Gross Income Exercise
The fruit and tree metaphor is a court decision on property ownership and transfers of gains from properties. The court holds that a person who gains money from property and services cannot transfer the income to another individual. The case is applicable to earnings from property or services rendered by persons in the United States. An applicable case is a scenario where a salesperson decides to transfer his commissions to his offspring to elude taxes on the earned commissions. Another application may be in the transfer of taxable bonds to another person, such as a father to her daughter, whether as a gift or otherwise and evade tax (Harris & Netzer, 1966). The motivation of a person to transfer responsibility of tax to another person may be guided by inaccurate understanding of the tax system, need to delay taxation time, or to lower the amount payable in taxes in the event of application of adjusted gross income differences between the person transferring and the recipient. Mostly, the fruit and tree metaphor is used to prevent tax evasion through transfer of income.
Employing basis accounting, Frank gross income would be $275,000-25, 000 = 250,000. Employing the accrual method, Frank Gross Income would be $275,000. Frank should opt for accounting basis method. The gross income for Gloria will not include the amount received from college. The gross income for Frank will include the $10,000 reward. After donating $ 10,000, his gross income will be minus $10, 000. The gross income for Ingrid after receiving the gold bag will be the total plus $375 for the gold bag. Gross income for Jacob will be $48,000.
References
Harris, C. L., & Netzer, D. (1966). Pros and Cons of the Property Tax. The Journal of Finance,21(3), 607.doi:10.2307/2977860
