1. BA 128A-1 Agenda 2/8 Questions from lecture Review Assignment - I3-36,47,57 I4-27,28,56 Additional Problems - I4-10,13,24,34,51 Web Page - www.haas.berkeley.edu/Courses/Spring1999/BA128A-1/index.html

2. Items that are not income Unrealized income e.g. stock appreciation Self-help income Rental value of personal-use property Gross selling price of property

3. Statutory exclusions Gifts and Inheritances Life insurance proceeds/ Death Benefits Adoption expenses - from qualified assistance programs Scholarships Payments of injuries and sickness Foreign earned income Forgiven Debt Employee Fringe Benefits

4. Gifts and Inheritances Generally excluded Income produced by the gift afterwards is taxable Prize and awards are inclusive To determine whether it is a gift or not, motivation is the key: love, affection, sympathy, generosity

5. Awards Prizes and awards - generally taxable Exceptions: charitable, religious, scientific achievements Scholarships - excludable for tuition, fees, books, supplies and equipment. Include if its room and board, laundry and work study

6. Life insurance proceeds Generally excluded Amount received > face value of policy is taxable as interest Exchange/selling of policy is taxable to the extent of the excess amount of cash received over premiums paid Dividends from life insurance policy are excluded (return on capital) Accelerated death benefits are excluded

7. Adoption expenses Generally use as tax credit Exclusions of up to $5000 from a qualified employer adoption assistance plan Subject to phase out Adoption expenses include adoption fees, court fees and attorney fees

8. Compensation for injury and sicknesses Payments are generally excluded if policy is purchased by the taxpayer Cannot deduct premiums if paid by the taxpayer Include both physical and emotional distress Punitive damages are taxable Payments of loss income under accident and health insurance policy are excludable

9. Other exclusions Foreign earned income –$72,000 exclusion –a resident of a foreign country or present in a foreign country for 330 days –additional exclusion related to housing costs Forgiven debt –generally taxable –exceptions: bankruptcy, insolvency and student loan –insolvency, NOL basis is reduced

10. Employee fringe benefits Premiums paid by employers for health, accident and disability insurance are deductible and excluded from employees’ gross income Group term life insurance - up to $50,000 premium exclusion. Key employees are subject to more restrictions P I4-11 Benefits from medical and life insurance are excluded from employees’ gross income but benefits from disability insurance are taxable Self employed individual may deduct 45% of medical insurance premiums as business expenses

11. Other fringe benefits Excludable if it is ordinary and necessary Provides no-additional-cost benefits Qualified employee discounts Athletic facilities De minimis benefits Transportaton/Parking fringes Membership fees in professional organization

12. Other employee fringe benefits Employee awards - de minimis rule, not disguised compensation, no discrimination. Individual employee awards can be up to $1,600 Meals and lodging - deductible if furnished at employer’s premise De minimis rule applies e.g. overtime meals excluded Meal allowances are taxable Meals and entertainment that are not reimbursed - can deduct 50%

13. Other employee fringe benefits Employee death benefits - depends on intention of transferor (gift or compensation of past services) Dependent care by employer - $5000 excluded for married couples Educational assistance by employer- up to $5250 excluded Cafeteria plans - choice of cash/statutory nontaxable fringe benefits –Cash is taxable –some statutory nontaxable fringe benefits in lieu of wage reduction of supplement wages –non discriminatory