Income

Question 1

§ 61(a) - Except as otherwise provided, gross income means

Answer 1

all income from whatever source derived, including (but not limited to):

Compensations for services (fees, commission, fringe benefits, similar items), GI derived from business, Gains derived from dealings in property, Interest, Rents, Royalties, Dividends, Alimony and separate maintenance payments, Annuities, Income from life insurance and endowments, Pensions, Income from discharge of indebtedness, Distributive share of partnership gross income, Income in respect of a decedent, Income from an interest in a trust or estate

Question 2

“Gross Income”

History

Answer 2

16th Amendment: “From whatever Source Derived”

1913 Income Tax Act: Net Income shall include gains, profits, and income from salaries…

Today: §61(a): “Except as otherwise provided…gross income means all income from whatever source derived, including but not limited to…”

Side Note: Income and gains from Illegal Activities are taxable. You can’t take deductions for the narcotics trade however…but for other kinds of crime, you can.

Question 3

Glenshaw Test for what is income

Answer 3

Glenshaw Test for What is Income:

(1) Undeniable accession to wealth, (2) that is clearly realized, and (3) the taxpayer has complete dominion over it.

• This typically means that which adds to net worth is income.
• This can be through payments of property or services.
• This case involved punitive damages.

Question 4

Reg § 1.61-1(a):

Answer 4

§ 1.61-1(a): Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money property or services.

Question 5

§ 1.61-2 (a)(1): Wages, salaries, commissions

Answer 5

§ 1.61-2 (a)(1): Wages, salaries, commissions paid salesmen, compensation for services on the basis of a percentage of profits, tips, bonuses, severance pay…are income to the recipient unless excluded by law.

Question 6

§ 1.61-2(d)(1):

services paid for in property

Answer 6

§ 1.61-2(d)(1): Except as provided in (d)(6)(I), if services are paid for in property, the FMV of the property taken in payment must be included as income in compensation.

If services are paid for in exchange for other services, the FMV of such other services taken in payment must be included in income as compensation.

Question 7

§ 1.61-6(a): Gain realized on the sale or exchange of property

Answer 7

§ 1.61-6(a): Gain realized on the sale or exchange of property is included in gross income…