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Chapter 2 p.45
Characteristics of Income
How is the concept of “income” defined?
Consider the Haig-Simons definition:
“Accession to wealth” consists of:
1) Consumption (occurring during the
measurement period), and
2) Increase (if any) of the value of the
person’s property rights (during that
measurement period).
9/29/2014 (c) William P. Streng 1
Basic Code Structure &
Tax Code Definition
a) Code §1 – the tax imposing provision (for
individuals) & Code §11 (for corporations).
b) §61 - statutory definition of “gross income” –
all income “from whatever source derived.”
§61(a)(1) compensation
§61(a)(2) business income
§61(a)(3) property gains
§61(a)(4) interest, etc.
c) §63(a) – defining “taxable income”
9/29/2014 (c) William P. Streng 2
Income Definitional
Considerations p.46-47
Is gross income limited to income from “labor”
or “capital”?
See Eisner v. Macomber, p.46 (constitutional
case): re gain derived from capital – what status
of a stock-on-stock dividend?
What about “windfalls” & “source”?
A windfall does increase one’s liquidity.
See Glenshaw Glass (later, p. 78) re GI inclusion
of windfalls.
9/29/2014 (c) William P. Streng 3
Income Definitional
Considerations, cont.
How far should the income tax base be
broadened?
Consistent with economic analysis?
Does any need exist to consider IRS
implementation and administrative
considerations?
9/29/2014 (c) William P. Streng 4
Income Definitional
Considerations, continued
Consider whether the following might constitute
an “accretion to wealth” to a taxpayer:
1) Accrued but unrealized appreciation
2) Value of an “underpriced & subsidized”
education at state supported college/law school.
3) Value of one’s leisure – since taxpayer could
have been earning cash income if not at
leisure.
What relevance of one’s “ability to pay”?
9/29/2014 (c) William P. Streng 5
Noncash Benefits p.48
Reg. § 1.61-1(a) – gross income includes income
realized in any form, whether money, property
or services. Income may be realized in the form
of services, meals, accommodations, corporate
stock, a partnership interest, or other property.
What about barter transactions?
What are the administrative problems when
noncash transactions occur?
But, consider importance of “economic
substance,” rather than mere “form.”9/29/2014 (c) William P. Streng 6
Meals & Lodging Provided
to Employees p.49
Example 1: Employer pays cash rent directly to
the apartment owner to enable occupancy of
apartment by the employee.
Can this rent be excluded from GI since not
received in cash by the employee? Should this
device enable her federal income tax savings?
Should the employer’s deduction be impacted?
What about other direct, substitute payments
for compensation? E.g., an auto or stock?
See Old Colony Trust case, next slide9/29/2014 (c) William P. Streng 7
Old Colony Trust Co.
p.50
Employer pays the employee’s tax liability, i.e.,
employer pays all the employee’s “debt” to IRS.
What happens to the employee’s “net worth”?
Held: Discharge of this debt of the employee
was gross income to the employee.
Really a three party transaction (with IRS)?
Note: Does the corporate resolution (and the
payment obligation) present a “pyramiding”
problem? What is that?
What is the “bracket stacking” problem?9/29/2014 (c) William P. Streng 8
Payment for a Deferred
Annuity Contract p.50
Example 2: Employer pays $10,000 to insurance
company which issues its obligation to pay the
employee $50,000 when reaching age 70.
Her rights are fully vested (i.e., she gets the
money even if she is subsequently fired).
She lives to age 70 and receives the payment.
Does she have (any) gross income? When? At
issuance? Accrual each year? When cash is
paid? What does employee receive to be included
in gross income? See Drescher case, Ch. 3.9/29/2014 (c) William P. Streng 9
Employer Owned Lodging
Used by Employee p.51
Example 3: Employer provides to an employee
the free use of an employer owned apartment
(which has a rental value of $1,000 per month).
How determine this fair market value at $1,000
per month? Is this value (in the form of
apartment availability) includible in the
employee’s gross income?
Does the employer have both (1) a wage expense
deduction and (2) gross (rental) income (as the
property owner), plus depreciation deduction?9/29/2014 (c) William P. Streng 10
Benaglia v. Commr.
“Tax Common Law”? P.52
Taxpayer hired as manager of a hotel & lived
(with spouse) in the hotel. Meals were provided
without charge. Gross income to manager for
the FMV of these items (& to the wife)?
Held: These items were primarily “for the
convenience of the employer” and, therefore, no
GI inclusion. Cf., person who must pay for food
– a violation of concept of “horizontal equity”?
If inclusion: (1) retail fair market value; (2) cost
to employer; (3) a subjective value to taxpayer?
See dissent, next slide. 9/29/2014 (c) William P. Streng 11
Benaglia v. Commr.
P.52 - Dissent
Dissent notes the employment contract letter:
He says one of the terms of their deal is to
include availability of living quarters & meals.
Should this “deal point” be conclusive on the
gross income inclusion for FIT?
How much? A valuation issue: but, he states
his cost to live elsewhere would be $3,600. Is
this an appropriate valuation?
What about the benefit to (nonemployee) wife?
9/29/2014 (c) William P. Streng 12
Code §119 Meals &
Lodging GI Exclusion p.56
Tax provision for a statutory exclusion.
Requirements for a Code §119 exclusion:
1) For the convenience of employer; &
2) On the business premises. What are the
employer’s business premises?
Tax planning by the employment attorney:
How negotiate the employee’s employment
contract (considering the §119 potential
application)?
9/29/2014 (c) William P. Streng 13
Kowalski case,
US Sup. Ct. p.57
Meal cash allowance – not furnished “in kind.”
Therefore, not fitting within Code §119.
But, is a tax “common law” exclusion available
in this situation?
What are the “business premises” for this
purpose for the state troopers? What about a
leased location at a restaurant?
How structure (if at all) arrangements for the
state troopers to fit within the §119 exclusion?
9/29/2014 (c) William P. Streng 14
“Employee” Status
Required for §119 p.58
This treatment is not available to a self-
employed person.
What about §119 for the sole employee of a
corporation entirely owned by the employee?
How then “required” to live in the premises?
Then a “double benefit” for U.S. income tax:
(1) no inclusion in gross income of employee,
but (2) a tax depreciation deduction to the
corporation for the building when housing made
available to employee.9/29/2014 (c) William P. Streng 15
GI Exclusion for Fringe
Benefits - §132 p.59
Statutory exclusion for certain items:
1) No additional cost services - §132(b).
- See §132(h) re others treated as employees,
including parents when air transportation.
- See §132(j) re affiliates of airlines.
- See §132(i) re reciprocal agreements.
2) Employee discounts - §132(c).
- Discount by the “gross profit percentage”
- Discount for services @ 20 percent. 9/29/2014 (c) William P. Streng 16
GI Exclusion for Fringe
Benefits - §132, cont.
3) Working condition fringes - §132(d).
- If employee paid item, would be a business
expense deduction. Use of company
automobile; security protection.
4) De minimis fringes - §132(e). E.g., use of
employer photocopy machine; periodic meals.
5) Other items, e.g., parking, moving expense
reimbursement, on premises gym.
§132(j)(1) - Nondiscrimination rules apply for
§132(a)(1)&(2).9/29/2014 (c) William P. Streng 17
“Cafeteria Plans”
§125 p.62
Employee may chose among (1) a variety of
noncash benefits or (2) cash; this rule negates
the applicability of the “constructive receipt”
doctrine re receipt of income.
But, no option permitted to take non-taxed cash.
“Use it or lose it” rule applies at the end of the
year - §125(d)(2)(A), except when a change in
family circumstances occurs (Reg. § 1.125-4(c)).
A non-discrimination rule applies. §125(b ).
Not applicable to deferred compensation plans.9/29/2014 (c) William P. Streng 18
Frequent Flyer Credits
Gross Income? p.63
Frequent flyer credits can be traded for (1)
other airline tickets, (2) flight upgrades, or (3)
other (non-airline) merchandise.
Are these reductions of the cash price of future
flight costs when these credits are earned?
What if (1) the initial travel is for business, paid
by the employer, but (2) the employee gets the
mileage credit? Is part to be compensation?
Gross income when other than airline benefits?
Issuance of IRS Form 1099 to account holder?9/29/2014 (c) William P. Streng 19
Haverly case p.65
Benefits from a 3rd Party
School official receives unsolicited sample books
for review and possible adoption by the school
and purchase by students. Not items for his
personal consumption.
(1) Inclusion in his gross income? (2) If
inclusion, is a business expense deduction
available? (3) If given to charity (e.g., school’s
library) can a charitable deduction be claimed?
Deduction even if no earlier inclusion of FMV of
books in GI? Rev. Rul. 70-498, p. 65 (timing).9/29/2014 (c) William P. Streng 20
Health Insurance
p.66
Employers can deduct the cost of medical
insurance provided for employees. §162.
Benefits received by employees are excluded
from their gross income. §106.
This exclusion extends to medical insurance.
Self-employed can the deduct costs of medical
care, including health insurance. §162(l).
See the Tax Expenditure List (p. 17 & website)
re health care benefit exclusion costs, etc.
9/29/2014 (c) William P. Streng 21
Turner v. Commr.
Valuation issue p.67
Taxpayer wins steamship tickets to Argentina.
Tickets are nonrefundable and nontransferable.
But, tickets actually exchanged for other tickets.
What was the value for the tickets received?
The retail price of original tickets was $2,200.
But, the tax value was settled for $1,400.
What is the argument supporting a lesser
valuation? Tickets not an essential item to
them? Because tickets were non-transferable?9/29/2014 (c) William P. Streng 22
Other Inclusion/Valuation
Issues p.70
1) Winning the automobile: what GI inclusion
Amount (wholesale value? Retail value?)
2) Catching the record-setting baseball:
what inclusion if the baseball is returned by the
fan?
3) Treasure trove (including sunken ship
treasure – when realized, or when sold for cash,
or cash equivalent)? Reg. §1.61-14.
9/29/2014 (c) William P. Streng 23
Imputed Income
p.71
Consider the imputed rental value received
from occupying one’s own residence (and the
benefit from mortgage interest cost deduction).
Cf., what income tax result from investing an
equivalent amount in U.S. Treasury bonds?
Same ability to pay for each investment?
But, possible lower rents to the non-home owner
when living in a depreciable apt. building?
Cf., other personal investments: vacation
homes, yachts, paintings.9/29/2014 (c) William P. Streng 24
Imputed Income from
Services p.74
Imputed income is derived from one’s services
on a person’s own behalf. Is this GI?
Services for one’s self: lawyer prepares own last
will; individual paints one’s house; or,
tends one’s garden (& harvests vegetables and
flowers).
What about the services provided at home by the
“stay at home spouse”?
Allow a special deduction/credit where both
spouses work and incur additional costs?9/29/2014 (c) William P. Streng 25
Barter Transactions
Rev. Rul. 79-24 p.76
1) Swap of lawyer’s services for house
painting. Members of a “barter club.”
2) Receipt of a painting in exchange for free
rent for an apartment.
In each situation the exchanged items are
includible in gross income under §61, as valued
at FMV. Reg. §1.61-2(d)(1).
See §6045 re barter exchanges and required
information reporting (IRS Form 1099-B).
3) Free checking for a bank account? P.78.9/29/2014 (c) William P. Streng 26
Windfalls & Gifts
Punitive Damages p.78
Glenshaw Glass: Damages recovered for lost
profits plus punitive damages for violations of
anti-trust laws. Were the punitive/exemplary
damages includible in GI? Yes.
Windfalls are within the scope of §61.
Within “income from whatever source derived.”
“Undeniable accessions to wealth.” p.80.
Punishment factor is not relevant.
Cesarini (p.81): cash found in the piano as a
windfall and gross income. Reg. §1.61-14.9/29/2014 (c) William P. Streng 27
Defining the Concept of a
Gift (for income tax) p.82
§102 provides for a GI exclusion for “gifts.”
Even though an accession to wealth? Yes.
But, no deduction to donor for wealth transfers.
Issue: Was transfer a “gift” for FIT purposes?
Duberstein, p. 83: Received a Cadillac from a
business associate (Berman) who was thankful
for business tips. Berman deducted the car cost
as a business expense. Tax Court: GI inclusion.
Stanton case, p. 84: Dist. Ct. says gift. Cont.
9/29/2014 (c) William P. Streng 28
Duberstein, cont.
U.S. Sup. Ct. p.88
Gift must be made from “detached and
disinterested generosity.”
Deciding this case is to be based (p.88) on the
tribunal’s experience with the mainsprings of
human conduct to totality of facts of each case.
Lower Ct. decision by judge to be reversed when
“clearly erroneous” - FRCP 52(a).
Duberstein case (Tax Court) was not “clearly
erroneous” – based on a compensation event.
Stanton: remand for further proceedings. Cont.9/29/2014 (c) William P. Streng 29
Duberstein, cont.
U.S. Sup. Ct. p.88
Stanton, continued – was the trial court’s
determination too sparse? See FRCP Rule 52(a)
re finding of facts by the judge.
Frankfurter opinion – p. 89: apply a
presumptive rule putting the burden on the
taxpayer to prove the payment has no
relationship with employment. Therefore,
include Stanton’s payment in gross income?
See Douglas dissent – p. 89.
9/29/2014 (c) William P. Streng 30
Business Gift Tax
Analysis - Options
Dealing with Duberstein situations:
1) Analyze the facts in each situation.
2) Rebuttable presumption that not a gift, but
that income is derived in a business situation.
3) Non-rebuttable presumption that
compensation has been received. See §102(c).
But, see Prop. Reg. §1.102-1(f)(2). Valid reg.?
- See §274(b) re deduction limit on §102(a) gifts
in the business context. 9/29/2014 (c) William P. Streng 31
U.S. v. Harris Criminal
Convictions reversed p.91
Tax evasion criminal convictions for two sisters
receiving “gifts” from an older man.
Gift tax returns filed by the man, but only for
small amounts. How prove criminal intent by
the recipients on their failure to report “gifts”
as income for FIT purposes? What is her belief
re the purpose of this payment?
Court says donor’s letters should have been
permitted into evidence. Too much uncertainty
for a criminal conviction here? How establish
tax criminality?9/29/2014 (c) William P. Streng 32
Criminal Tax Evasion
p.98 §§7201 & 7203
Criminal tax conviction is for willful failure
either to pay tax or to file a return.
Must know that the amount constituted income
and no tax reporting occurred so as to enable a
criminal tax conviction.
Not required for civil tax liability.
What if two unmarrieds live together “in sin”
and one contributes funds to the other “to cover
household expenses”? Gross income (for FIT
purposes) to the other party?9/29/2014 (c) William P. Streng 33
Are “Tips” Gross Income?
P.100
Are “tips” includible in gross income – or are
these excludible “gifts”?
How enforce: information reporting - §6053 re
reporting of tips to the employer.
The scourge of income tax evasion on tips:
credit cards billings where the tip is added.
See Olk, p. 100 – tips to the craps dealer by the
winner to “appease the gambling gods.” GI?
What about significant receipts realized by the
local street beggar?9/29/2014 (c) William P. Streng 34
Prizes, Awards &
Fellowships p.100
§74 – inclusion of awards and prizes in GI.
What about winning the Nobel prize?
What about winning the Olympic gold medal?
See the §74(b) exception from income inclusion
– when deflection of the amount to charity.
See §117 re a limited exclusion from GI for
scholarships. For tuition and books, but not for
room and board. Not for payment for teaching.
What about amounts provided to “student
athletes”?9/29/2014 (c) William P. Streng 35
Bequests
p.101
§102(a) excludes from gross income receipts of
“real” gifts, bequests and inheritances.
What if a bequest is made to a neighbor
friend/attorney who has provided legal
assistance for a long time based on the
neighbor’s promise to make a sizeable bequest?
See Wolder case.
What if an amount is received by a disappointed
heir as a result of the settlement of a will
contest?9/29/2014 (c) William P. Streng 36
Welfare Payments &
Recipients p.101
A tax “common law” general welfare exception
is applicable to welfare payments and similar
government support.
Unemployment compensation benefits are
included in GI. §85. Why?
What about those welfare recipients who are
forced “from welfare to work”? Do they receive
taxable pay for work? If so, what about Social
Security taxes applying (where no floor before
tax commences; cf., income tax)? 9/29/2014 (c) William P. Streng 37
Social Security Benefits
p.102
The amount of gross income inclusion depends
upon taxpayer’s adjusted gross income amount.
E.g., joint return couples with AGI less than 32x
can exclude all payments received.
1/2 included when moving from 32x to 44x.
85% included when AGI is above 44x.
Why include so much? Is this just a return of
one’s prior investment in a Social Security
account? Or, is this something different?
9/29/2014 (c) William P. Streng 38
Gift Transfer of
Unrealized Gain p.103
What is “tax basis”? Consider purchase of an
item for10x & sale for 100x. Realized gain is
90x. See §61(a)(3) which includes in GI “gains
from dealing in property.” How define “gains”?
§1001 provides that gain is the excess of the
amount realized over the adjusted basis.
§1012 – tax basis is cost.
Cost basis exceptions: (1) §1015 provides for a
“transferred basis” for gifts; and, (2) §1014
provides basis step-up (down) to FMV at death.9/29/2014 (c) William P. Streng 39
Taft v. Bowers p.104
Is §1015 Constitutional?
A purchases shares for 1000x and holds until
FMV is 2,000x. A then gives shares (worth
2,000x) to B who sells shares for 5000x.
Is B’s realized gain (1) 3000x or (4) 4000x?
Held: 4000x gain is realized and is includible in
gross income – even though not all gain was
accrued while B was owner of the property sold.
The U.S. Constitution permits the transferred
value increase to be taxed to the transferee.
Why? Otherwise – what result?9/29/2014 (c) William P. Streng 40
Taxation Options When
Gain Property Transferred
Appreciated property transferred by gift:
1) Tax the accrued gain when the property is
transferred by gift to donee; a recognition event.
2) Transfer basis to the donee and subsequent
recognition of all accrued gain to the donee.
3) Tax basis step-up to FMV when the gift
transfer occurs – no gain recognition; accrued
gain disappears from the tax base.
9/29/2014 (c) William P. Streng 41
Taxation Options When
Loss Property Transferred
Assume that depreciated property is transferred
by gift. What is the treatment upon a
subsequent sale of the property by the donee?
How much loss deduction is available?
See Code §1015(a).
See problem 2 at p. 109 for three alternative
situations for determining gain/loss.
9/29/2014 (c) William P. Streng 42
Transfers of Appreciated
Property to Pay Debt
Variation on the Taft vs. Bowers situation (see p.
106): L (lawyer) provides legal service to C
(Client). Fee statement for 2,500x to C.
C transfers to L shares of stock with 1000x cost
basis to C when the shares are worth 2,500x.
Result? 1500x gain recognition to C from “sale.”
L has 2,500x compensation income.
L has tax basis (§1012) of 2,500x for stock.
Why?9/29/2014 (c) William P. Streng 43
Transfers of Appreciated
Property to Political Org.
Code §84 (p. 107) provides for gain recognition
to person who transfers appreciated property to
a political organization. Cf., transfer to charity.
Why gain recognition here? No inclusion in
transferee’s income – since tax-exempt org.
Therefore, if tax basis carryover occurs the
accrued gain would vanish from the tax base.
Under Code §84 the transferee has a cost basis.
Further, is this a “quid pro quo” situation?9/29/2014 (c) William P. Streng 44
Transfers at Death
§1014 p.108
§1014 provides that the tax basis of property
received from a decedent is the FMV of that
property as of time of decedent’s death (or as of
alternate valuation date - §2032).
Any accrued gain disappears from the tax base.
Is this a “tax expenditure” item? How much?
Does this produce a “lock-in” effect for the
appreciated property holding? But, possible to
borrow against the property? E.g., consider the
income tax effects of a “reverse mortgage”?9/29/2014 (c) William P. Streng 45
Alternative to §1014 Tax
Basis Step-up?
See §1022 – in effect for (only) year 2010 when
an estate had an option to elect out of estate tax
– in which event a modified carryover tax basis
applied. Subject to various exceptions, e.g.,
basis step-up of $1.3 million permitted.
What would be the prospects for accurately
reporting tax gain in the future, when realized
by a beneficiary who has a §1022 basis for
property received from a decedent?
9/29/2014 (c) William P. Streng 46
Income in Respect of a
Decedent p.109
What is “income in respect of a decedent”?
See §1014(c) and §691.
Example: Cash basis taxpayer’s estate does not
get an income tax basis step-up (under §1014)
for such items as “accounts receivable” held by
a decedent at death.
Note: a cash basis taxpayer would not actually
have “accounts receivable” - since on a cash
method and not an “accrual basis” taxpayer.
9/29/2014 (c) William P. Streng 47
Allocation of Tax Basis -
Sale of Only a Part p.111
How is tax basis to be allocated when only a
portion of a property interest is sold?
Example: Purchase of 100 shares for 100x; then
sell 40 shares for 80x (shares doubled in value).
Choices for gain determination: (1) Gain of
40x (each 2x FMV share has a 1x basis), or
(2) 80x basis recovery (no reported gain) and
20x basis (of 100x) still remains for the shares
held (having a 120x value and a 100x gain).
Reg.§1.61-6(a) - pro-rata allocation of tax basis.9/29/2014 (c) William P. Streng 48
Allocation of Tax Basis -
Sale of Only a Part, cont.
Consider when the parts of a property are not
fungible. Determine the value of each piece for
allocating tax basis?
Reg.§1.61-6(a) - pro-rata allocation of basis
when a sale of some of land but not all of the
land? E.g., 40 acres of 100 acres is sold?
Or, consider where some lots in a subdivision
are sold but not other lots – are all these lots (if
of equal size) of equal value?
9/29/2014 (c) William P. Streng 49
Division of Horizontal
Interests in Real Property
Consider the possible allocation of real property
purchase price between these components:
1) Land & shrubbery/landscaping
2) Building/improvements
3) Subsurface (e.g., mineral) rights
4) Air rights
5) Environmental rights
6) Easement/other rights?
9/29/2014 (c) William P. Streng 50
Recovery of Capital
Inaja Land case p.111
Consideration received for an easement (for
fishing rights) in water adjacent to owned land.
Amount received was less that the total basis for
the land. How allocate this amount received?
Exclude the entire amount and reduce tax basis
by those proceeds received? Yes, here.
Note reference to Burnet v. Logan (p. 249) re
“open transaction” treatment – basis recovery
to occur first. See, also Reg. §1.1001-1(a).
9/29/2014 (c) William P. Streng 51
Life Insurance
p.113
What is “life insurance”? A payment for dying –
ordinarily paid in a lump sum. Why not call this
arrangement “death insurance,” rather than
“life insurance”?
Code §101(a) excludes from gross income
amounts received under a life insurance
contract if paid upon the death of the insured.
Cf., income tax treatment of a “mutual fund”
investment and the return on this investment
(no actuarial factor is involved).9/29/2014 (c) William P. Streng 52
Life Insurance – Policy
Types p.114
1) Term insurance – payment only for actuarial
risk. Small investment return during coverage
period. No value at the expiration of the term.
2) Whole life – often level payments and
the early year payments exceed actuarial risk
cost. The savings element produces investment
return which is used to reduce insurance cost
(but this return is not included in GI).
3) Other types – single-premium life; universal
life; endowment.9/29/2014 (c) William P. Streng 53
Life Insurance & Income
Tax Questions, p.116
Gross income exclusion is available for both:
1) Pre-death interest build-up, and
2) Mortality gain (or loss), if realized at death.
But, “transfer for consideration” limitations
may apply to limit exclusion at death (p. 117) –
Code §101(a)(2); see exceptions for:
(1) transfers with a transferred basis, or
(2) transfers to partners, partnership or a
corporation (but not to other shareholders). 9/29/2014 (c) William P. Streng 54
Life Insurance Taxation
Pre-death p.116
1) No tax deduction for certain premiums paid
- §264(a)(1). Or, for interest, §264(a)(3); any
exception to this treatment – see §264(d)(1)?
2) No current inclusion of policy earnings.
3) Policy loans to owner of policy are not treated
as distributions - §72(e)(5)(A) & (C).
4) Life insurance policy - if terminated before
death - gain derived (if any) is subject to GI
inclusion (but, no GI inclusion for the benefit of
insurance coverage during policy’s existence).9/29/2014 (c) William P. Streng 55
Life Insurance Taxation
Post-death Payout p.117
1) Gross income exclusion is not applicable to
interest accrued on policy proceeds invested
after death. §101(c) & (d).
2) Various settlement options are available –
- All cash proceeds after death.
- Deferred settlement arrangements, e.g.,
annuity or installment payments
3) Cf., what is a “viatical settlement”? See
§101(g). P.117.9/29/2014 (c) William P. Streng 56
Annuities (& Pensions)
p.117
What is an “annuity” (contract)? Payments are
made periodically – for a life (lives) or a term.
How is an annuity purchased? Annuity can be
purchased for (1) a lump sum, or (2) with
periodic payments (including under a
“qualified” retirement plan – with zero tax basis
then since plan contributions are deductible).
From whom is the annuity contract purchased?
(cf., a possible “private annuity” - a deal with a
non-commercial issuer of the annuity).9/29/2014 (c) William P. Streng 57
Annuity Payouts
p.117
Types of annuity contract payout arrangements
(other than a lump sum payment only annuity):
1) Fixed payments – an agreed sum (for a term)
or at intervals (for a life, i.e., actuarial factor).
2) Variable payments – based on results from
equity security investments through an annuity.
3) Joint and survivorship payment – until the
death of the survivor of multiple annuitants.
Usually results in a longer payout period since
based on two life expectancies (lesser amounts).9/29/2014 (c) William P. Streng 58
Annuity Income Taxation
– Options p.117
What tax policy choices exist for determining
the timing of gross income inclusion?
1) As value/interest accrues to the contract.
Cf., amounts credited to a bank savings account
or a money market mutual fund – current
inclusion; otherwise, a “tax shelter” through
deferral.
2) As payments are made either (a) before, or
(b) after annuity contract payments commence
(see next slide).9/29/2014 (c) William P. Streng 59
Annuity Income Inclusion
Options p.117
1) Recovery of the entire tax basis first.
2) All income first – as reserved by the insurer.
3) A specified percentage of each payment as the
includible interest equivalent income amount.
4) Current method – a specified percentage of
each payment is included, based on the expected
total return from the contract (see next slide).
5) Apply a constant interest rate, similar to
mortgage amortization (but how deal with the
life expectancy factor?). See p. 118, fn. 19.9/29/2014 (c) William P. Streng 60
Annuity Income Current
Inclusion Method - §72(b)
1) Determine the total income tax basis.
2) Determine the expected return, i.e., (a) the
payment amount times (b) the anticipated
number of payments (how determine this?).
3) Ratio as determined is applied to each
payment when received. The formula is:
a) Total tax basis/expected payments times
b) Each payment equals
c) Amount excluded from gross income for each
payment.9/29/2014 (c) William P. Streng 61
Annuity Income –
Variations
1) Borrowing before the annuity payments
commence – income inclusion. §72(e)(4)(A).
2) After annuity payments commence –
- Living too long - §72(b)(2) – no exclusion after
basis fully recovered.
- Dying too soon (i.e., not full recovery of cost
basis) - §72(b)(3) – deduction for the
unrecovered tax basis (final individual return).
9/29/2014 (c) William P. Streng 62
Annuity Income – “Refund
Feature” Considered
What is the impact of a “refund feature” in
determining the annuitant’s “investment in the
contract?
What is the purpose of a “refund feature”? Is
this a life insurance equivalent?
See Code §72(c)(2) concerning the impact of the
refund feature on (a) the “investment in the
contract,” and (b) the annuity income
inclusion/exclusion fraction under §72(b).
9/29/2014 (c) William P. Streng 63
Gambling Gains/Losses
p.120
Gambler collects gambling winnings – any tax
basis offset in measuring gross income? Cost
basis for the price of other (losing) gambling
tickets & capital recovery?
How prove gambling losses? Gambling tickets?
Gambling losses can only offset gambling
winnings. §165(d) – a separate “basket” for
gambling winnings and losses.
Are net (excess) losses not deductible because a
personal expense (entertainment)? Morality?9/29/2014 (c) William P. Streng 64
Gambling Winnings
Enforcement p.122
1) Withholding at source (including state
lotteries)? Yes, for large ($5000+) winnings.
§3402(q) – withholding at 31% rate (on gross
proceeds) when $5,000 or greater. Made
“permanent” in 2013 Act, at “third lowest §1(c)
rate.” Previously, a 2012 “sunset” was to occur.
2) Information return to IRS – for winnings of
$600 or more. §6041(a) & IRS Form W-2G.
3) Self-assessment – signing one’s tax return
“under penalties of perjury.”9/29/2014 (c) William P. Streng 65
Loss/Capital Recovery
Clark case p.122
What tax characterization when a recovery of a
prior (non tax-deducted) loss occurs?
Clark case facts: Tax return preparer makes a
mistake in preparing joint tax return rather
than separate returns – costing taxpayers 19x
extra taxes. Tax preparer reimburses taxpayer
clients for the 19x amount. No refund claim is
possible since the statute of limitations has run.
Held: No GI inclusion - after-tax (not taxable)
reimbursement received. Tax basis recovered?9/29/2014 (c) William P. Streng 66
Loss Recovery
Clark case, etc. , cont.
Is this similar to Old Colony case (or not)?
Or, is this really paying someone else’s taxes?
What is the treatment of an income tax refund
when one’s income tax has been overpaid?
Is this tax basis recovery?
E.g., after excess wage withholding by employer
– not gross income upon receipt of the refund of
excess wage withholding.
Cf., refund of (deductible) state taxes (although
refunds at state level are difficult to obtain).9/29/2014 (c) William P. Streng 67
Annual Accounting
p.127
More than merely timing questions?
Burnet v. Sanford & Brooks Co., p.127
Cash basis taxpayer. Expenses exceeded income
by 176x in various years; large “income” later.
Issue: Offset earlier year losses against current
year gross income in determining current year
income? Answer: no; each year stands on own.
P. 128: Does the 16th Amendment require
“transactional accounting” (i.e., tax on net
income combining all related transactions)?9/29/2014 (c) William P. Streng 68
Burnet v. Sanford &
Brooks, cont.
Should the court have looked to prior years for
“characterization” of the transaction to avoid
the result in this case, i.e., to recognize some
type of capital investment in the project?
Should the court have mandated filing amended
returns (per Court of Appeals)?
Did the court have an obligation to fix the
problem presented here (tax common law?) – or
is this exclusively within the prerogative of the
U.S. Congress? What “separation of powers”?9/29/2014 (c) William P. Streng 69
Loss Carryovers
p.130
Net operating loss (NOL) deduction enables
averaging of business income (& losses) over
multiple years, i.e., two years back and 20 years
forward. §172. Not filing amended returns.
For individuals those are only business losses,
i.e., not investment losses, personal deductions
in excess of income, etc. §172(d)(4).
Capital losses are limited - §172(d)(2).
Separate treatment applies for the carryforward
of capital losses (no carryback). §1212. 9/29/2014 (c) William P. Streng 70
Accounting for Long-Term
Contracts p.131
Situation: “Long term contract” for the
construction or manufacture of property – for
tax a person must account for the profit under a
“percentage of completion” method, i.e., accrue
profit as progress is made towards finalizing the
project. See §460 mandating the % of
completion method for LT contracts (and not
the “completed contract” method).
Applicable to: (1) large construction projects;
(2) space vehicle projects; (3) others?9/29/2014 (c) William P. Streng 71
Capital expenditures
p.131
Consider the purchase of an item having a
useful life more than the current year: auto,
truck, airplane, building, oil well.
Should that cost be immediately deductible or is
a long-lived asset being created?
If income and cost is to be matched that
purchase cost must be “capitalized”, i.e., tax
basis is created, with that basis recovered over
the anticipated useful life of the asset.
This facilitates a “matching” principle.9/29/2014 (c) William P. Streng 72
Claim of Right Doctrine
p.132
North American Oil Consolidated case
1) In 1917 taxpayer receives earnings (from
1916) under a “claim of right.”
2) Therefore, 1916 earnings are to be included
in taxpayer’s GI for 1917. Taxpayer says 1916.
3) GI inclusion was not delayed until 1922 when
litigation over amount was finally terminated.
4) If a taxpayer makes refund in 1922 the
taxpayer would be entitled to deduction in 1922.
Why such an issue over timing for GI inclusion?
Cont.9/29/2014 (c) William P. Streng 73
Claim of Right Doctrine,
continued
North American Oil Consolidated case
What is the tax status of the (intermediary)
receiver?
Is the receiver a taxpayer? Or, is the income the
receiver receives merely “suspended from tax”
until later distributed to the person determined
to be the owner?
What is the federal income tax status of an
“escrow agent”?
9/29/2014 (c) William P. Streng 74
Proper Taxable Year?
p.135
§446(a) – taxpayer shall compute taxable
income under method of accounting on which
taxpayer “regularly computes his income in
keeping his books.”
§446(b) – exception where the taxpayer’s
method “does not clearly reflect income.”
Methods of accounting: (1) cash method & (2)
accrual method.
Cf., what is the purpose of “accrual
accounting”?9/29/2014 (c) William P. Streng 75
U.S. v. Lewis
Cash method p.136
Taxpayer in 1944 reported receipt of a 22x
bonus. State court judgment required
repayment (in 1946) of 11x portion of bonus.
Deduct 11x on 1946 return (IRS position); or,
recompute for 1944 (per Court of Claims)
because excess received under a mistake in fact?
Note: “Each tax year stands on its own.”
But, subject to amending returns to correct
facts which were existent for the particular year
(as of the end of the tax year). 9/29/2014 (c) William P. Streng 76
“Claim of right” doctrine
& §1341 Relief p.137
What if tax rate in the earlier year was higher?
Assume a later year restoration of an amount
received earlier under a “claim of right.”
§1341 permits a reduction of income tax liability
in the year of repayment by amount of excess
tax repaid on that income when 1st included.
Must have earlier received the income under a
“claim of right.” Cf., restoration of
embezzlement income received. Voluntary
payments are not eligible for this treatment. 9/29/2014 (c) William P. Streng 77
Tax Benefit Rule
p.139
Taxpayer claims a tax deduction in 1st year and
then receives a recovery for the deducted item
in a later year.
E.g., deduction for bad debt, taxes paid or losses
and then a recovery of the deducted item.
Inclusion in gross income in the later year? Yes.
This effectively produces transactional
accounting (rather than annual accounting) for
this particular item.
9/29/2014 (c) William P. Streng 78
Assume No Actual Tax
Benefit Earlier p.139
Deduction available in earlier year; but, no tax
benefit realized in the earlier year; then later,
when reversal of the earlier transaction, no
gross income inclusion required since no tax
benefit realized earlier.
See §111 – an exclusionary provision – recovery
of a loss deductible in the earlier year is
excluded from gross income to the extent the
earlier deduction produced no income tax
benefit in that earlier year. Next slide
9/29/2014 (c) William P. Streng 79
Tax Benefit Rule -
Code §111 p.139
Function of Code § 111 (the “tax benefit” rule):
Preclude current tax when restoration occurs in
the subsequent year – if the item when available
as a deduction in the earlier year did not
actually reduce the taxpayer’s income tax
liability.
Actually a “non-tax-benefit rule” for restoration
of item from prior year when no tax value in the
prior deduction?
No protection against adverse tax rate changes.9/29/2014 (c) William P. Streng 80
Tax Benefit Rule & GI
Inclusion p.140
Example: Alice Phelan Sullivan case, p.140:
1) Property was transferred to charity.
2) Charitable deduction was claimed for federal
income tax purposes.
3) Property was returned to the donor.
4) Inclusion in the donor’s gross income?
Yes – to the extent of the lesser of (a) the earlier
deduction or (b) the fair market value of the
property. What if property is significantly
appreciated when recovered?9/29/2014 (c) William P. Streng 81
“Inconsistent Events”
Rule p.140
Hillsboro and Bliss Dairy cases:
1) Repayment to bank shareholders of taxes on
shareholders previously paid by the bank
corporation. No recognition required of the
banks when refunds were made to shareholders.
2) Distribution of previously expensed assets
(cattle feed) in a corporate liquidation.
Recovery was required to the corporation on the
distribution.
Dissent: file amended returns (if S/L not run).9/29/2014 (c) William P. Streng 82
Damage Recoveries
Summarized - p.142
1) Recovery of lost profits – ordinary income
when received; Sanford & Brooks, p.127.
2) Punitive damages – includible in ordinary
income (as a windfall or “accession to wealth”).
Glenshaw Glass, p. 78.
3) Recovery for destroyed property – inclusion
in gross income as a property sale; gain for the
proceeds in excess of the tax basis; but, possible
gain postponement through reinvestment of
proceeds in similar property. See §1033.9/29/2014 (c) William P. Streng 83
Damage Recoveries, cont.
p.143 §104(a)(2)
Personal injury damages – exclusion of damages
from GI if a personal physical injury. §104.
What about a “tax basis recovery”?
What about emotional distress damages?
This personal injury GI exclusion does not
encompass libel and discrimination awards.
No exclusion for punitive damages (even if
received in personal injury context). §104(a)(2).
No exclusion for lost profits/lost compensation
reimbursements.9/29/2014 (c) William P. Streng 84
Deferred Payments and
Structured Settlements
P.144. See §104(a)(2) re exclusion for personal
injury damages - whether received as a lump
sum or in “periodic payments.”
What is a “structured settlement” in this
context - where an intermediary agrees to
provide periodic settlement payments?
What about interest income from the deferral?
Result: Tortfeasor deduction: yes, immediately
with structured settlement; even though any GI
inclusion (?) for plaintiff is delayed until receipt.9/29/2014 (c) William P. Streng 85
Medical Expense
Recoveries p.145
Earlier: No inclusion for employer provided
medical insurance coverage. §106.
Recoveries under a medical insurance policy are
excluded from GI (even when recoveries exceed
the cost of medical care). See §104(a)(3).
Workers’ compensation payments are excluded
from gross income. §104(a)(1).
Taxpayer’s disability insurance benefits
excluded from GI under §104(a)(3).
9/29/2014 (c) William P. Streng 86
Loan Proceeds as
Producing GI? p.145
§61(a)(12) provides for inclusion of “income
from discharge of indebtedness.”
P. 146 - Loan proceeds are not includible in
gross income (because of an offsetting liability
that produces no net accession to wealth).
Loan repayments are not deductible (similarly,
no accession to wealth occurs). P.146.
Rules are applicable to “nonrecourse” loans.
See examples re borrowings (p. 146) – e.g., tax
loan proceeds received in excess of tax basis?9/29/2014 (c) William P. Streng 87
Discharge of
Indebtedness p.147
Example:
(1) Borrow 50x for a three year term at 8% per
year from a bank.
(2) Market interest rates increase (e.g., to 10%)
and the fair market value of this loan/note
declines (e.g. to 45x). Why does this happen?
(3) Borrower then pays off this loan at the bank
which accepts a 45x agreed settlement. Why does
the bank agree to this settlement?
(4) GI inclusion to borrower when settlement?9/29/2014 (c) William P. Streng 88
Kirby Lumber Co.
Bond Buy-back p.147
Company issues its own bonds and later buys
back some bonds for $.862 per face $1.00 par.
Is the gain taxable to the borrower company?
Excess of the issue price received over the
purchase price is realized gain.
An increase in the corporation’s net worth has
resulted from this debt reduction.
How is the issuer able to buy bonds at less than
their par value (or their original issue price)?
Accession to wealth here and GI is realized.9/29/2014 (c) William P. Streng 89
Code §108 - Possible COD
Income Relief p.149
§108 provides various relief from this rule for
insolvent debtors (and others), but not all.
§108(e)(5) provides that the reduction in debt
for a purchase price is a reduction in purchase
price, and not COD income to the purchaser.
§108(f)(2) – COD income relief on cancellation
of a student loan – under limited circumstances.
§108(h) provides relief from COD income when
mortgage lender forecloses on taxpayer’s
residence. But, reduce tax basis for residence.9/29/2014 (c) William P. Streng 90
Zarin v. Commr.
P.150
Discharge of gambling indebtedness occurs.
Taxpayer delivered his personal checks for
$3.435 million and the checks were invalid.
State court collection action was filed.
Settled this action for $500,000 and IRS then
asserts $2.9 million COD income to taxpayer.
Not a purchase money debt reduction (?).
Tax Court: Inclusion of 2.9 mil. as COD income.
Tannenwald dissent: not genuine debt. Cont.9/29/2014 (c) William P. Streng 91
Zarin v. Commr.
Appeal P.150
3rd Cir. reverses Tax Court and treats the
cancelled debt as a “disputed debt” or a
“contested liability.” Treated as if the initial
loan was actually made for the eventual
settlement amount. Treatment of the 2.9 mil.?
Was this debt enforceable? See state law.
3rd Cir. dissent: COD income and this was a
bona fide debt situation. Assets of the taxpayer
were “freed from liability.”
9/29/2014 (c) William P. Streng 92
Diedrich v. Commr.
Net Gift p.159
Gift of property is made subject to an obligation
assumed by the donee to pay gift tax arising
from the transfer. Is this a satisfaction of the
taxpayer’s (gift tax) liability by a 3rd party?
Does the donor have income (12x capital gain) to
the extent (1) gift tax amount (63x) exceeds (2)
the donor’s tax basis (51x) for the transferred
property? A discharge of the donor’s gift tax
obligation has occurred in the parties’ “deal.”
Cf., §1011(b) in charitable bargain sale context.
9/29/2014 (c) William P. Streng 93
Example re “Net Gift”
Transaction
Gift transfer of stock: Basis is 10x; fmv is 100x.
Condition that donee pay 25x gift tax liability.
Does gain of 15x arise (25x tax less 10x basis)?
Is the donee’s tax basis for the acquired
property then 25x? See Reg. §1.1015-4.
Or, is a sale made of 1/4th of the property?
(25/100); tax basis of 2.5x or 1/4th of 10x basis
for the 25x proceeds deemed received, and,
therefore, gain to donor of 22.5x (25x less 2.5x)?
Cf., bargain sale to charity rule of §1011(b). 9/29/2014 (c) William P. Streng 94
Transfer of Property with
Debt p.163
Alternative types of debt arrangements:
1) Recourse – personal liability for the debt by
the borrower (to the extent of all the assets of
the borrower).
2) Nonrecourse – the debt is secured only by
the pledged asset (and its income stream) but no
personal liability of the property owner exists.
Why might a lender agree to this type of
lending arrangement?
9/29/2014 (c) William P. Streng 95
Crane v. Commr.
Debt in Tax Basis? P.165
Crane case: recourse and nonrecourse debt is
to be treated similarly for federal tax purposes.
Here, claimed debt was (1) in the original tax
basis (and tax depreciation) computation, but
(2) not treated as an amount realized upon the
“debt relief” occurring when the sale occurred.
Property inherited when fmv was 262x & the
nonrecourse debt was 262x. She then claimed
25x depreciation. Later she received 2x cash on
the property disposition. Gain of 2x or 24x?
Does the tax basis include nonrecourse debt?9/29/2014 (c) Willia.m P. Streng 96
Debt and Property
Purchases
What is the effect of debt on the income tax
basis of an acquired property?
Answer: Acquisition debt is to be included in
the buyer’s tax basis for an acquired property.
This can include “seller financed” debt.
Further, property can be acquired with “debt
attached” (reducing net value of the property).
Cf., post-acquisition debt (e.g., borrowing with
existing property as collateral for the debt).
9/29/2014 (c) William P. Streng 97
Estate of Franklin
p.172 (pre-Tufts)
Is the purchase money debt includible in basis?
Facts: Purchase of a motel for only prepaid
interest and a nonrecourse debt (with a balloon
payment). Warranty deed held in escrow.
Leaseback to sellers & the lease payment from
sellers is equal to the P&I amount on the debt.
Value of the property not shown, but
presumably far less than the promissory note.
Held: No real investment in the property and no
depreciation & no interest expense deduction.9/29/2014 (c) William P. Streng 98
Pleasant Summit Land
p.172 (post Tufts)
Different approach than the Franklin case.
Depreciation deduction was allowed – but only
to the extent that the nonrecourse debt did not
exceed the FMV of the property. That amount
was effectively recognized as the tax basis on the
property acquisition.
Consider the tax basis to Bayse (Tufts case,
next) – the purchaser in the Tufts case. Is his
tax basis limited as in (1) the Franklin case, or
(2) the Pleasant Summit case?9/29/2014 (c) William P. Streng 99
Tufts case
p.173
Facts: Property purchased for $1.85 million
nonrecourse debt. Initial tax basis of $1.85
million. $400,000 tax depreciation was claimed.
Tax basis was reduced to $1.45 million (§1016).
FMV of property at disposition was $1.4 mil.
The $1.850 debt exceeds both (1) the tax basis &
(2) the FMV of the property at disposition.
Tax issues: Gain or other income? Loss? Tax
character? How much? COD income?
9/29/2014 (c) William P. Streng 100
Tufts choices for decision:
One or Two Transactions?
Integrated Transaction
1.850 debt
Less: 1.450 basis
Equals: 400 gain
(capital gain?)
Two Transactions
1) 1.850 debt relief
Less: 1.400 value
= 450 COD income
2) 1.450 basis
Less: 1.400 value
= 50 capital loss
(property sale)
9/29/2014 (c) William P. Streng 101
Treasury Regulations &
Nonrecourse Debt
Reg. §1.1001-2(a)(1) – the amount realized
include the amount of liabilities from which the
transferor is “discharged.”
Reg. §1.1001-2(a)(4)(i) – the sale of property
that secures a nonrecourse liability “discharges”
the transferor from the (nonrecourse) liability.
Reg. §1.1001-2(b) – the fair market value of the
security is not relevant for determining the
amount of liabilities being discharged.
9/29/2014 (c) William P. Streng 102
Rev. Rul. 90-16
p.181
Assume: Acquisition of property with recourse
liability (i.e., borrower’s personal liability).
Subsequently, property is transferred to lender
and borrower is released from personal liability.
Debt balance 45x
Property FMV 30x (15x COD income?)
Tax basis 10 (& 20x property gain?)
Foreclosure proceeding: same income tax result
Cf., nonrecourse debt – 35x property gain.9/29/2014 (c) William P. Streng 103
“Illegal” Income
P. 181
Inclusion in taxpayer’s gross income?
- Proceeds of a bank robbery
- Proceeds from illegal activity, e.g., sales of
illegal drugs, or operating an illegal gambling
operation.
These items constitute an “accession to wealth”
– even though subject to retrieval by authorities
through criminal proceedings.
9/29/2014 (c) William P. Streng 104
Embezzlement Income
Gilbert case p.181
Consensual recognition of an obligation to repay
existed even though absence of a loan
agreement. Gilbert, as President of Bruce,
acquired stock on margin, got overextended,
“borrowed” money from company, but the
transactions were not accepted by Directors.
Did the unauthorized withdrawal of funds
produce gross income? Or, a borrowing?
Held: consensual recognition of the debt and no
embezzlement occurred (and no GI). Correct? 9/29/2014 (c) William P. Streng 105
James case
p.185
Embezzled funds do constitute gross income
(overruling prior Wilcox decision).
Assume that no intent to repay existed at the
time of the embezzlement (& therefore, an
accession to wealth)?
Note: the Bernie Madoff embezzled funds
(through a “Ponzi” scheme).
9/29/2014 (c) William P. Streng 106
Illegal Income - Collateral
Issues
Who has the priority for the funds (if still held
by embezzler): (1) the embezzled party, or (2)
the IRS (for the income tax on the embezzled
funds as gross income)?
What is the tax treatment of the proceeds
received from a bribery?
Appropriate to use criminal tax proceedings to
pursue “organized crime”?
9/29/2014 (c) William P. Streng 107
State & Local Bond
Interest p.186
IRC §103 provides a gross income exclusion for
interest paid on state and local bonds. Why?
Tax-exempt bonds normally pay a lesser
amount of interest than taxable bonds.
But, is the benefits transfer system inefficient?
Is this an indirect form of “revenue sharing”?
Would income taxation of muni-bond interest
by US Government be constitutional? Would it
impair the rights of the states (and local
governments)? Consider the Tenth Amendment.9/29/2014 (c) William P. Streng 108
State & Local Bond
Interest p.188
See the limits on tax-exempt bond issuances:
1) Private activity bonds §§141(e) & 142;
- Cf., school bonds
2) Registration requirement; cf., bearer bonds.
3) Arbitrage bonds - §148; what is the
objective of an arbitrage transaction?
Should this latter provision be eliminated as an
alternative to providing “revenue sharing” by
the U.S. Government?
9/29/2014 (c) William P. Streng 109
Tax Arbitrage by
Taxpayers
See § 265(a)(2) – no deduction of the interest
expense incurred on borrowed funds used to
purchase/carry tax-exempt obligations.
How prove the connection between (1) the
borrowing and (2) the acquisition of tax-exempt
obligations?
9/29/2014 (c) William P. Streng 110
Residence Sale Gain
§121 vs. prior §1034 p.191
§121 provides for an exclusion from GI of gain
realized on the sale of a principal residence.
Requirements: principal residence; used for
two of the last five years; limit to $250,000 gain,
unless married; then a $500,000 exclusion.
Exclusion available only once every two years.
Exception enabling a shortened period for the
sales gain exclusion when necessitated by a
change in employment or for health reasons.
What income tax planning opportunities here? 9/29/2014 (c) William P. Streng 111
Special Tax Rate for
Dividends p.193
§61(a)(7) specifies inclusion of dividends in GI.
But, 20% tax rate, since classified as equivalent
to LTCG. §1(h)(11)(A). Cf., 39.6% ordinary
income tax rate (plus 3.8% ACA tax).
Does this provision tilt the income tax burden to
workers and away from investors (i.e., capital)?
Is the objective of this provision to reduce the
perceived double tax impact of corporate -
shareholder income taxation? Cf. conduit
system for partnerships & E.U. corporations.9/29/2014 (c) William P. Streng 112