Federal Income Tax Outline – Page 2 – Gifts and Inheritances

Exclusions of Gifts and Inheritances – 102

102(a) – Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance

Employee Gifts – 102(c), 274(b)

Generally all “gifts” from employer to employee must be counted as gross income

Exceptions:

  • “Extraordinary transfers to the natural objects of an employer’s bounty…if the employee can show that the transfer was not made in recognition of the employee’s employment.”
  • Certain traditional retirement gifts (Section 132(e))
  • Certain employee achievement awards (Section 74(c))

Cases:

Commissioner v. Duberstein (1960)

Duberstein was given a Cadillac by the president of another company after Duberstein provided him with names of potential customers; this qualified as a gift

Lyeth v. Hoey (1938)

The beneficiary challenged the will and received money after a settlement; this money is not gross income because he received it based on his status as a beneficiary

Wolder v. Commissioner (1974)

Wolder’s client bequeathed stock to him in return for providing legal services; “A transfer in the form of a bequest was the method that the parties chose to compensate Mr. Wolder for his legal services, and that transfer is therefore subject to taxation”

 

Employee Benefits – 132, 119

132(a)(1)&(2) – Certain Fringe Benefits
Nondiscrimination rule 132(j)(1) – may be made available tax-free to officers, owners, or highly compensated employees only if the benefits are also provided on substantially equal terms to other employees

  • If a classification of fringes is discriminatory, highly compensated employees have gross income, but the exclusion still applies to those employees who receive the benefit and are not highly compensated

 

132(c) – Qualified employee discount

  • Property: Gross Profit Percentage: Aggregate sales price/Aggregate cost
  • Services: An employee discount is not taxed as long as it is less than 20% or

Review beginning of Chapter 4 for summary of 132(a) fringe benefits

 

119 – Meals or lodging furnished for the convenience of the employer

Section 119 grants an exclusion from gross income of lodging furnished to an employee if three conditions are met:

  1. The lodging is on the business premises of the employer
  2. The employee is “required to accept such lodging as a condition of his employment
  3. The lodging is furnished for the convenience of the employer
  • 119 does not recognize sole proprietorship
  • 119 does recognize a partnership

 

Cases:

Herbert G. Hatt

President of a funeral home and lived there; the funeral business requires someone to be in attendance 24 hours a day, the business phone also rang in his apartment; excludable from GI

 

Prizes and Awards – 74

Exception:

Section 74(c) – an award may qualify if it relates to length of service or to safety – must be at least 4 years

  • Must be in the form of tangible personal, be awarded as part of a meaningful ceremony, and not be mere disguised compensation

Case:

Allen McDonell –sales manager went with his wife on a trip to Hawaii; he was a chaperone and the business sent him; not gross income

Federal Tax Outline – Page 1

Federal Tax Outline – Page 3
This Federal Tax Outline is keyed to Fundamentals of Federal Income Taxation, 15 edition, Foundation Press.

 


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