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What is Income?

  • Instances of undeniable accessions to wealth,
  • Clearly Realized,
  • Over which the taxpayers have complete dominion


What is the Statute of Limitations for general tax audits?

3 years


What is the Statute of Limitations for unfiled tax returns review?

No Statute of Limitations


What is the Statute of Limitations for instances of Fraud?

No Statute of Limitations


What is the Statute of Limitations for severly under reporting taxes?

6 years


What is "income" as defined in § 61(a)?

Income from whatever sourced derived....except as otherwise provided in this subtitle


What is imputed income?

Non-cash income, income in kind. Any gain, benefit or satisfaction from a non-market transaction or event

  • Use and enjoyment of one's house
  • Self produced goods, consumed or used by them
  • Services performed by others or himself for his own benefit


Is imputed income taxable?

Conceptually yes, practically no.

  • Administrative and compliance issues
  • Not universally believed to be taxable (income)


What are Examples of Imputed Income?

  • Consumption of self produced goods
  • Non-cash income
  • Services performed by others or by himself on his own behalf
  • Benefit of the use and enjoyment of one's own property.


What are the Four requirements needed to exclude a prize or award?

  1. It was given in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement
  2. The recipient did not take any action to enter the contest or proceeding
  3. The recipient is not required to provide future services as a condition of the prize or award
  4. The recipient assigns the prize or award to a governmental or tax exempt charity. Assignment must be made before the recipient uses the award or prize.


What is a Fringe Benefit (§132)?

A benefit provide by an employer to an employee that is beyond wages and basic benefits.


What are "Allowable" Fringe benefits (§132(a)) that are excludable from Income?

  • No-additional cash service
  • Qualified employee discount
  • Working condition fringe
  • de minimus fringe
  • Qualified Transportation Fringe
  • Qualified moving expense reimbursement (modified after 2018)
  • Qualified retirement planning service


What are Examples of Non-Cash Benefits?

  • Meals and Lodging (§119), Business
  • Fringe Benefits (§132)
  • Dependent Care Assistance (§129), Reimbursement
  • Medical Expenses (§105, §106), Accident/Health Insurance
  • Group Term Life Insurance (§79), up to $50,000
  • Minister's Lodging (§107)


What is the definition of a gift (§102)?

Something given with detached and disinterested generosity. Admiration, charity and like impulses.




What is the rule from Old Colony?

  • The discharge of an obligation by a third person equals income.


What are the steps for determining income?

  • Is it income?
    • Income, minus
    • Exclusions, equals
    • Gross Income
  • How much
    • Fair Market Value, minus
    • Basis
  • When realized


What are the Three categories for "Compensation for Services"?

  1. Cash and Unrestricted Property
  2. Non-Cash Benefits
  3. Property subject ot a substantial risk of forfeiture


What are Cash and Unrestricted Property?

  • Wages, tips and salary
  • Stock
  • Property that the employee takes immediate ownership of (realization)


Where does the Income Taxing power come from?

16th Amendment

The Congress shall heave the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration


Where are the Tax Statute located

Title 26


What is adjusted gross income, AGI ?

Gross income (§61) minus any "above the line" deductions (§62)


What is Taxable Income?

Adjusted Gross Income minus "below the line" deductions and person exemptions


What is an exclusion?

An item that does not have to be included in gross income (§61).

  • Gifts (§102(a))
  • Bequeths (§)
  • Life Insurance payouts upon death (§101)
  • Some proceeds from litigation


What are deductions?

Costs incurred by the taxpayer than can be subtracted from (in whole or in part) gross income

  • Above the line - subtracted from gross income to net AGI
  • Below the line - substracted from AGI to net taxable income


What are examples of "above the line deductions"?

  • 401K contributions


How may deductions be taken?

  • Itemized
    • Individual items tallied to determine total deductions
      • Mortage interest
      • Property/State Income taxes
      • Charitable contributions
  • Standard Deduction
    • A fixed amount established by statute that eleminated the need for itemization
      • Up to 2017 (10,000 married filing jointly)
      • 2018 to 2026 (24,500 married filing jointly)


What is "personal exemption"?

A below the line deduction for each individual, that phases out as AGI increases. This deduction is removed after 2018 in lieue of a larger standard deduction


What is a Credit?

An amount that is subtracted from a taxpayers tax liability (taxes).

  • Nonrefundable - Can reduce the tax liability to zero, no more
  • Refundable - Can reduce the tax liability to a negative number, resulting in a refund to the taxpayer.


What is the difference between ordinary income and capital gains?

  • Ordinary Income - ongoing income from any source (wages, tips, rental income, ordinary dividends, interest)
  • Capital Gains - realized appreciation on capital investments


What is basis?

Basis is the actual or constructive cost of an asset to the taxpayer