Federal Income Tax Outline – Page 1 Gross Income

Chapter 1

Power to Tax

Article 1, Section 8, Clause 1

Very extensive power with two constitutional limitations:

  1. Direct taxes must be imposed by the rule of apportionment among the several states in accordance with their respective populations
  2. Indirect taxes by the rule of uniformity – geographic

16th Amendment

–        “from whatever source derived”


Tax Court – no jury

District Court of Appeals – jury or non-jury; must pay a fee

–        You can start in either court. Consider precedent/jury/fee


Statute of Limitations

  • 3 years is normal
  • 6 years if you omit 25% of your gross income
  • Infinity if fraud or no file


Gross Income

Section 61

Gross income includes 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

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.”



Cesarini v. United States

Money found in an used piano; section 61 is broad, all-inclusive; treasure trove is included in GI to the extent of its value in US currency*

Old Colony Trust Co. v. Commissioner

Corporation agreed to pay income tax of directors; the taxes were paid based on the employees services to the employer

Commissioner v. Glenshaw Glass Co.

Exemplary/punitive damages are included in GI; compensatory damages are not GI because they return the individual to his original place

Charley v. Commissioner

Travel credits converted to cash; the taxpayer was wealthier from the sale of the travel credits = GI

*Fair market value: willing buyer, willing seller, neither of whom is under unusual compulsion


Gross Income (GI)

– (Deductions Toward AGI)

= Adjusted Gross Income (AGI)

– (Deductions From AGI)

= Taxable Income



Amount Realized

– (Adjusted Basis)

= Gain Realized

Gain Recognized*

*Gain recognized is the full amount of Gain Realized unless some other Code section states that it is not recognized.


Income is taxable from both legal and illegal sources – “The wages of sin are not exempt from taxation.”

In order to have an Amount Realized: Must have a sale or an exchange


Federal Tax Outline – Page 2


This Federal Tax Outline is keyed to Fundamentals of Federal Income Taxation, 15 edition, Foundation Press.


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