What Is Gross Income? Flashcards
Gross income includes any _____ benefit or clearly _____ accession to wealth.
Economic
Realized
When is the value of an asset said to be realized?
When it is sold or otherwise disposed of
Are non-cash receipts (e.g., services) included in gross income?
Yes
A law firm gives a pair of Eagles tickets for the next season to the summer associate who billed the most hors. Gross income to SA? If no, why not? If yes, how much?
Yes
FMV of tickets
What is the rule regarding claim of right?
Property or funds received under a claim of right must be reported for tax purposes even though the TP may later be required to return the property, funds, or their equivalent.
When does someone receive property/funds under a claim of right?
When the property/funds are received without restriction as to use or disposition.
Composer sues Beyonce for royalties and wins in Year 1. Beyonce pays. Composer reports as income in year 1. Beyond appeals and the decision is reversed in year 2. Composer is required to return the money. How does she address this with regard to her taxes?
Take a deduction in Year 2. Do NOT file an amended return for Year 1.
Are illegally acquired funds or property considered taxable income?
Yes
What is the Tax Benefit Rule?
If a taxpayer takes a deduction in one year and the recovers the property that gave rise to the deduction in a later tax year, the taxpayer has tax benefit income to the extent that the earlier deduction provided a tax savings or a tax benefit.
A donates property in Y1 worth 150k. He took a 150k charitable deduction in Y1. The charity returns the property in Y2 when the property’s FMV is 200k. Does A have income in Year 2 from the return of the property? If yes, how much? If no, why not?
Yes. $150k under the Tax Benefit Rule, if a taxpayer takes a deduction in one year and the recovers the property that gave rise to the deduction in a later tax year, the taxpayer has tax benefit income to the extent that the earlier deduction provided a tax savings or a tax benefit.
What is the underlying assumption of the Tax Benefit Rule?
That X received a tax benefit in Year 1.
A’s employer withheld on his state and local income taxes for Year 1. A properly takes an itemized deduction for year 1 fed return for all taxes withheld. A wants to file a state tax return in Y2 seeking a refund for the state and local taxes overpaid. Will A have taxable income from the receipt of state and local refund for Y2? Why?
Yes. Tax benefit Income.
A receives a refund of over withheld federal tax income tax. Must A report income under the Tax Benefit Rule? Explain.
No. There is never a tax benefit for federal taxes paid BECAUSE there is no deduction available for federal taxes paid.
Why does a refund of over withheld fed tax income not taxable as income?
There are no deductions available for federal taxes paid, so there can be no tax benefit when the refund is received.
