Federal Income Tax Outline – Page 3 Property Gains, Life Insurance

Gain from Dealings in Property – Chapter 6


1001 – Amount Realized

1012 – Basis = cost (most basic)

1014 – Estate tax basis (decedent)

1015 – Gift tax basis

1041 – Transfers of property between spouses


Philadelphia Park Amusement Co. v. United States

Cost basis is the fair market value of the property received; if we cannot determine with reasonable certainty the value for the property, it is fair to   assume the properties are equal in an arms-length transaction

Taft v. Bowers

Donee assumes the donor’s basis in property acquired by gift (1015)

Crane v. Commissioner

1041; husband and wife same entity

Commissioner v. Tufts

Nonrecourse mortgage treated the same as a true loan


Life Insurance Proceeds and Annuities – Chapter 7


Life Insurance Proceeds – Section 101

101(d): Instead of taking proceeds, you leave it with the insurance company who makes payments to you with interest.

  • Must understand the difference between insurance proceeds and annuities in how these are taxed

101(g): Terminally or chronically ill do not pay tax on proceeds from insurance policies

  • However, there are limitations for chronically ill; there are none for terminally


Annuities – 72

72(b): Exclusion Ratio = Investment Contract/Total Expected Return

–        The exclusion rate is EXCLUDED from gross income

–        The remaining is INCLUDED in gross income

Page 159 for example


Discharge of Indebtedness – Chapter 8


61(a)(12) – Discharge of Indebtedness (Included in Gross Income)

108 – Can exclude or defer

108(b) – not a total freebie, just a deferral

Debt discharge amount: The amount of discharged debt which is excluded from gross income by virtue of the bill’s provision is to be applied to reduce certain tax attributes.

The debt discharge amount is applied to reduce the taxpayer’s tax attributes in the following order:

  1. Net operating losses and carryovers;
  2. Carryovers of the [general business credit]
  3. The Section 53 alternative minimum tax credit
  4. Capital losses and carryovers;
  5. The basis of the taxpayer’s assets (both depreciable and nondepreciable);
  6. Carryovers of passive activity losses or credits;
  7. Carryovers of the foreign tax credit

A business loss can be put back 2 years or forward 20 years

Debt discharge outside of bankruptcy

  • The amount of debt discharge is excluded from gross income up to the amount by which the taxpayer is insolvent


Damages and Related Receipts – Chapter 9

Sections 104 – 106

Punitive damages are taxable ALL the time

All exclusions under 104 and 105(b) are restricted by an “except” clause:

  • Except in the case of amounts attributable to (and not in excess of) deductions allowed under Section 213 (relating to medical, etc., expenses) for any prior taxable year
  • Example:
    • Year 1 – took $500 deduction for medical expenses
    • Year 2 – got reimbursed $500 by employer (must count as Gross income)

If a reimbursement is made in the same year the expense is incurred, the exclusion applies. This is because there has been no deduction with respect to that amount in any “prior taxable year.”


Goodwill is an asset that is includable in income

  • If the plaintiff generates goodwill, his basis is 0
  • You can purchase goodwill and the basis would be the amount allocated to goodwill at the time of the purchase.


Federal Tax Outline – Page 2

Federal Tax Outline – Page 4


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

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