Fed Income Tax

In: Business and Management

Submitted By tennisjim
Words 3292
Pages 14
Severance as income?
IRC § 61 defined Gross Income as “all income from whatever source derived,” to include “compensation for services, including fees, commissions, fringe benefits, and similar items.” The court in Glenshaw defined income as “an undeniable accession to wealth.” Moreover, Treas. Reg. § 1.61-2 included “termination or severance pay” as compensation for services. IRC § 102 states that gross income does not include the value of property acquired by gift, bequest, devise, or inheritance. However, a gift cannot be from an employer to an employee. Here, Ariel Asher (“AA”) was paid $1,000 a year for the 10 years that she was with the firm. The firm characterized the $10,000 payment as a “severance.” AA will argue that the amount was a gift, thus not taxable. The IRS will argue that § 61 includes severance pay in the language itself. Additionally, § 1.61 states that a gift cannot be from AA’s employer. Therefore, the severance pay will be included in gross income.
Purchasing bargained work equipment income?
In Pellar, the court established that bargain purchases generally do not constitute gross income. If property is transferred as compensation for services in the amount less than its fair market value, the difference between the fair market value and the amount paid is gross income. Here, the firm was downsizing and had excess furniture and invited only departing members to make an offer. The firm accepted AA’s offer of $1,700 for the furniture (FMV $4,800). AA received a discount/saving of $3,100 from the FMV. AA will argue that a bargain purchase does not constitute gross income. However, the IRS will argue that since the furniture sale was only accessible the employees leaving the firm, the discount received was part of the termination/severance package, thus the difference between FMV and what AA paid ($3,100) will be included in gross income.…...

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