1 / 16

Chapter 3 - Gross Income

Chapter 3 - Gross Income. 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). Taxable year

kasa
Download Presentation

Chapter 3 - Gross Income

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Chapter 3 - Gross Income • 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

  2. Tax Accounting (when is it income issue) • Taxable year • accounting methods (tax acctg not necessarily GAAP) - cash & accrual • cash: constructive receipt (readily available); cash equivalents - (checks, property) (notes-FMV) • Accrual: notes-face; if contested-inc when receive; deductions - all events test and economic performance (chap 5)

  3. Hybrid; inventory (material income producing factor); IRS power • Exceptions to cash rules - constructive receipt v. negotiating not to receive; OID; E and EE bonds

  4. Exceptions to accrual rules • Prepaid income (financial deferred liability) - prepaid services exception: (Rev. Proc. 71-21) / inventory exception: adv paym for goods-treated same tax&fin (election)

  5. Types of Income & To Whom • 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)

  6. Gross Income-specific inclusions • 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)

  7. Annuities • 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

  8. 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

  9. 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

  10. Plus :lesser of Step 1 (limited to 1/2SS) or 4500 (6000MFJ)

  11. Imputed Interest - • 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 shouldhave income • 4 types - gift, compensation, corp/sh, tax avoidance

  12. F 1) int inc 4500 3) gift made 4500 D 2) int exp 4500 4) gift rec’d 4500 Gift Loan - F to D, 90000, no int, AFR 5%

  13. ER 1) int inc 4500 3) comp pd 4500 EE 2) int exp 4500 4) comp rec’d 4500 (2) Compensation Loan ER to EE, 90000, no int, AFR 5%

  14. CORP 1) int inc 4500 3) div paid 4500 SH 2) int exp 4500 4) div rec’d 4500 (3) Corp/Shareholder Loan-Corp to SH, 90000, no int, AFR 5%

  15. Exceptions • 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

  16. 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

More Related