Federal Income Taxation - Ch. 2-12

Cesarini v. United States (1969)

Treasure trove property is included in gross income for the tax year when it was discovered.

Old Colony Trust Co. v. Commissioner (1929)

When a third party pays a person's income tax on his behalf, the payment is income that is taxable to the employee.

Commissioner v. Glenshaw Glass Co. (1955)

The Court held that Congress, in enacting the income taxation statutes, intended to tax all gain except that which was specifically exempted. Income is not limited to "the gain derived from capital, from labor, or from both combined." Instead, income is realized whenever there are "instances of [1] undeniable accessions to wealth, [2] clearly realized, and [3] over which the taxpayers have complete dominion." Under this definition, punitive damages qualify as "income" -- even though they are not derived from capital or from labor.

Charley v. Commissioner (1996)

Gross income includes all income from whatever source derived.

Internal Revenue Code section 61

defines "gross income," the starting point for determining which items of income are taxable for federal income tax purposes in the United States. Section 61 states that "[e]xcept as otherwise provided in this subtitle, gross income means all income from whatever source derived”. Section 61 lists examples of items that are taxable under the Code, including "Compensation for services, including fees, commissions, fringe benefits, and similar items"; "Gross income derived from business"; and "Gains derived from dealings in property".

Helvering v. Independent Life Ins. Co. (1934)

The rental value of a building used by the owner does not constitute income within the meaning of the Sixteenth Amendment.

Dean v. Commissioner (1951)

Taxpayer and his wife are the shareholders in a holding company called the Nemours Corporation, and the wife owns 80% of the stock. The residence of the taxpayer and his wife was owned by the wife prior to marriage. The Corporation became indebted to a bank and the real property was transferred to the corporation at the bank’s requirement. The parties continued to live on the property after this transfer. Should the fair rental value of the property be considered income of the taxpayer?
Circuit Judge Goodrich issued the opinion for the United States Third Court of Appeals in affirming that tax court and holding that taxpayer should report the fair rental value as income.

Sections 71-91

defines items specifically or partially includable in gross income

Sections 101-139I

defines items specifically or partially excludable from gross income

Gross income (broadly)

The receipt of any financial benefit which is 1) NOT a mere return of capital, and 2) NOT accompanied by a contemporaneously acknowledged obligation to repay, and 3) NOT excluded by a specific statutory provision.

Section 102

Gross income does not include property from gifts, bequests, or inheritances, but income from those gifts is included

Commissioner v. Duberstein (1960)

When determining whether something is a gift for U.S. federal income tax purposes, the critical consideration is the transferor's intention. This is a question of fact that must be determined on a "case-by-case basis". The body that levies the tax must conduct an objective inquiry that looks to "the mainsprings of human conduct to the totality of the fact of each case." On review, the trier of fact must consider all of the evidence in front of it and determine whether the transferor's intention was either disinterested or involved: Gifts result from "detached and disinterested generosity" and are often given out of "affection, respect, admiration, charity or like impulses". Contrast payments given as an "involved and intensely interested" act.

Section 102(c)

Gift classification is denied to all transfers by employers to employees except in extraordinary cases where the employee can show the transfer was not made in recognition of their employment. Certain traditional retirement gifts remain treated as de minimis fringe benefits (Section 132(e)) and certain employee achievement awards are tax-free (Section 74 (c)).

Section 274(b)(1)

Limits the deductible amount of business gifts to $25 per donee per year. Only applicable to non-employee business gifts.

Lyeth v. Hoey

Property received by an heir under an agreement compromising and settling his contest of the decedent's will is property acquired by "inheritance," within the meaning of § 22(b)(3) of the Revenue Act of 1932, which exempts the value of such property from the income tax.

Wolder v. Commissioner

decided whether 26 U.S.C. 102(a)'s exclusion of "bequests" from gross income included those made in consideration for services and whether the "detached and disinterested" standard applied to gifts made at death-time. Holding: The bequests received by Wolder were not excluded from income under § 102(a). Wolder and Boyce entered into and satisfied the obligations of a contract for services providing for a "postponed payment" in the form of a bequest.