Federal Income Taxation (Ipod Flashcards)

Front 1

What Title of IRC are we in?

Back 1

Title 26

Front 2

Basic Tax Concepts

Back 2

Income
Gross Income (GI)
Adjusted Gross Income (AGI)
Taxable Income (TI)
Exclusions
Deductions (S/D or I/D)
Exemptions (P/E)
Credits
Capital Gain
Gain
Basis
Depreciation
Net Worth
Realization
Characterization
Tax Rates

Front 3

"Income"

Back 3

ANY accession to wealth

Default rule: income equals GI unless an exception applies (or exclusion) under the subtitle. Keep in mind that items listed in §61 are not exclusive.

Front 4

"Gross Income"
IRC §61

Back 4

Definition: (1) all income from whatever source derived; (2) clearly realized; (3) over which T has complete dominion.

Front 5

Tax Formula

Back 5

GI
[§62]
= AGI
[I/D or S/D]
[P/E]
= TI
x §1 rates
= TL
[credits]
= Total Due

Front 6

"Adjusted Gross Income" (AGI)
IRC §62

Back 6

[GI] - [§62 Deductions] = AGI

These are above-the-line deductions.

Front 7

Which deductions does §62 allow for?

Back 7

None. §62 only refers to deduction sections.

Front 8

"Taxable Income" (TI)

Back 8

Net amount on which T must pay.

[AGI] - [below-the-line deductions] - [personal exemptions] = TI

Front 9

"Above-the-line Deductions"

Back 9

§62 deductions

Front 10

"Below-the-line Deductions"

Back 10

T must choose either itemized deductions or standard deduction. Usually will be the lower of the two.

Front 11

"Standard Deduction" (S/D)
IRC §63

Back 11

IRC §63(c)
(Look this up to be sure.)

Fixed amount that can be taken instead of itemizing T's deductions.

Front 12

"Itemized Deductions" (I/D)
IRC §68

Back 12

Alternative to S/D; must be elected by T.

May be limited once AGI exceeds a specified amount.

Front 13

"Miscellaneous itemized deductions"
IRC §67

Back 13

Those itemized deductions that can be subtracted from AGI only to the extent that they cumulatively exceed 2% of AGI.

Front 14

"Credit"

Back 14

Subtracted from taxes due after tax has been calculated.

Credits reduce tax liability dollar for dollar.

Front 15

"Ordinary Income"

Back 15

Refers to all income except capital gain.

Front 16

"Capital Gain"
IRC §1222

Back 16

IRC §1222

Profit derived from (1) sale or exchange of (2) a capital asset.

Front 17

"Capital Asset"
IRC §1221(a)

Back 17

IRC §1221(a)

Front 18

"Basis"

Back 18

Basis is the actual or constructive cost of an asset to the taxpayer; calculated based on how the asset was acquired.

Front 19

"Adjusted Basis"

Back 19

Basis can be adjusted depending on events that occur AFTER the acquisition.

Example upward adjustement: T adds story to his home -- the cost of the upgrade is ADDED to original purchase price.

Example downward adjustment: T takes depreciation deduction on equipment -- basis adjusted downward to reflect the deduction.

Note special rules for adjusting basis of gifts, inheritance, etc.

Front 20

"Gain"
IRC §1001(a)

Back 20

Amount realized on the sale or disposition of an asset minus its adjusted basis.

AR
[AB] = Gain

Front 21

"Capital Asset"
IRC §1221(a)

Back 21

Property held by the taxpayer, but does NOT include:

(1) stock in the trade of the taxpayer ***

(2) business inventory ***

(3) property held primarily for sale to customers in ordinary course of t/b ***

(4) depreciable property used in a trade or business ***

(5) real property used in a trade or business ***

(6) copyrights

(7) accounts receivable

(8) supplies used in a trade or business ***

(9) certain U.S. government publications

(10) ... (do not need to know all of them)

Front 22

"Depreciation"

Back 22

Annual deduction a taxpayer can take to adjust for wear and tear of an income-producing asset that has a limited useful life.

Only available on assets employed in a trade or business or that are expended in the production of income. Personal assets such as a home are car are NOT subject to depreciation (unless t/b, of course).

Front 23

"Net Worth"

Back 23

Excess of the taxpayer's assets over her liabilities

Note: If liabilities exceed assets, T has a negative net worth and is insolvent.

Front 24

"Realization"

Back 24

Income is subject to tax only when the income is realized.

Look for whether T derived an economic benefit.

Front 25

Does T realize a gain when his stock appreciates in value?

Back 25

No, but if T then sold the stock, this would be a realization event.

Front 26

Does winning a watch constitute a realization event?

Back 26

Yes. In the textbook problems the fact that the watch was also given showed complete dominion as well.

Front 27

What was the rule in Old Colony Trust?

Back 27

The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed.

Front 28

"Imputed income"

Back 28

Consumption of food, goods, crops, or services for the production of income; NOT treated as income itself.

Front 29

Welsh v. Helvering

Back 29

You cannot be taxed on value of living in your own home because it is a direct tax which is not allowed by the Constitution.

Front 30

What if two taxpayers agree to the exchange of services that they generally offer to others for cash?

Back 30

Known as a barter transaction, each taxpayer must report as income the FMV of services RECEIVED.

Front 31

Where are the exclusion sections found in the code?

Back 31

Part III
§§ 101 - 139A

Front 32

Gifts and inheritance
IRC §102

Back 32

Rule: The value of property acquired by gift, devise, bequest, or inheritance are NOT included in GI.

Property = property & services

Front 33

Interest on property acquired by gift
IRC §102(b)(1)

Back 33

Income from any property acqired by gift, devise, bequest, or inheritance IS included in gross income and §102(a) does not apply.

Examples: interest and dividends

Front 34

How can we tell if a section is an exclusion or inclusion section?

Back 34

Look for the language "shall include" or "shall not include."

Front 35

When is something a gift?
(Commissioner v. Duberstein)

Back 35

Transferor gave it out of detached and disinterested generosity.

Front 36

Employee ifts
IRC §102(c)(1)

Back 36

Any amount transferred by or for an employer to employee IS included in gross income.

Must be:
(a) extraordinary transfer;
(b) to the natral objects of Er's bounty; or
(c) transfer was not made in recognitions of Ee's employment.

Special rules:
§74(c) achievement awards
§132(e) de minimis fringe benefits

Front 37

What about Er/Ee gifts between family members?
Reg. 1.102-1(f)(2)

Back 37

§102(c) does not apply to transfers between related parties if the purpose of the transfer can be substantially attributed to the familial relationship of the parties and not to the circumstances of employment.

Front 38

§102 Transfers

Back 38

Gift: detached and disinterested transfer

Bequest: personal propert transferred by will

Devise: real property transferred by will

Inheritance: no will

Front 39

Fringe Benefits
IRC §132

Back 39

§132(a): Gross income shall NOT include any fringe benefits which qualifies as a--
(1) no-additional cost service
(2) qualified employee discount
(3) workign condition fringe
(4) de minimis fringe ***
(5) qualified transportation fringe
(6) qualified moving expense reimbursement
(7) qualified retirement planning services, or

***

Front 40

No-additional cost service
IRC §132(b)

Back 40

Any services provided by Er to Ee for use by such Ee if--

(1) service is offered for sale to customers in ordinary course of Er's line of business; and

(2) Er incurs no substantial additional cost (including revenue and determined w/o regard to amount paid by Ee, if any).

Front 41

Qualifed employee discount
IRC §132(c)

Back 41

IRC §132(c)

Front 42

What if T's gain was illegal?

Back 42

Illegal gain is still income for tax purposes.

Front 43

Gain
IRC §1001(a)

Back 43

Excess of the amount realized (AR) from the sale or exchange of property over the taxpayer's adjusted basis (AB) in the property.

Front 44

Amount realized
IRC §1001(b)

Back 44

Sum of any money received, plus the FMV of any property received.

Front 45

Basis (asset purchased)

Back 45

Basis = purchase price

Front 46

Basis (asset acquired through exchange)

Back 46

Basis = FMB of the asset at the time of acquisition

Front 47

Basis (gifts)

Back 47

Transferred basis: T acquires transferor's basis (may be increased by any gift tax paid by donor).

The value of the asset at the time the gift was made is therefore not relevant.

Front 48

What if the gift has a FMV that is lower that transferor's AB?

Back 48

Recipient's basis for purposes of computing loss is the FMV of the property at the TIME of the gift.

Front 49

Basis (inheritance)

Back 49

Basis = asset's FMV at the time of transferor's death

Front 50

Alimony Requirements

Back 50

(1) Payments made in cash;

(2) Pursuant to divorce or separation instrument;

(3) Instrument cannot contain a provision requiring the payments to be treated as a nontaxable transfer;

(4) Cannot be members of same household;

(5) Payor's liability must terminate completely at (or before) the death of the payee-spouse;

(6) Payments must not be tied to any contingency involving a child.

Note: Child support is always nontaxable transfers.