Table of Contents introduction & vocabulary 2
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- Elasticity
- Calculating taxable income
- = Taxable income Goes into brackets Vocabulary MTR
- Tax inclusive vs. tax exclusive
- Reg § 1.132-5(a)(1)(B)(i)
- § 83(b) § 83(b)
- AB = cost + amount on which you pay taxes
- Transactions involving borrowed funds.
- Cancellation of indebtedness vs. purchase price adjustment Purchase Price Adjustment—§ 108(e)(5)
- Annuities and Life Insurance.
Manoj’s Review SessionStudy problem sets—know what was discussed in class (esp. policy)—casebook (sections about things talked about in class, variations from book are likely exam questions)—assigned Code sections we didn’t talk about in class RIA Checkpoint on the library website—will explain Code sections-- Potential policy questions: health care, home mortgage interest deduction, tax expenditures generally, rationales for capital gains Three criteria: Equity Horizontal equity—similarly situated tax payers should pay the same tax Vertical equity—a taxpayer who makes more shouldn’t pay less in taxes than his lesser earning counterpart (not necessarily a progressive tax) Efficiency Inefficiency: when people change their behavior predicated on tax code UNLESS it’s a change we want i.e. society values Tom working at $10/hour and Tom values leisure at $8/hour—if his tax rate is 25% and he gets $7.5/hour after tax but for the tax system, Tom would work and societal deadweight loss is $.5/hour Elasticity: price-sensitive people will purchase less as taxes are imposed Negative externalities: we want to curb some behavior—factory makes $100 for each disposal in a river; $120 to clean up river; if you tax the factory > $100 they will be properly deterred to not dispose in the river Pigovian tax: we tax something that causes a harm—you pay 5 cents per grocery bag in DC—hard to make people internalize the cost of their behaviors on society, so we tax them Simplicity Compliance (administribility) Least costly form of simplicity—a form of efficiency Rule Transactional The most costly—scheming to avoid taxes Wage tax is a consumption tax equivalent—“The more deducting, expenses, excluding you do on what you spend the more you move away from an income tax and toward a wage tax (which is a consumption tax)” Income = wages + return on investment Expensing an income-producing asset is equivalent to exempting the income from that asset from tax. this basically clips out return on investment and we are left with only wages (to spend or save) functions like a consumption tax because everything that you’re spending is taxed and everything that you save is deducted **see page 294 Realization requirement No purpose in taking money out of an asset until you need to spend it realization requirement moves us toward a consumption tax
Vocabulary MTR—affects decisions going forward ATR = total taxes paid / taxable income—always higher than MTR, picture of overall tax profile Refundable vs. nonrefundable credits Deductions vs. exclusions Tax inclusive vs. tax exclusive Sales taxes (which we didn’t talk about) are exclusive—you calculate tax that you owe and pay from another source Income taxes are inclusive—taxes that you owe are included in your base (i.e. if you have $100 and a 30% rate you pay $30 and have only $70 left—base NOT in tact) When we have equivalent tax rate the inclusive rates are nominally lower, exclusive rates are nominally higher a 20 % inclusive tax on $100 is equivalent to a 25% exclusive tax on $80 Oliver was a complete boner about this. Fringe benefits Rule driven with wiggle room—we will probably have to argue within facts (de minimus? For the benefit of the employer? Use Code factors and argue both sides, traditional law school question) § 132 All fringe benefits not excluded by this section are included in income No additional cost service must be offered for sale of customers in the ordinary course of business employee must in employers line of business employer cannot forgo income Qualified employee discount § 132(c) Working condition fringes Any expense that the employee paid for which she otherwise would have been able to deduct, take into account § 274 but not limitations about itemization requirements De minimus fringe § 1.132-6(d) on whether or not meals are de minimus Qualified transportation fringe Reg § 1.132-5(a)(1)(B)(i) Nondiscrimination rules—doesn’t apply to de minimus and qualified transportation fringe Employee is defined on page 120 Spouses—§ 274(m)(3) AND § 1.132-5(t)—Gotcher and VW trip—bona fide business purpose Surrogate taxation Fred example. FMV of home = $1.5M Does Fred make § 83(b) election? MTR = 40%
AB = cost + amount on which you pay taxes Adjusted basis v. important Imputed Income Homes—actually administrable (as opposed to imputed income on cutting your own hair) Rental income If you purchase a candy bar and eat it you pay for the consumption—NOT an investment You expect an investment to go up in value—BUT a home is a blended purchase between investment and consumption—you NEVER expect your home to be valued at $0 after 30 years Criticisms of taxing imputed income don’t necessarily apply to these large expenditures Gifts. General rule: donors can’t deduct and recipients get to exclude 2010—estate tax is gone, traditionally had exclusion amount and beyond that you paid taxes on the difference Any one person can give any other person $12,000 each year without tax consequences—can give $12,000 to as many people as you like Lifetime $1M giving cap—if you give more than $1M in your life the DONOR will pay tax on it—this $1M is eaten away by each annual gift over $12,000 per recipient Year 1: $1.012M gift (no more than $12,000 to any one recipient) Year 2: $13,000 gift—donor pays tax on $1,000 Generally speaking gifts you get a carryover basis bequests you get a stepped up basis if you’re about to die—sell your property which have lost value to realize loss deductions, bequeath your property which has gained value Danika and Blake—know these problems well, don’t mess them up You neither recognize loss nor gain—basis = FMV at time of gift or giver’s basis for loss purposes—if the property loses Charitable Gifts. Page 447 in casebook; really good examples on 449—rules on charity using assets for the intended purpose Tax law confers a generous benefit on contributors of appreciated property. NOT the same as selling the property, paying taxes and donating proceeds Purchase price: $1,000; FMV: $10,000 if you sell and donate you pay taxes on $9,000 CG and can deduct some if you donate the appreciated asset you can deduct the whole value Restrictions: Only—assets which would otherwise generate capital gains Fruit and trees. You’ve got all these issues in Hort because we’re moving away from a mark-to-market system toward a system of depreciation; there is no clear and principled way to define a realization event. Transactions involving borrowed funds. Zarin—don’t try to draw principles out of this case, it’s just supposed to be fun—overturned Stealing vs. borrowing lacking mutual consent? Include in income—establishment of mutual consent? Off-setting liability for borrowed funds Cancellation of indebtedness vs. purchase price adjustment Purchase Price Adjustment—§ 108(e)(5)—price reduction NOT income Debt MUST be from seller buyer Buyer CAN’T be insolvent (we don’t want people to mask cancellation of indebtedness as purchase price adjustment) (Functionally you’re returning an asset, getting a refund, and purchasing it back for less) Cancellation of Indebtedness Income Reduces tax attributes if you’re insolvent (forgive cancellation of indebtedness income to the extent of your insolvency; BUT if you have adjusted basis in an asset it will be reduced dollar-for-dollar and when you realize income on that asset you will have gain Annuities and Life Insurance. Life insurance is a really sweet deal from a tax perspective, especially if you die early. Mortality gain—you died early and got a good deal Mortality loss—bad deal on life insurance policy Annuity. You get the basis in the annuity BUT you also recover basis at a pro-rated rate; after you recover your basis anything you receive is taxed in full. Modified endowment contracts. Scheming—if you have what looks like a life insurance contract you can get tax free earnings and cash out whenever you want—if you overfund your life insurance contract it looks like a savings vehicle and you have to pay taxes on withdrawals. BUT if you died then the IRS knows you were serious about dying and taxes like a life insurance plan (0%) and not like a savings instrument Policy question Have an opinion Will give partial credit Directory: sites -> default -> files -> upload documents upload documents -> Torts Outline Daniel Ricks upload documents -> Torts outline Functions of Tort Law upload documents -> Constitutional Law (Yoshino, Fall 2009) Table of Contents upload documents -> Arrest: (1) pc? (2) Warrant required? upload documents -> Civil procedure outline upload documents -> Criminal Procedure: Police Investigation upload documents -> Regulation of Agricultural gmos in China upload documents -> Rodriguez Con Law Outline Judicial Review and Constitutional Interpretation upload documents -> Standing Justiciability (§ 501 Legal/beneficial owner of exclusive right? “Arising under” jx?) 46 Statute of Limitations Run? 46 Is Π an Author? 14 Is this a Work of Joint Authorship? 14 Is it a Work for Hire? upload documents -> Fed Courts Outline: 26 Pages Download 0.73 Mb. Share with your friends:
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