10.

October 31st

1
• Homework review
• Ch. 4 homework questions 3, 4, 6, 7, 10 (a,b), 23 (a,b,c).

• Materials
• Chapter 4: Gross Income – Concepts and Inclusions
• What is income?
• Gross income is broadly defined (pg. 4-3)
• Recovery of capital doctrine (pg. 4-3)
• Economic and accounting concepts of income (pg. 4-4)
• Items specifically included in gross income (pg.4-19): alimony; prizes/awards (pg 4-27); unemployment comp; etc.
• When is the income recognized?
• Does not require receipt of cash/ cash receipts taxpayer v. accrual (pg. 4-7); calendar vs. fiscal year taxpayer (pg. 4-6)
• Constructive receipt doctrine (pg. 4-9)
• To whom is the income taxable?
• Sources of income – personal services; income from property (tree vs. fruit) (pg. 4-13); income from entities (4-16)

• In-class assignment:
• Summarize T.C. Memo. 2012-324 (JAMES A. CAVANAUGH, JR., Petitioner v. COMMISSIONER OF
INTERNAL REVENUE, Respondent)

2
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[Pg. 3-7]
itemized deductions)

AGI is an important subtotal that is the basis for

computing percentage limitation on certain itemized
deductions
• E.g., medical expenses are deductible only to the
extent they exceed 7.5% of AGI (“7.5% floor”)
• E.g., deductions for gifts to public charities may
not exceed 60% of AGI (“60% ceiling”)
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Feb. 2019
Gains and losses from property transactions

Question 1: Has gain or loss been realized?

Question 2: Should the realized amount be recognized?
Question 3: If the amount should be recognized, is the gain or loss CAPITAL or ORDINARY?

 All realized gains are recognized (taxable) unless some specific part of the tax law provides otherwise (e.g., certain nontaxable exchanges like §351).

 Realized losses may or may not be recognized (deductible) for tax purposes.
• Generally, losses realized from the disposition of personal use property (e.g., a resident, home furnishings, clothing) are not recognized. [p3-29, ex.43]

 Once it has been determined that the disposition of property results in a recognized gain or loss, the next step is to
classify the gain or loss as CAPITAL or ORDINARY.
• Although ordinary gain is fully taxable and ordinary loss is fully deductible, the same may not hold true for capital gains and capital losses.