Painter values his work at $500 Painter is taxed on $1000 (received) Situation as this is an example of a crappy deal isn’t normal the FMVs are different, you have to look at the FMV of what the person received in …if order to decipher their taxable liability Situation 2 A professional artist provides an owner of an apartment building with a painting in exchange for 4 months rent Tax analysis 6 months worth of to find rent…FMV easy piece of unique not easily found art…FMV As an administrative choice, you almost always anchor the work of the thing easily valued to the thing not so easily valued This becomes even more difficult when you have two things that are not easily valued. Then, you just hire and appraiser. 6045 Requires information reporting by any “barter exchange” 1.6045-1(a)(4): the term barter exchange does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis The IRS does not want to get into trivial matters, even if they are HS income. This sometimes applies to trivial matter with commercial bases as well. WINDFALLS AND GIFTS Punitive damages [24] (US SC 1955) Glenshaw Glass The Court holds that punitive damages are includable in taxable income Nothing limits the definition of gross income under 61 Punitive damages falls under source “any whatever” SC sets super precedent that is entrenched and if changed (super precedent…decisions would be a big deal) Income has never been limited before 104(a)(2): personal injury recoveries Compensatory and punitive damages are excluded from taxable income when it is a personal injury case Even though they are HS income you are doing is making someone whole Theory…all But, this draw a distinction to the case doesn’t really GG Mental or psychological injuries are not covered, just physical injuries Gifts [25-28] Income is not limited, except for exclusions, etc. Gifts are another type of exclusions 102: gifts and inheritances (a): Gifts are excluded from taxable income (b): you can exclude the initial gift, but not any income you derive from that gift e.g., if you get stock dividends as a gift Example (p. 25 (Notes))
Painter values his work at $500 Painter is taxed on $1000 (received) Situation isn’t normal as this is an example of a crappy deal …if the FMVs are different, you have to look at the FMV of what the person received in order to decipher their taxable liability Situation 2 A professional artist provides an owner of an apartment building with a painting in exchange for 4 months rent Tax analysis 6 months worth of rent…FMV easy to find piece of unique art…FMV not easily found As an administrative choice, you almost always anchor the work of the thing easily valued to the thing not so easily valued This becomes even more difficult when you have two things that are not easily valued. Then, you just hire and appraiser. 6045 Requires information reporting by any “barter exchange” 1.6045-1(a)(4): the term barter exchange does not include arrangements that provide solely for the informal exchange of similar services on a noncommercial basis The IRS does not want to get into trivial matters, even if they are HS income. This sometimes applies to trivial matter with commercial bases as well. WINDFALLS AND GIFTS Punitive damages [24] Glenshaw Glass (US SC 1955) The Court holds that punitive damages are includable in taxable income Nothing limits the definition of gross income under 61 Punitive damages falls under “any source whatever” SC sets super precedent (super precedent…decisions that is entrenched and if changed would be a big deal) Income has never been limited before 104(a)(2): personal injury recoveries Compensatory and punitive damages are excluded from taxable income when it is a personal injury case Even though they are HS income Theory…all you are doing is making someone whole But, this doesn’t really draw a distinction to the GG case Mental or psychological injuries are not covered, just physical injuries Gifts [25-28] Income is not limited, except for exclusions, etc. Gifts are another type of exclusions 102: gifts and inheritances (a): Gifts are excluded from taxable income (b): you can exclude the initial gift, but not any income you derive from that gift e.g., if you get stock dividends as a gift Example (p. 25 (Notes))
Federal%20Income%20Tax%20-%20Buchanan%20-%202011.docx