Income

Gross Income - Undeniable accession to wealth, clearly realized and over which the taxpayer has complete dominion Glenshaw Glass
The intent of Congress is to tax ALL gains, except for those specifically exempted Glenshaw Glass
§61(a) - Gross income means all income from whatever source derived
Includes - Services, Meals, Accommodations, or Property [§1.61–1(a)]; Wages, Salary, Commission, Tips, Bonuses, etc. [§1.61-2(a)(1)]
Compensation from Services Rendered to §170(c) Charitable Organization §1.61-2(c)
Compensation Through Property - Valued at FMV of property received §1.61-2(d)(1) [Consider §83 Non-Vested Property]
If property given as comp. for services for less than its FMV, then difference between the amount paid for the property(including value
of services rendered)
and its FMV at time of transfer is included in gross income §1.61–2(d)(2)(i)
On Subsequent Sale - Property's basis is amount paid, amount included in gross income §1.61–2(d)(2)(i)
Compensation Through Services - Valued at FMV of services received §1.61-2(d)(1)
If services rendered at stipulated price, that price is presumed to be FMV, unless there is contrary evidence §1.61-2(d)(1)
Punitive or Exemplary Damages awarded consequent a law suit is income §1.61-14(a)
But not damages compensating injuries
Another’s Payment of TP’s Obligation – Included in Income §1.61-14(a) Old Colony Trust (Business paid employee’s taxes)
Illegals Gains – Included in Income §1.61-14(a) James v. US
Treasure trove, or found property, when it is reduced to undisputed possession, is gross income §1.61-14(a) Cesarini (Piano Money)
No Realization Event Required - Once in undisputed possession under State property law, it is income Cesarini
Alimony & Divorce Payments
Alimony and separate maintenance payments included in taxable income §61(a)(8)
Alimony Payments [Before 2019] - Alimony payments received are included in payee's gross income §71(a)
Amounts from payor are deductible from gross income §215(a); above-the-line deduction §62(a)(10)
[After 2019] - Alimony payments are tax neutral, no deduction by payor or income to payee; but payor pays on initial income
Applicable - (1) Separations after 2019; (2) Earlier separations modified after 2019 expressly providing §71 & §215 inapplicable
Requirements to be 'Alimony Payments': §71(b)(1)
(1) Payment received by, or on behalf of, a spouse under Divorce/Separation Instrument §71(b)(1)(A)
Divorce/Separation Instrument - (a) Decree of divorce, separate maintenance, or written instrument incident such decree; (b)
written separation agreement; (c) other decree requiring spouse make support/maintenance payments §71(b)(2)
(2) Divorce/Separation Instrument does not designate payment as non-alimony payment §71(b)(1)(B)
(3) Parties are not members of same household at time of payment §71(b)(1)(C)
(4) There is no liability to make any payment in cash or property, after death of payee spouse §71(b)(1)(D)
(5) Payment is not for child support §71(c)(1)
Failed - If some amount of payment will be reduced upon occurrence of contingency related to a child §71(b)(2)
(6) Must be made in cash
Alimony paid excluded from payor's gross income, if they would be included by payee under §71 [§215(a)]
Exception to Application of §71 & §215 - If spouses file joint return, sections inapplicable §71(e)
Assignment of Income
Income from performance of services is taxed to person who earned it & can’t be assigned to others by K Lucas v. Earl (wife)
Realization of Income from Services - When TP has sufficient control over income to direct its disposition Giannini (suggested salary be donated)
However - Mere right to receive income, without more, is not realization [under cash method of accounting] Giannini
Consider - Without TP's action would the income have went where it went?
Waiver of Income - One may waive right to income, prior to receipt, by evidencing intent to render gratuitous service Rev. Rul. 66-167
Explicit - If one supplies formal waiver of any right to compensation to those controlling distribution, prior to receipt
Implicit - If one does not claim compensation at usual time and if all other attendant circumstances are consistent with a
fixed and continuing intent to serve gratuitously
Rev. Rul. 66-167 – Implicit Waiver - TP served as executor; no explicit waiver, but never accounted for payment to himself in estate filings,
and neither deducted nor included fees in any of his tax materials
Failure To Waive - If the timing, purpose, and effect of waiver evidences the waiver serves any objective, other than to
render gratuitous service, it will be determined that income was realized
Rev. Rul. 64-225 - Trustees waived right to receive commissions long after years that commissions related to; sufficient evidence of a lack of
intent to serve on gratuitous basis
Waiver Pursuant to Agreement - Rev. Rul. 74-581 - Legal fees received by law professor for representing indigent defendants
not included in gross income when, pursuant to employment contract, professor immediately turn fees over to law school
Rev. Rul. 58-220 - Checks received by physician, which he is required to turn over to hospital, are not included
 Rev. Rul. 58-515 - Police officer who goes undercover and receives payment for private employment but, pursuant to department rules and
procedures, turns payments over to department, are not included in gross income

Income from Property - Generally, income produced by property is assigned to person who has the interest in the property Horst
Distinguish Principal Income-Producing Property, from the Fruits which the Property Produces
Retention of Principal - Horst - Retaining Income-Producing property & gifting right to receive fruit of principal results in
income to giftor [Gift of Carved Out Interest in Income-Producing Property]
Horst - TP had bonds, with rights to principal & interest payments, carved out & gifted individual interest payments; included in gross income
Gift of Fruit without Principal - Blair - When TP does not possess Income-Producing Property, but possess a right to receive
the fruit of that property, TP may gift the right to receive that property and exclude its value from TP's gross income
Blair - TP only had right to receive income from trust; irrevocably assigned right to portion of income to son; not gross income for TP
Partial Gift of Coterminous Interest in Property - Gift of partial interest in property results in income equal to % interest
retained when income is produced - even if rights to later income forfeited, income assigned to underlying property interest
Consider - Gift of right to receive income, carved out from overall property [Horst];
or Gift of property interest equal and horizontal to giftor's interest in property [Blair]
A gift of property which produces income does not result in giftor enjoying the income which may later be produced
Year of Realization - One who gifts principal Income-Producing Property, which already bears ripe fruit, must include fruit's
value in gross income in the year that fruit is realized by giftee Rev. Rul. 69-102
TP constructively receives income when TP transfers present right to income to another, who then consummates that right
Avoidance of Income in Property Disposition - TP owning property when legally binding commitment to dispose is made, must
include proceeds in gross income; notwithstanding form of transfer Salvatore
Step Transaction Doctrine - Interdependence among steps in transaction allows it to be collapsed into one Salvatore
If one would not assign property, but-for inevitable transaction, whether currently binding or not, then it may be collapsed
Hard Case - If property transferred then terms negotiated with transferees & transferor then there may be an argument
The form of a transaction cannot be permitted to prevail over its substances Salvatore
Using one as a conduit in the transaction, only to avoid taxation will not prevent taxation
Salvatore - At time K was formed, TP made commitment to convey property wholly owned by TP so, notwithstanding post-k
transfers of the property to children, the proceeds from the sale were assigned to TP
Helvering v. Horst (TP had bond [rights to principal & interest]; TP gave right to individual interest payments to kids; Ct. held interest was income to TP)
Blair v. Commissioner (TP inherits right to income from trust; assigns income to children; Ct. holds that income is not TP's, but children's)
Salvatore v. Commissioner (K formed for sale; TP later assigned interest to children, children exchanged interest for $; Ct. held TP must include all $ )