544677981-Federal-Income-Tax-Outline-2021-AH-FINAL

School: Ohio Northern University - Course: LAW 1280 - Subject: Accounting

(§61)BASIC CONCEPTS OF INCOME - (powerpoint 4,5,6) §1001(a)- gain from the sale or disposition of property in the excess of the amount realized over the adjusted basis under section§1011 §1001(b)- amount realized is sum of any money received plus the FMV of property (other than money) received §1001(c)- unless an exception Gain Realized = Amount Realized (FMV) - Adjusted Basis Basis - presumed after tax $, after you buy Cost - have invested, purchased, already taxed §1011-taxpayers adjusted basis in property is taxpayers cost basis(§1012);the taxpayers gift basis§1015;or taxpayers inherited basis§1014as adjusted under §1016for certain items such as depreciation deductions taken on the property or capital improvements made to the property. REVENUE RULING 79-24 Gross income; barter transactions. Certain members of barter clubs must include in income the fair market value of services received in exchange for services rendered. Likewise, the owner of an apartment building who receives a work of art created by a professional artist in return for the rent-free use of an apartment must include in income the fair market value of the work of art, and the artist must include the fair rental value of the apartment. PROBLEM EXAMPLE: FACTS Situation 1.In return for personal legal services performed by a lawyer for a housepainter, the housepainter painted the lawyer's personal residence. Both the lawyer and the housepainter are members of a barter club, an organization that annually furnishes its members a directory of members and the services they provide. All the members of the club are professional or trades persons. Members contact other members directly and negotiate the value of the services to be performed. 1

Situation 2.An individual who owned an apartment building received a work of art created by a professional artist in return for the rent-free use of an apartment for six months by the artist. LAW The applicable sections of the Internal Revenue Code of 1954 and the Income Tax Regulations thereunder are 61 (a) and 1.61-2, relating to compensation for services. Section 1.61-2 (d) (1) of the regulationsprovides that if services are paid for other than in money, the fair market value of the property or services taken in payment must be included in income. If the services were rendered at a stipulated price, such price will be presumed to be the fair market value of the compensation received in the absence of evidence to the contrary.