Revenue – primary goal

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Imputed Income – not included in gross income – “a flow of satisfactions from durable goods owned and used by the taxpayer, or from goods and services arising out of the personal exertions of the taxpayer on his own behalf.”

  • Outside the ordinary processes of the market. Mowing lawn, growing veggies, doing laundry in your laundry machine. Farmer that uses some produce to feed his family gets the imputed income of the retail vs. production cost.

  • Couple where spouse works to earn $30,000 and pays housekeeper $30,000 obviously worse off than if spouse stayed home like a good little wife. Housekeeping fees not deductible as personal expense under §262. Could allow deduction to accommodate this. Would have to earn more than $43,000 to make working worthwhile.

  • Spouse who stays home as housekeeper – can see entire family as one taxpaying unit since services go to all and are taxed to none of them.

  • Has to be limits to imputed income – trade car wash for lawn mow – neither has imputed income, can be a taxable exchange.

  • Child care –

    • p.214 – not deductible Smith v. Commissioner but now have §21 – credit equal to % of qualifying child care costs.

      • Maximum allowable amount is $3000 with one dependent (defined in §21(c)(1)), $6000 with two or more.

      • Low-income credit is 35% of expenses (max credit of $1050 for one kid and $2100 for two). Reduced towards 20% with income above $15,000.

      • Not refundable.

    • Dependent care assistance program under §129

      • Can exclude up to $5000 paid under program

      • Taxpayer in 40% tax bracket would reduce after-tax child care costs by 40%. ($2000 of $5000).

    • §45F – employers can claim credit up to $150,000 for 25% of employee child care expenses and 10% of qualified child-care resource referral expenses.

    • §24 – $1000 (less in 2005) child credit available to all taxpayers with dependents age 16 and younger, subject to income phaseout.

  • Transactions taking place within the market:

    • Commissioner v. Minzer – insurance agent taxed when he purchased life insurance policy on own life from company he represented. Whether he sent premium to company and got it back or deducted it from his commission.

    • Commissioner v. Daehler – real estate salesman P purchased real estate from another broker who divided commission with P’s employer. Income b/c P performed a service for his employer identical to other transactions. Amount received from employer was compensation.

    • If taxpayers had been self-employed the commissions paid to themselves would have been imputed income. No third-part/market involved.

    • Partnerships treated in tax code as aggregate of partners not separate taxpayers so transactions performed by partners for themselves are imputed income. “What one pays to oneself cannot be part of one’s income.” Benjamin v. Hoey

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