FEDERAL INCOME TAX Law school outlines and Legal Study 联邦所得税法学院和法律研究概述.doc

FEDERAL INCOME TAX – Prof. Ascher Fall 2001 The Taxing Formula: Gross Income - § 61 - § 62 Deductions – above the line deductions Adjusted Gross Income - §62 - Standard Deduction or Itemized Deduction - Personal Exemptions Taxable Income – net tax base x Tax Rate Tax Liability - Credits + Additional Taxes Final Liability I. GROSS INCOME A. Defining Gross Income § 61 61(a) – all income from whatever source derived. There is no specific definition in the code or 16th Amdt. Haig-Simons Definition of Income – broad, relied on by economists: personal income = TP’s personal expenditures + (or -) the increase (or decrease) in the TP’s wealth. Not suitable for tax liability, e.g. can’t tax the increase in value of a home. B.Forms of Gross Income -- § 61(a), 1001(a)—(c) § 61 Gross Income Defined:(1) Compensation for services; (2) gross income from business; (3) property gains (4) interest; (5) rents; (6) royalties; (7) Dividends; (8) alimony separate maintenance payments; (9) annuities; (10) life insurance income; (11) Pensions; (12) Income from discharge of indebtedness; (13) Distributive share of partnership GI; (14) Income in respect of a decedent; (15) Income from an interest in an estate or trust. § 103 Excluded interest on state local bonds from income. Basis – TP’s stake in property. (§ 1012) Gain = Amount realized (AR) – Adjusted basis (AJ) (§1001(a)) 2. Income without Receipt of Cash (“in-kind” benefit) Two issues on in-kind benefits: does it constitute gross income e.g. if relationship between parties is more familial, less likely to be compensatory. the more familial the relationship the less likely the receipt is to be compensatory. what effect does inclusion of noncash receipts have on the ability of TP to pay taxes? valuation Valuation issues – fair market value. Value of a non-cash receipt = price that would be reached in a transaction between a willing buyer and a willing seller. Subjective valuation might be applied to “force