected in law suit taxable as income?

Supreme Court said yes since sec 61 says any income derived from whatever source. Simply getting the income, even from windfall, is enough, federal income tax law outline. Court reasoned in Federal income tax law outline that Congress has constitutional power to tax income as it sees fit. What Does Word Income Mean? Issue presented was, did TP have taxable income in the year the money was discovered in the piano? This case presented procedural issue of where to take this case when it was not settled between TP and IRS, federal income tax law outline.

Fed tax procedural law permits TP to sue in any of three different courts of original jurisdiction: 1, U. District court or 2, Claims Court in Washington, D. Tax court is federal income tax law outline from the others since only those who have not yet paid their tax can sue here and not pay until matter is resolved here.

The district court and claims court are for controversies where TP has already paid and wants his money back. Another procedural matter before going on to Cesarini is the Statutory Notice of Deficiency which the IRS issues when it believes taxes are owed.

TP has 90 days to react to such notice and can file a petition with the U, federal income tax law outline. Tax Court to have his day in court.

The petition must be filed within the 90 days and then is automatically assigned to tax court and IRS cannot collect taxes until court matter is resolved, federal income tax law outline. If TP allows 90 days to lapse, then he has lost the opportunity to go to the U. Tax Court and then must pay the amount in controversy and sue elsewhere.

Cesarini paid the amount in question first and then filed for a refund vis-a-vis an federal income tax law outline return which was rejected. Since constitution prohibits Congress from directly taxing property but, via the 16th Amendment, allows income taxation which is not required to be "apportioned among the several states," question in Cesarini becomes, is the cash found in the piano just property that also cannot be taxed?

Court said no, because cash is not property in and of itself, but rather is a medium of exchange which makes the discovery of the cash a taxable event. There must be an event or transaction with respect to the property, such as federal income tax law outline sale or exchange to produce gross income.

If Cesarini found a valuable painting in the piano instead of the cash, the value of the painting is not taxable since it is still property and no realization event has occurred to render the value of the painting gross income. Timing of Recognition of Income- Second issue in Cesarini was when is the found money considered income for tax purposes?

In the year the piano was purchased or later when the money was discovered? Court looked federal income tax law outline Ohio state law since there is no fed law on property and concluded that the found money was income when they discovered it and not when they bought the piano. The statute of limitations would have closed tax period on this money if Cesarini succeeded in his argument that the money was taxable in the year they purchased the piano if it had to be taxed at all since this would have barred recovery for Fed.

Ohio law on this point states that treasure trove is titled to owner in the year it is reduced to undisputed possession. Definition- From Glenshaw Glass and Cesarini we see that income is an accession to wealth and is taxable as gross income only if it results from a realization event.

The oil is an accession to wealth but until it is sold, it is not realized income for tax purposes. The value of the ring is taxable when it is found because it was found and cannot be tied to any purchase. This is different than the man who buys land and then discovers barrels of oil on it. Again, the congress has the power to tax this realized accession to wealth finding the ring but does not have the power to tax actual property directly since this type of tax is prohibited by constitution which does not allow direct taxation because it cannot be apportioned among the several states proportionately.

Definition- Exclusions are items that are clearly items of gross income under sec 61, but are items which the congress does not want to tax. By choice, the congress excludes various sources of income. Gifts sec - underproperty acquired by gift is generally excluded from income. Court has held that excludable gifts must be between family members where affection, love, etc are motivations and not between business person rewarding another business person for one sending the other business for example.

A gift for purposes must be a transfer of property made in a detached and dis- interested generosity out of love and affection or similar motivations. Gifts by Bequest sec A - are excluded from income but, federal income tax law outline, if claim against estate yields federal income tax law outline by law, this will be viewed as contract benefit which is gross income for tax purposes and not excluded under on face of it, but court will go beyond plain meaning of words in IRC to see what was the intent of congress in adopting various pro- visions and in so doing, will analyze a TP's transaction from a point of view of substance over form.

The mere legal form of the transaction will not necessarily control. Most significant for court is what is really taking place. In case where bequest might be made to lawyer in lieu of payment during testator's life, even if strictly speaking, the conditions federal income tax law outline A are met to exclude bequest gift as gross income, the court would find that this gift is really for services rendered and thus taxable as gross income masquerading as testamentary gift.

If it is a no-additional cost service fringe benefit then it is not taxable. This is intended to exempt typical fringe benefit like the case where an airline employee is provided stand- by free flights. This is a benefit that is of no additional cost to the employer and thus is exempted from sec While strictly speaking, this type of benefit is income in that it is an accession to wealth, it is to administratively federal income tax law outline to keep records like this and is generally of little actual value to employee and so is not taxed.

If providing the benefit to the employee is something that is related to what the company is in business for and providing this free benefit does not cost the company any substantial additional amount then the fringe benefit is exempt. A qualified employee discount is not taxable. This is usually where company offers discount on the specific product it sells to its own employees, but there are some restrictions indicated in section A working condition fringe is not taxable.

If the fringe benefit is directly related to the performance of the job, federal income tax law outline, then it is exempt. Federal income tax law outline parking spots, payment for trade publications are examples of this.

If the amount involved is so small in terms of benefit, that it would be burdensome record keeping for the employer to keep track of, then it is deemed diminimous and thus exempt. An example might include an employee using the company Xerox machine to copy personal documents. While this copying of documents for the employee's benefit is taxable, it is so small as to make it worthless for record keeping and thus tax purposes. NOTE: The intent of sec seems to be to take the fairly nominal non-cash benefits provided in the workplace and make them non-taxable.

Company Provided Cafeteria Plans sec - this refers not to the eating rooms, but rather the flexible compensation plan that companies can provide with respect to medical and child care costs, for example, to an employee, federal income tax law outline. A company that adopts a qualified cafeteria plan under sec can permit an employee to take a certain dollar amount of his cash compensation and hold on to it and then the company will use that money to pay for personal medical and child care and similar related expenses that the employee has.

This makes the cash that would otherwise be paid to the employee non-taxable and thus provides a valuable pre-tax payment of personal expenses. Personal Injury Awards sec A2 - this section provides that gross income does not include the amount of any damages received, whether by suit or agreement, and whether as lump sums or periodic payments, on account of personal injuries or sickness. This is a significant exemption The policy reason behind A2 is that congress's intent is that the injured party has suffered enough and the damage award is an attempt to get the injured party back on his feet so to speak and any taxes on such an award would add insult to injury and is therefore exempt.

Romer v Commissioner, 9th circuit appeals case is important here, federal income tax law outline. Romer involved an insurance agent who applied for agency license to be able to sell policies for the Penn Mutual Insurance Company. Penn Mutual turned down Romer because of mistaken faulty credit report on Romer who actually had a fine credit record. Romer filed a defamation action against credit bureau saying they injured his reputation and made it impossible for him to become an agent for Penn Mutual and so valuable business was lost.

The amount received by TP was ultimately deemed the result of emotional distress, and like physical injury, the amount was deemed non-taxable under sec A2, federal income tax law outline. The court here said the proper focus of attention was not whether the injury was physical to the body or simply emotional, but rather whether the injury was personal as opposed to non- personal in nature.

Secondly, the IRS argued here that the wrong was defamation and that the injuries suffered by Romer taxpayer were primarily for lost profits of his business and not injuries to his person. The court federal income tax law outline not on the cause of action, but rather the remedy. The damages, according to the court, were awarded to compensate Romer not only for his business losses but also for his personal emotional injuries.

Looking to local law, in this case California law, the court said that defamation was a personal injury type tort and must be for personal injury for purposes of the tax exclusion in A2. This analysis for the first time, looks at the cause of action and need not go further. The remedy here was not the relevant focus of attention. Punitive damages in cases of personal injury are taxable pursuant to tax amendments unless they are awarded in cases of physical injury only, and not emotional injury.

This amendment only applies to punitive damages, federal income tax law outline. Definition- generally, basis refers to cost to TP for property, or selling price of property. Sec provides that a TP who sells his property determines gain or loss by comparing the difference between the amount realized on such sale less the the adjusted basis the TP has in that property. Straight Purchase- sec says that basis of property acquired by purchase is simply its cost.

Basis is adjusted upward when TP makes capital improvements such as putting on a building addition or building a plant on a piece of land, federal income tax law outline. The cost of the building is added to the land to get an adjusted basis.

Basis is adjusted federal income tax law outline if portions of property are sold off. Depreciation see below also adjusts basis downward. Exchange- the basis of property acquired in a taxable exchange is equal to the fair federal income tax law outline value of the property received in the exchange.

Gift- sec says property acquired by gift has a basis to donee equal to the cost to the donor. This is called a carry over basis. The donee steps into the shoes of the donor. If property is sub- sequently sold by the donee at a loss, then a special rule applies in sec Inheritance- sec provides that the fair market value of the property on the date of decedent's death is its basis for tax purposes.

Practically speaking, this is a more generous rule than the gift rule since the TP heir gets a stepped up basis which is almost certain to be higher than the basis in a gift transaction where the basis is equal to the donor's basis or cost. Rationale- of congress in distinguishing between gift and inheritance with respect to basis may be that allowing a stepped up basis for inherited property is administratively easier to do than is the case with carry over basis for ordinary gifts.

If inherited property had to use the carry over basis it would be nearly impossible to determine cost or basis in what could be very old property. What is Basis in Joint Property? Joint tenancy with right of survivorship, tenancy in common, tenancy by the entirety and community property are those joint ownership possibilities.

Tenancy in Common- if property is held this way, and the person who dies leaves her half to the other tenant in common, then the same rules as in joint tenancy with right of survivorship apply. Community Property- sec B6 has peculiar rule here that says that the survivor who acquires ownership of community property gets a basis equal to the entire fair market value of that property on the death of the federal income tax law outline community property owner.

In community property states, the survivor gets a full step up in basis where in common law states, the survivor gets only a half step up in basis in cases of joint tenancy, federal income tax law outline.

 

Federal Income Tax Course Outline

 

federal income tax law outline

 

The most comprehensive source of law school outlines anywhere with the only outline exchange program available. Thousands of outlines used by thousands of users. Free to join. SUMMER TAXATION OF INDIVIDUAL INCOME! MURPHY! Page 1 of 65!! Taxation of Individual Income Outline!! Professor: Ann Murphy!!! I. INTRODUCTION A. Sources Of Law 1. Constitution a) 16th Amendment gave power to Tax 2. Internal Revenue Code a) Title 26 of the United States Code b) Subtitle A: Income Taxes (Individual and Business). income tax system is designed to prevent double taxation. of income. employees pay tax on their income, employers tax on their in come (but they get to deduct wages to employees so it’s not taxed twice) circular flow of goods (the question is incidence. estate tax (large zero bracket (but then what would the alternative be, and would it.