Income: Exclusions

1
Income Exclusions
2
102 Gifts and Inheritances

• (a) General rule. Gross income does not include
  the value of property acquired by gift, bequest,
  devise, or inheritance.
• . . .
• (c) Employee Gifts.   (1) In general. Subsection
  (a) shall not exclude from gross income any
  amount transferred by or for an employer to, or
  for the benefit of, an employee.   (2) Cross
  references. For provisions excluding certain
  employee achievement awards from gross income,
  see section 74(c).   For provisions excluding
  certain de minimis fringes from gross income, see
  section 132(e).

3
Prop. Treas. Reg. 1.102-1(f)(2)

• (f) Exclusions-- . . . (2) Employer/Employee
  transfers. For purposes of section 102(c),
  extraordinary transfers to the natural objects of
  an employer's bounty will not be considered
  transfers to, or for the benefit of, an employee
  if the employee can show that the transfer was
  not made in recognition of the employee's
  employment. Accordingly, section 102(c) shall not
  apply to amounts transferred between related
  parties (e.g., father and son) if the purpose of
  the transfer can be substantially attributed to
  the familial relationship of the parties and not
  to the circumstances of their employment.

4
101(a) General Rule

• (1) General rule. Except as otherwise provided
  in paragraph (2) . . . , gross income does not
  include amounts received (whether in a single sum
  or otherwise) under a life insurance contract, if
  such amounts are paid by reason of the death of
  the insured.

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101(a) Exception

• (2) Transfer for valuable consideration. In the
  case of a transfer for a valuable consideration,
  by assignment or otherwise, of a life insurance
  contract or any interest therein, the amount
  excluded from gross income by paragraph (1) shall
  not exceed an amount equal to the sum of the
  actual value of such consideration and the
  premiums and other amounts subsequently paid by
  the transferee. The preceding sentence shall not
  apply in the case of such a transfer
• (A) if such contract or interest therein has a
  basis for determining gain or loss in the hands
  of a transferee determined in whole or in part by
  reference to such basis of such contract or
  interest therein in the hands of the transferor,
  or
• (B) if such transfer is to the insured, to a
  partner of the insured, to a partnership in which
  the insured is a partner, or to a corporation in
  which the insured is a shareholder or officer.

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Problem 2, p. 92

• John
• Sale in accordance with 1001.
• AR?
• 25,000
• AB?
• 20,000
• Gain or loss?
• 5,000 gain

• Adam
• Not excludible in full under 101 because Adam
  is a transferee for value.
• How much is excluded?
• 25,000 consideration paid
• How much is included?
• 75,000 (100,000 life insurance payment -
  25,000 exclusion)

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1015(a)

• If the property was acquired by gift . . . , the
  basis shall be the same as it would be in the
  hands of the donor or the last preceding owner by
  whom it was not acquired by gift, except that if
  such basis (adjusted for the period before the
  date of the gift as provided in section 1016) is
  greater than the fair market value of the
  property at the time of the gift, then for the
  purpose of determining loss the basis shall be
  such fair market value.

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Farid-es-Sultaneh v. Commr

• Transferred Basis
• AR 230,802.36
• AB 1,909.08
• 228,893.28 gain

• Cost Basis
• AR 230,802.36
• AB 128,040.00
• 102,762.36 gain

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Valuation of Tickets
520 (Taxpayer)
2,220 (IRS)
1,400 (Court)
10
119 Meals and Lodging

• There shall be excluded from gross income of an
  employee the value of any meals or lodging
  furnished to him, his spouse, or any of his
  dependents by or on behalf of his employer for
  the convenience of the employer, but only if--   
              (1) in the case of meals, the meals
  are furnished on the business premises of the
  employer, or
•             (2) in the case of lodging, the
  employee is required to accept such lodging on
  the business premises of his employer as a
  condition of his employment.

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To Furnish

• Definition
• to provide with what is needed
• supply give
• Legislative history
• Section 119 applies only to meals or lodging
  furnished in kind.
• S. Rep. No. 1622, 83d Cong., 2d Sess., at 190
  (1954) (quoted in Kowalski v. Commr, 434 U.S.
  77, 84 (1977)).