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- Gifts and Bequests.
Imputed IncomeCode § 74. Prizes and awards. Code § 102. Gifts and inheritances. Code § 162(a)(1). Trade or business expenses. Code § 262. Personal, living, and family expenses. Code § 274(b). Disallowance of certain entertainment, etc., expenses—Gifts. Regulation § 1.74-1(a)(1). Prizes and awards—Inclusion in gross income. Regulation § 1.74-1(a)(2). PROPOSED. Prizes and awards—Exclusion from gross income. Regulation § 1.102-1(a). Gifts and inheritances—General rule. Regulation § 1.102-1(b). Gifts and inheritances—Income from gifts and inheritances. Regulation § 1.102-1(c). Gifts and inheritances—Gifts and inheritances of income. Regulation § 1.102-1(f). PROPOSED. Gifts and inheritances—Exclusions. Imputed income: benefits derived from labor on one’s own behalf or the benefits from ownership of property—not treated as income for tax purposes—inefficient, but taxing imputed income would be inadministrable **under Hague Simons—imputed income IS income should be taxed—but it’s generally excluded—creates unintended incentives Problem Set 3. Imputed Income, Gifts, Bequests and Prizes Gwen is a doctor who does not charge Harry for medical services she performs for him. In exchange, Harry, who owns a ski cabin, lets Gwen stay there for one week. The cabin rents for $1,500 per week. Who has income and in what amounts? Regulations Section § 1.61-2(d)—Compensation paid other than in cash Fair market value of services received Gwen’s income= $1,500 Harry’s income = value of doctor’s services (presumably the same)—why doesn’t this function like a dollar for bread transaction? (I would not count the bread as income)—because the bread is taxed and so the value of the doctor’s services are also taxed—“rental income would have been taxed value of the services should also be taxed”—would be imputed income if Harry stayed in his own cabin, not here **but Harry doesn’t come out with any income—he loses the value of the doctor’s services in exchange for services Gwen’s income should be taxed and Harry’s should not? Ian works overtime and earns an extra $25 each day. He uses the money to pay Jeff to walk his dog each evening. Kate, who has the same job as Ian, never works overtime and walks her own dog each evening. Who has (or should have) gross income? Incentive Structure: Ian is penalized for working—he should walk his own dog if society values dog walking as much as working (unless he likes working more than dog walking in at least the amount of his tax rate on $25) Ian: $25 – taxes - $25 to Jeff = $-taxes Kate: $0 Larry goes to a local pub to see the Red Sox game. Each person is given a number as they walk in and the pub owners say that if the Red Sox win, they will draw one number and give the winner an all-expenses-paid trip to Boston to see the Red Sox play in Fenway Park. The Red Sox win and Larry’s number is drawn. Does he have gross income and, if so, in what amount? Yes—§ 1.74-1(a)—taxes on the fair market value of the trip—Door prize = income at fair market value Mari and Neal are married. Mari is a doctor whose before-tax income is $100,000. Currently Neal stays home. He is a full-time parent for their three children. Neal has an education degree and was recently offered a position as a teacher that pays $30,000. He estimates that it would cost $20,000 to hire someone to perform the services he performs at home. Mari and Neal file jointly and their marginal tax rate is 40%. Ignore all other deductions and credits. Will Neal take the job? $100 x .6 = $60,000 $130 x .6 = $78,000 – 20,000 = $58,000 No, they would be $2,000 worse off If the salary associated with Neal’s job offer was tax-exempt, what would Neal do? Take the job and be $10,000 better off this tax is inefficient What issues are raised in your answers to a) and b)? How could these issues be resolved? Could fix inefficiency with: a tax credit for childcare; a deduction for childcare; or file separately and get a lower marginal tax rate—or tax Neal’s current imputed income to eliminate inefficiency Gifts and Bequests.Commissioner v Duberstein—1960—SCOTUS—Brennan Duberstein—was a Cadillac car given in return for suggesting customers a taxable income? YES Stanton—was a $20,000 “gratuity” given to a retired church comptroller a taxable income? NO Government wants a test to define “gift: transfers of property made for personal as distinguished from business reasons” RULE: “detached and disinterested generosity” would imply a gift—not set as a hard standard **pre-existed Duberstein; SCOTUS just advocates the status quo system—look to motivation for exchange to decide if it’s a gift or if it’s income Decision: “it was at the bottom a recompense for Duberstein’s past services” taxable income fact-finder’s opinion on Stanton was too sparse, can’t tell if it why it was not a gift—remanded Why does the distinction between gifts and income matter? Recipients: exclude (gift, § 102) or taxed (compensation, § 61) Payor: deduct (business expense, § 274(b)) or not (personal expense) Could have promulgated a standard with regulations—could have been complicated or difficult to administer Ways around the “Business gift to an employee”—if it’s a family business there is a PROPOSED regulation: § 1.102-(1)(f)—family relationship would warrant a gift even if they work together
**Burman deducted Cadillac as compensation; Duberstein called it a gift IRS got no tax **surrogate taxing—all very symmetrical, if recipient is taxed, payor is not Bequests. Bequests are generally exempt from income under § 102 “The Supreme Court stated that the test was not whether the testator gave the legacies for services but whether the legatees had to perform the services in order to earn the bequests.”
§ 102 If gifts are gratuitous—donee doesn’t report them as income § 262 if gifts are gratuitous—donor can’t deduct them as a personal expense
A—current tax penalizes donor and NOT heir B—would incentivize transferring wealth to avoid taxes Externalities—there is double utility in a gift—LB values her nephew’s well-being $100 and he values the gift at $100 Takeaways—failure to tax both (to not implement C) means we move away from strictly taxing Hague Simons income (so we take in less than we could) BUT gifts have double utility, do we necessarily want to double tax them? Of the two ways to tax just one, A prevents gaming the system OPRAH’S PONTIACS Gift taxes—Pontiac and Oprah both had promotional incentives not “detached and disinterested” § 1.74-1(a)—door prizes—buying a ticket to Oprah is sufficient to constitute self-enrollment What are the family’s options? Sell car, pay taxes Not accept car probably $30,000 x marginal tax rate < $30,000 should accept car new cars are notorious for losing value—if resale value dropped 60% and tax rate = 40% family shouldn’t accept the car—UNLESS they could claim the resale price as their income, probably depends on whether or not they drive the car and when they resell it 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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