Income tax must be applied uniformly, But this is not always abided by:

1.      Judicial Non-Conformity: District judges may vary their decision state-to-state.

2.      Community property states and non-community property states

but all Duties, Imposts and Excises shall be uniform throughout the United States art. 1 s. 8. cl. 1 

Ad-valorem tax 

1.        An ad-valorem tax is a tax based on the value of real estate or personal property. There are no federal ad-valeram taxes because they have to be apportioned among the several states.

Pollock v. Farmers' Loan & Trust Co. - determined a tax on rent was a tax on property, which by the constitution, is prohibited unless apportioned. Means mass would have to pay only 2.8% of his income tax, while Minn. Would have to pay 32.9

c.       a tax levied on the manufacture, sale, or consumption of a commodity or any various taxes on privileges often assessed in the form of a license or fee. In other words, it is a tax on doing something to property or on the privilege of holding some property or doing some act, not a tax on the property itself. The tax is not on the property directly, but rather it is a tax on the transaction. 

A tax on a specific occurrence

d.      paid primarily by a person who can shift the burden of the tax to someone else or who at least is under no legal compulsion to pay the tax.

                                         i.            sales tax - tax on retail product, excise- on sale of use of products or transactions, transfer tax, value added tax, estate tax, gift tax.

                                                           i.            What would prevent the govt. from imposing a tax on all sales in the u.s. if they are indirect. - this would be a regressive tax, politically unappealing, taxing poor on their food

b.      - the right to not be a witness against yourself

a.       If the form of return provided called for answers that the D was privileged from making, he could have raised the objection in the return, but he could not on that account refuse to make any return at all.

                                         i.            Acorn, prostitutes wanting to file, acorn suggested they file as entertainers - this was illegal. They should have told the prostitutes to exercise right to escape self incrimination.

a.       Whenever realization occurs, the profit will be taxed in that year

                                         i.            Code s 1019, 1023, 1035

                                                           i.            Revenue rulings- - issued under the same statutory authority as the regulations. The treasurey's answer to a specific question raised by a taxpayer concerning the taxpayer's tax liability.

1.      They are published to provide precedent.

a.       May be cited and relied upon

                                         i.            Tax court decisions (art. 1) - you appeal your tax liability allegation to the tax court. (don't go to this court looking for a refund - this is tax deficiency

a.       Court sits in divisions so that only one of the 19 reg judges hears and decides a case

                                                                                               i.            No jury

ii. District court decisions (art. 3)

                                                         1.            To get here you have to pay the tax, and sue for the refund and you get to sit before a jury.

                                     iii.            Court of federal claims decisions (art. 1)

                                                         1.            Select this if your circuit court will likely not rule in your favor.

                                                         2.            If you litigate in the federal claims court, your claim will rise to the D.C. Circuit

Above the line deductions. a.       Section 62 does not authorize deductions, it simply identifies deductions, authorized elsewhere in the statute: Moving expenses (217), Trade or Business deductions (162), reimbursed expenses of employees 161, certain expenses of elementary and secondary school teachers (162), Losses from sale or exchange of property (161), deductions attributable to rents or royalties, retirement savings (119), Alimony (215), interest on education loans (221), higher education loans (222), costs involving discrimination suits

 s 63,                                                           i.            Medical expenses

                                                                           1.            S 213 - deductions permitted to the extent that such expenses exceed 7.5 percent of AGI. (Below the line, because you cannot find it in s 62)

                                                         ii.            IRC s 163

                                                                           1.            Deduction on Qualified Residence Interest (Mortgage)

a.       Mortgages up to 1,000,000

b.      This is below the line

                                                       iii.            Charitable Contribution s 170

                                                                           1.            There shall be allowed as a deduction any charitable contribution payment which is made within the taxable year. You must have something from your church, or wherever. You should donate money to a charity recognized by the U.S.

a.       Only if verified under regulations prescribed by the secretary (a homeless man is likely not a charity)

                                                                           2.            This is below the line.

                                                       iv.            Property taxes and personal property taxes (s #)

                                                                           1.            Except as otherwise provided in this section, the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued:

a.       State and local, and foreign, real property taxes

b.      State and local personal property taxes.

                                                                                                                 i.            Tax on vehicle registration

217, s 62 permitted above the line.

To qualify under 217

                                                         1.            Distance requirement

a.       If the distance between taxpayer's former residence and new principal place of work is at least 50 miles farther than the distance between taxpayer's former residence and former principal place of work or

b.      The new principal place of work must be at least 50 miles from the taxpayer's former residence.

                                                         2.            Time requirement

a.       A full time employee must be employed in the general location of his new principal place of work for at least 39 weeks of the 12 month period commencing with his arrival in the new location.

b. A self employed person must not only satisfy the 39-week-out-of-12-month requirement, but must also satisfy an identical requirement for 78 weeks out of a 24 month period

s. 217 amounts of the expense paid during the taxable year, for medical care of the taxpayer, his spouse or dependent. Medical care - diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body including amounts for accident or health insurance) - but must amount to 7.5% of your AGI. Raymon Gerard v. Commissioner (1962) b.      where the taxpayer is able to show such increase in value is less than the expenditure, the amount in excess of value enhancement is a deductible medical expense.

                                         i.            Below the line deduction $3800 in 2012 - in addition to standard deduction.

                                       ii.            Dependents must be

                                                         1.            Citizens or nationals of the united states

                                                         2.            The individual must not be a dependent of another tax payer. 152 (b)(1)

                                                         3.            The individual must not file a joint return with the individual's spouse for the year. 152(b)(2). 

a.       Qualifications

                                                                                               i.            Cannot be a qualifying child

                                                                                             ii.            Bear a relationship - but can be anyone really - paragraph 2

                                                                                           iii.            Relative less than exemption amount

                                                                                           iv.            Taxpayer must provide over one-half of the individual's support for the calendar year in which such taxable year begins.

a.       Qualifications

                                                                                               i.            Relationship: Must bear a relationship to the taxpayer described in paragraph 2

                                                                                             ii.            Place of residence: The individual must have the same principal place of abode

                                                                                           iii.            Age: Must be under the age of 19 at the close of the calendar year in which the taxpayer's taxable year begins or is a student who is not yet 24.

                                                                                                               1.            Is the dependent disabled

                                                                                           iv.            The individual must not have provided over 1/2 of such individual's own support for the calendar year in which the taxable year of the taxpayer begins.

                                                                                             v.            Elopement glitch: married individual cannot be claim as a dependent.

                                                                                           vi.            Kidnapping rules, if the kid occupies the home for more than one half the tax year, then they can be claimed as a dependent

                                       ii.            : when a litigant's recovery constitutes income, the litigant's income includes the portion of the recovery paid to the attorney as a contingent fee. Commissioner v. Banks

                                       ii.            Administrative Procedures

                                                         1.            Tax audits

a.       Correspondence Audits: Some handled by correspondence between taxpayer and service Reg 6-1.105(b)(2)

b.      Office Examination: taxpayer bringing the tax payer records to the office

3.      Field examination; revenue agent actually visits the taxpayer's home or place of business to conduct the audit. Reg. 601.105(b)(2)(ii)

if the tax payer disagrees with the adjustments proposed, the district director sends the 30 day form letter accompanied by a copy of the examining report.  - tax payer doesn't have a right to this letter. 

                                                                                             a.            Taxpayer has usually 30 days to request an administrative review.

                                                                                             b.            Not required to pursue administrative appeals, but it is recommended.

                                                                                                                 i.            Many settle out of court

                                                                                                               ii.            Awards of costs and attorneys fees precluded if administrative settlement not first pursued. IRC 7430 (B)(1)

                                                                                                             iii.            Also failure to pursue this first may assist in the tax court determining to impose a penalty for frivolous, groundless or dilatory proceedings. IRC 6673(a)(1)©

if the administrative proceedings lead to nothing, the government formally assets a deficiency in the 90-day letter. IRC 6212.

                                                                                                Tax payer has a right to the 90 day letter.

                                                                                             a.            A special agent represents the government in an interview with the taxpayer that is usually preceded by miranda-type warnings and that is sought for the purpose of obtaining an initial statement from the tax payer.

                                                                                                                 i.            If the special agent recommends prosecution, a detailed report is required.

                                                                                                               ii.            Tax payer then receives a district criminal investigation conference -although no right to this exists.

                                                                                                             iii.            If no agreement reached, forwarded to regional conference level and another conference is afforded

                                                                                                             iv.            If no agreement reached and if service determines criminal activity occurred and conviction likely, special agent's report and recommendation for prosecution forwarded to department of justice, tax division, criminal section.

  Form 1040X or amended form 1040 - commences administrative proceedings when filed.

                                                                                                                 i.            After rejection, taxpayer can give up on administrative relief and pursue judicial intervention.

                                                                                                               ii.            Refund claim likened to pleadings - failure to assert some grounds means risking losing the argument later

1.      If an amendment in effect asserts a new theory of recovery, a new claim must be filed.

 Standard: prove commissioner's determination is incorrect by

preponderance of the evidence

New taxpayer friendly standard - Commissioner has the burden of proof with respect to the factual issues if certain requirements are met.

Taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the taxpayer's tax liability

Substantiates any item required to be substantiated by the taxpayer under the code and regulation

3.      Maintains all records required by the code and regulations and

4.      Cooperates with reasonable requests by the commissioner for witnesses, information, documents, meetings and interviews.

1.      Unless the corporation has $7 million or more net worth, then they have the burden of proof.

2.      Tax payer must petition to shift the burden of proof.

                                                                                                             iii.            Criminal type proceedings for fraud with intent to evade taxes. Burden of proof is on commissioner per s 7454. 

                                                                                                                 i.           Appeal to the court of appeals for the circuit in which the taxpayer's residence is located.

                                                                                                               ii.            Decisions of the court of federal claims appealable to the United States Court of Appeals for the Federal Circuit.

                                                                                                             iii.            The tax court decides cases in accordance with decisions in the circuits to which an appeal probably would be taken.

                                                                                                             iv.            Appeals from the cir. Court of appeals are by cert to the supreme court. 

   Taxpayer may recover both reasonable administrative costs and litigation costs (litigation only if administrative remedies exhausted)

                                                                                                                 i.            Costs awarded only where the service's position is not substantially justified.

                                                                                                               ii.            And the tax payer has substantially prevailed.

1.      No recovery for those whose net worth exceeded $2 mil or a corp exceeding $7 mil.

a.       Encourage tax payers to participate in the administrative process. 

In a case where the unusual cumbersome procedures might threaten to impede collection of the tax. 

  In such a case, the tax may be assessed and collected prior to notice. 

However, issuance of a deficiency notice within 60 days after the mailing of the jeopardy assessment is still required.

                                                                                                                 i.            Levy and distraint: seizure without judicial intervention

1.      Taking your items and selling them to satisfy your debt

                                                                                                               ii.            Lien- placing encumbrances on property

1.      Clouds title for ten years

                                                                                                             iii.            Garnishment

                                                                                                             iv.            Intentional evasion leads to prosecution. 

                                                                                             a.            3 year SOL: Assessment of alleged underpayment within 3 years after taxpayer files return for a year, whether return was timely filed or not

                                                                                                                 i.            6501(a)

                                                                                                               ii.            If the return is filed before the due date, it is deemed to be filed on the last day such return must be timely filed. 6501(b)(1)

                                                                                                             iii.            If filed late, from the date filed

                                                                                             b.            6 year SOL: Three years extended to six years if the tax payer omitted gross income in excess of 25% of the gross income reported on the return. 6501€(1)(A)

                                                                                             c.            No SOL: In the case of a false or fraudulent return or when no return is filed, the statute of limitations does not begin to run and tax may be assessed at any time. (never runs for murder and tax avoidance)

2.      Timely rule

                                                                                             a.            The timely-mailed, timely-filed rule applies with the postmark on the mailing controlling the date. 7502(a).

                                                                                                                 i.            Applies to USPS, Fed Ex, UPS, etc.

 Interest runs against the taxpayer from the date the amount should have been paid. 6601(A).

Normal Interest runs at the federal short term rate.

failure to file return is 5% tax per month.

failure to pay tax shown on return when due - 1/2 percent per month

                                                                                             a.            Accuracy due to carelessness - 20% of the portion of the taxpayer's underpayment.

                                                                                             b.            Accuracy due to gross misstatement - 40% of the portion of the taxpayer's underpayment

Fraud - if any part of the underpayment is due to fraud, then the entire underpayment is treated as is attributable to fraud, except as the taxpayer may establish and the penalty is 75% of underpayment

Spouse unaware: Understatement of tax attributable to erroneous item of the other spouse.    Joint tax return

                                                                                             2.            Innocent spouse did not know nor have reason to know of such understatement

                                                                                             3.            Taking all fact into account, it is inequitable to hold the innocent spouse liable

Where spouses are no longer married or living together: Deficiency has actually been assessed 6015©(cognitive requirement very low, but you have to be divorced, legally separated or living separately & the issue is not disposed of, they separate the returns)

                                                                                             1.            There is evidence the spouses are in essence no longer spouses.

                                                                                             2.            Relief as if separate returns were filed.

                                                                                             3.            Where both spouses are responsible for the deficiency or different sources of a deficiency, a proportionate liability results.

1.      Even if the spouses were married and living together during the taxable year, if at the time of election for relief, the claimant spouse is no longer married to or is legally separated from the spouse with whom the joint return was filed, or the claimant spouse has not been a member of the same household of the spouse at any time within the 12 month period prior to election for relief. 6015

2.      Must be made within 2 years of the service commencing collection activities on the innocent spouse.

6015(f): you cannot qualify under c or b

                                                                                             1.            Taking in all the facts and circumstances, it would be inequitable to hold the spouse liable.

                                                                                             2.            No two year limit here. Fraudulent spouse defense will get you out of paying the penalty tax.

                                                                                             1.            Under new IRC Sec. 6603, a taxpayer can deposit cash with the IRS that may be used to pay an underpayment of income, gift, estate, generation-skipping, or certain excise taxes. No interest will accrue on the portion of the underpayment for the period that it was on deposit.

                                                                         iii.            Repayment Can be credit 6402(a)

                                                                                                               1.    If liability for future year exists

                                                                                                               2.    Or if next year's liability not yet determined, payment can be withheld until then.

                                                                             i.            A refund claim must be filed within the later of 3 years after the return was filed (may claim refund up to the amount of the tax paid) or within 2 years of the date on which the tax was paid (amount of tax paid during the 2 years prior to filing the claim

BYPASS THE SOL IF TAXPAYER WAS GIVEN DIFFERENT TREATMENT ON A SIMILAR REFUND ISSUE IN A PREVIOUS YEAR.

Atty cannot advice client to take position on return unless attorney determines the position has a realistic possibiliy of being sustain on the merits, or position is not frivolous.

There must be a realistic possibiliy to conclude that the position has approximately a one in three, or greater, likelihood of being sustained on the merits.

atty must promptly submit records or information

must exercise due diligence in preparing or assisting in a tax return, document or affidavits

determine the correctness of statemetns made to the IRS

Avoid conflict of interests

employee benefits given via employer are taxable. (taxes paid by another = GI) (anytime someone pays your debts, its GI.)

I.R.C. 102 (c) Employee gifts

(1) In general

Subsection (a) shall not exclude from gross income any amount transferred by or for an employer to, or for the benefit of, an employee. Anything you receive from your employer has a stink on it.

 punitive damages = GI - reference to 104(a)(2) Glenshaw codified (GI is not compensatory damages awarded, except if Punitive Damages)

Charley v. Commissioner

c.    anything you are able to get from your employer is gross income,including the business use of travel miles which involves pocketing the money saved.

James v. U.S.  - the IRS can tax any income, whether its illegal income or not. The question rather is whether the taxpayer received a statutory gain.

                                                        Proceeds from a detached and disinterested generosity, out of affection, respect, admiration, charity or like impulses it tax free. Transferor's intention is the focus of the test. (intent is an objective inquiry). Bogardus v. Commissioner

                                                                                               i.            There shall be allowed as a deduction any charitable contribution payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the secretary. (BELOW THE LINE)

                                         i.            102 © an employee shall not exclude from gross income any amount transferred by or for an employer to, or for the benefit of an employee.

                                                         1.            The exceptions

a.       132€ certain traditional retirement gifts are treated as de minims fringe benefits

b.      Section 74© certain employee achievement awards are free from tax.

c.       274(b)(1) generally limits the deductible amount of business gifts to $25 per donee per year, but it defines the term gift with minor exceptions, as items excludable from the recipient's gross income under section 102.  as employee gifts are now includable in gross income under 102© they are not subject to the 274(b)(1) ceiling.  

                                                       vi.            substituted basis: the basis of property transferred in a tax-free exchange (s1031). The FMV of the new replacement property LESS the amount gain that was deferred.

                                                                                                                 i.            Property exchanged for property

                                                                                                                                 1.            For determining basis in the replacement property, on a taxable property, your basis is the fair market value of the thing received, and in a like kind exchange, you pick up deferred gain and take it with you to the deferred property.

1.       Whereas in an exchange of like-kind property - there is no realization.

                                                                                                               ii.            1033/1031 - exchange of gain, buried somewhere else

                             the tax is on the cost of the stock at the time of purchase minus the value realized at sale.

                                                                           1.            The taxpayer-wife sold stock which she had received from her husband, pursuant to an antenuptual agreement, under which she accepted the shares in consideration for surrendering all marital property rights in her husband's estate.  The value of the stock raised considerably from the time of purchase to the time of exchange. 

the stock was not a gift. Basis was FMV of stock when transferred.

                                      Transfers, in part gift; in part sale.

                                                                                             ii.            Sec. 1001-1(e) Transfers in part a sale and in part a gift. (1) Where a transfer of property is in part a sale and in part a gift, the transferor has a gain to the extent that the amount realized by him exceeds his adjusted basis in the property. However, no loss is sustained on such a transfer if the amount realized is less than the adjusted basis. For the determination of basis of property in the hands of the transferee, see §1.1015–4. For the allocation of the adjusted basis of property in the case of a bargain sale to a charitable organization, see §1.1011–2. 

                                                                           a.            Employer purchases stock for 16k - but gifts it to employees for 24k. Holding: (1)  the market value at the time of delivery was properly deducted by the taxpayer as an ordinary expense of the business. (2) the transaction resulted in a taxable gain to the taxpayer.   (3) gain calculated by the excess of the amount realized therefrom over the adjusted basis cost of such property.

                                                                                             a.             Peterson thinks that if they just gave cash to the employees, there would not have been a gain recognition problem.

nonrecourse: if you loan and someone defaults, you can only collect on whatever collateral was wagered  - you cannot obtain reimbursement or a judgment against a person.

Recourse: the lender can demand payment from the borrower if the loan is dishonored and seek repayment of a loan froam the borrower's personal assets, not just from the collateral that secured the loan. Lender may seek a deficiency judgment.

                                           The amount realized includes all of your income including discharge of debt.   Thus the proper basis under s 113 is the value of the property, undiminished by mortgages thereon, and that the correct basis here was 262k.  This was a nonrecourse loan.

                                                         b.            even when the fmv is below the amt of debt, the amount realized is the amount of debt that is assumed by the purchaser

                                                                                             a.            when a taxpayer sells or disposes of property encumbered by a nonrcourse obligation exceeding the fair market value of the property sold, the Commissioner may require him to include in the “amount realized” the outstanding amount of the obligation; the fair market value of the property is irrelevant to this calculation.

                                                                                             a.            Does not apply to spouses and dependent children s 132(h)

                                                                                             b.            Must be near employees' business

                                                                                             c.            Must sell it to employee at operating cost - (so no free food)

                                                                                            d.            Nondiscriminatory rule

                                                                            132(a)(1) - no additional cost services

                                                                                               i.            Only applicable if:

                                                                                                                 i.            Non Discrimination: denies highly compensated employees an exclusion for those fringes unless the fringes are provided on substantially the same terms to a broad group of employees. (132(j)(1)

                                                                                                               ii.            (same line of business rule)The service is excluded if it is offered to customers in the same line of business as that employee is performing services, section 132(b)(1)

                                                                                                             iii.            The employer incurs no substantial additional cost

                                                                          132(a)(2) - qualified employee discounts

                                                                                               i.            Only applicable if:

                                                                                                                 i.            Non Discrimination: denies highly compensated employees an exclusion for those fringes unless the fringes are provided on substantially the same terms to a broad group of employees. (132(j)(1)

                                                                                                               ii.            (Same line of business rules) The service is excluded if it is offered to customers in the same line of business as that employee is performing services, section 132(b)(1)

                                                                                                             iii.            Cannot buy real property or investment personal property.

                                                                                                             iv.            Cannot be loans to employees

                                                                                                               v.            Can be a rebate or a price deduction

                                                                                                               6.            Special ceiling on qualified employee discount

1.      Services: exclusion may not exceed 20% of the price at which the services are offered to the public. S 132(c)(1)(B)

                                                                                                               7.            Property: the maximum discount may not exceed the employer's "gross profit percentage" s 132(c)(1)(a) (aggregate sales price less cost / aggregate sales price = Gross Profit %)(basically they cannot give you stuff below cost)

                                                                                               i.            Means

                                                                                                               1.            Transportation in a commuter highway vehicle if such is in connection with travel between residence and work - 125

                                                                                                               2.            Any transit pass - 125

                                                                                                               3.            Qualified parking - 240

                                                                                                               4.            Bicycle reimbursement.

                                                                        132(a)(6) - qualified moving expense reimbursement

                                                                                               i.            Even better than 217, employer picks up expense and you don't have to take the expense.

                                                                                             ii.            There is no cap on this.

                                                                           132(j)(4) - athletic facilities

                                                                                               i.            In general. GI shall not include the value of any on-premises athletic facility provided by an employer to his employees.

                                                                                             ii.            On premises athletic facility means

                                                                                                               1.            Located on premises

                                                                                                               2.            Operated by the employer and

                                                                                                               3.            Substantially al the use is by employees of employer

                                                                                               i.            No non-discrimination rule

                                                                                             ii.            Exclusion for any property or services provided to an employee; to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 and 167. 

                                                                   132(j)(#) Special Rules for Car Salesperson

                                                                                               i.            In general. For purposes of subsection (a)(3), qualified automobile demonstration use shall be treated as a working condition fringe.

                                                                                             ii.            Qualified automobile demonstration use. For purposes of subparagraph (a), the term qualified auto demonstration use means any use of an auto by a full time auto salesman in the same area in which the auto dealer's sales office is located it

                                                                                                               1.            79 - excludes group life insurance premiums up to %50k coverage

                                                                                                               2.            112 - excludes compensation received by military personnel for service in a combat zone

                                                                                                               3.            129 - excludes amounts paid by an employer for dependent care assistance. (up to $5000 per year)

                                                                                                               4.            137 - excludes employer payments of qualified adoption services

                                                                                                               5.            134 excludes some additional military benefits

                                                                                                               6.            125 - cafeteria plans

                                                                                                               7.            119 Meals and Lodging paid for by employer

1.      Excluded from GI of an employee the value of any meals or lodging furnished to him or his spouse on behalf of his employer, for the convenience of the employer but only if

1.      Meals furnished on business premises

2.      Lodging, on business premises as condition of employment.

                                                                                                               8.            106 Health Insurance paid for by employer

                                                                                                               9.            127 educational assistance of up to $5,250 per year paid for by employer.

Herbet Hatt, section 119 grants an exclusion from GI of the value of lodging furnished to an employee if three conditions are met: 1. the lodign is on the business premises of the employer, 2. the employee is required toa ccept such lodging as a condition of employement and 3. the lodging is furnished for the convenience of the employer.

Two blocks away from the business is not enough to be considered "on the premises" Commissioner v. Anderson Motel. Across the street is enough. Lindemand v. Commissioner.

107 rental value of parsonages - in the case of a minister of the gospel, GI does not include, rental value of home furnished to him as part of compensation or rental allowance paid to him. what is a minister of the gospel?  Tanenbaum v. Commissioner (ordained Jewish Rabbi not minister; Sliverman v. Commissioner: cantor for Jewish congregation minister for tax purposes - its all over the place.)

Exclusions for Prizes and Awards in two limited circimstances

first,

1. if the award is made primarily in the field of religious, chartaible, scientifict, education, artistic, literary or civil.

2. If the recipient was selected without any action on the recipient's part to enter and was not required to render substantial future services as a condition to receive the prize and

3. the taxpayer winner designates a govermental unit or section 170c charity to receive the award and if the award is transferred directly to such charity. 

second,

employee achieve awards if

it relates to length of service or safety 

is tangible personal property

is awarded in a meaningful ceremony

and is not sisguished as compensation.

must have worked there for 5 years or more in terms of achievement

in regard to safey, employee must be a nonprofessional, cerical or manager

allen mcdonnell:                                                                              i.            Hawaii trip to employee, expenses paid by employer, when employee expected to supervise  on trip.

                                                                         iv.            Holding: the expenses of the trip are not includable in the gross income of the petitioner - The trip was to carry out duties of employment. (132) working condition fringe.

117a excludes from Gi amounts received as a qualified scholarship by a degree candiate at an education organization. room, meals and board not included. (prop reg 1.117-6 (c)(4) candidate for a degree includes primary and secondary schools and undergraduate and graduate colleges and universities. - proposed reg., but peterson thinks it has the force of law).

limitations: not allowed for payment for services. 117 (c) must be included in GI to the extent that the portion given represents payment for teaching, research or other services by the student required as a condition for receiving the otherwise excludable amount. exceptions: amounts received for national health service corps, public healt service acts and teh armed forced health professions.

104-106. Getting back pay as party of a sex discrimination case is GI - you would have been taxed on these wages anyway. U.S. v. Burke. 104(a)(2).  

To become taxable, the award must exceed the party's basis. An award for lost profits is taxable because you would have been taxed on these anyway. Raytheoan v. Commissioner.

Non taxable damages limited to bringing the party whole, physical injury or sickness. Damages for non personal injury such as defamation, sex discrimination etc. no longer excludable.  Damages for emotional distress arising out of a physical injury excludable. But, emotional distress on its own is GI.  When personal injury and no personal injury claims merge, the IRS uses the complaint to dtermine what was compensatory and what was punitive.  It all depends on the pleading and the facts of the case. Rev. Rul. 85-89. 

GI is everything, including the receipt of alimony. But the deductions are 62 above the line.  Alimony means:

1. any payment in cash if

2. payment is received by spouse under a divorce or separation instrument,

3. the instrument does not designate such payment as a payment which is not includible in GI under s 71 and not allowable as a deduction under 215.

4. in the case of a legal separation, the payee spouse and payor spouse must not be members of the same household and

last, there is not liability to make paymetns after death of the payor spouse. 

s 121. $250000 is excluded every two years. either spouse can satisfy the ownership test, thus if your name is not on the deed, no biggie. BUT both spouses must satisfy the use test. 

Residence is a house, trailer, house boat, stock in cooperative housing units. 

Must not be used for business profits. 

Cannot receive gains for periods of nonqualified use.

                                                                             i.            Exclusions for scholarships - 117 -

                                                                            ii.            162 - educational expenses deductible

                                                                          iii.            132 working condition fringe

                                                                          iv.            221 interest deduction

                                                                           v.            222 qualified student loan deduction

                                                                          vi.            25A Hope Scholarship credit and Lifetime learning credits

                                                                                             1.            Can reduce tax liability and increase the size of a refundable credit.

                                                                                                               a.            Credits allowed for a taxpayer's payment of qualified tuition and related fees at an eligible institution of higher education for a student who is the taxpayer's spouse or dependent..

                                                                                                                                   i.            Qualified tuition and fees include cost of enrollment or attendance. Do not include costs for books.

                                                                                                               b.            Hope scholarship credit

                                                                                                                                   i.            Per student credit, generally 100% of first $2000 of qualified tuition ad 25 percent of the amount between 2 and 4k, or a maximum of $2500 credit.

                                                                                                                                  ii.            Allowed only for first four years of students secondary education.

                                                                                                                                iii.            Phasing out: agi $80k for a single or $160k for joint and fully phased out when income reaches $90k and $180k.

                                                                                                                c.            Lifetime learning credit

                                                                                                                                   i.            Per tax payer credit of 20 percent of qualified tuition and related expenses up to $10000 of expenses in year subsequent to 02 - max credit of $2k for any year of student's post secondary education.

                                                                                                                                  ii.            Phases out as taxpayer's modified agi exceeds 40k for a single taxpayer and $80k for married and fully phased out as agi reaches $50k and $100k.

                                                                                                               d.            Only one credit per student in any year.

                                                                        vii.            Savings bond income used to pay higher education tuition and fees

                                                                                             1.            Exclusion of interest on certain discounted federal bonds whose proceeds are used directly or indirectly to finance such educational costs.

                                                                                                               a.            135 a allows exclusion from gain on redemption of qualified U.S. savings bond to the extent that taxpayer uses it to pay for higher education expenses.

                                                                             i.            Qualified Tuition Programs

                                                                                             1.            Prepare higher education costs by purchasing tuition credits or certificates. Plans must provide funds for qualified higher education expenses. Only cash contributions.

                                                                            ii.            Coverdell educational savings accounts.

                                                                                             1.            $2000 year ceiling

                                                                                             2.            Must be made in cash.

                                                     viii.          Federal taxes and state activities.

                                                                             i.            Government employees and the government are taxed, in spite of scholarly argument.

Pay kids income for work

create a C-Corp that runs at a loss

gift property to kids (Kiddie tax rule: any income gifted to kids - unearned income they receive - is taxed as you are taxed.