[1[SUP]st[/SUP] – The references cited in your post are wrong and have no relevance to potential
federal income tax consequesnces to a caregiver! The federal income tax law is blind as to the nature of the activity that gives rise to an item of Gross Income, and dollars or property received in any illegal activity is Gross Income. The famous gangster Al Capone is a good example – and see this link that discusses the Gross Income issue with marijuana activities -
http://boards.answers.findlaw.com/index.php/topic/223349-legal-marijuana-and-federal-income-tax/]
[The bare term "income” or AMMA definitions have no relevance to determine whether a caregiver’s activities have
federal income tax consequences and require the filing of a federal tax return. A caregiver like any other individual
for federal income tax purposes must determine if he/she realized any “Gross Income.” This controlling term “Gross Income” is defined pursuant to Section 61 of the Internal Revenue Code of 1986, hereinafter the “Code” and applicable Treasury Tax Regulations). Code Section 61 does not discriminate and applies to any individual, partnership, corporation (including non profits), organizaion (ex. social club, community garden), trust, or any other legally recognized entity. The all powerful term “Gross Income” is unlimited in scope and any tangible or intangible item or right a caregiver receives and has control over is part of his Gross Income as measured by its value (unless exempted under certain other Code sections not relevant to this discussion). How braod is its scope -
“Treasury Regulation Sec. 1.61-1 Gross income. (a) General definition. Gross income
means all income from whatever source derived, unless excluded by law. Gross income
includes income realized in any form, whether in money, property, or services.... Section 61 lists the more common items of gross income for purposes of illustration. For purposes of further illustration, Sec. 1.61-14 mentions several miscellaneous items of gross income not listed specifically in section 61
. Gross income, however, is not limited to the items so enumerated.”]
[Even assuming a caregiver has enough expenses to quote "breaks even" such intuitive observation is irrelevant for federal income tax purposes. There are 2 separate steps mandated under the federal income tax law in such a situation (1) a caregiver (taxpayer) must first calculate his/her Gross Income regardless of any potential allowable expenses and this Gross Income amount would have to be reflected on his federal tax From 1040, most likely Schedule C; and (2) the caregiver would then deduct from the Gross Income his allowable expenses to determine any amount of “Taxable Income” from his caregiver activities. Instead, your approach impermissibly melds the 2 steps into 1 and concludes since the Gross Income and deductions net out there is no "income" and therefore nothing to report for federal tax purposes.
Again, by relying on the term "income" to support your conclusion fails to recognize that the federal income tax law
demands the application of a 2 step calculation,
not to determine "income" but to determine if the taxpayer has any "taxable income." For example, if an unincorporated business owner has gross income of $20,000 but also expenses of $20,000 his "taxable income" is zero
but, his Gross Income is still $20,000 and the term or concept of “income” is meaningless. Based upon these facts this taxpayer would have to report the Gross Income of $20,000 on Form 1040 (Schedule C). He would then list his $20,000 of expenses on such schedule with the result that the Schedule C attached to his Federal Form 1040 would reflect a "taxable income" of zero.
So you will say
what's the big deal for being required by the federal income tax law to use this 2 step calculation when the taxpayer ends up with zero taxable income? I would say HUGE, because expenses are prohibited as deductions from Gross Income when the activity giving rise to the related Gross Income is illegal under federal law. Section 280E of the Code. As a result, if a caregiver with the facts stated above were audited, he would have $20,000 of Gross Income and $20,000 of Taxable Income because he would be denied any deduction for related expenses as his activity involves marijuana, a controlled substance, and is illegal under federal law.
That is why I did the research and found the Treasury Department’s Revenue Ruling 1977-280 that, for administration convenience, sanctioned an offset rule for reimbursements received in the context of a non-employee relationship. The conclusion reached in the ruling was
not that the recipient (our caregiver) had no taxable income because of his offsetting expenses BUT he did not realize any Gross Income by reason of the ruling’s Offset principle – net/net taxpayer’s net worth was the same after the transaction as it was before the transaction. The Offset Rule sanctioned by Rev. Rul. 1977-280 is crucial for the caregiver by allowing him to reduce his reimbursement Gross Income dollar-for-dollar for his expenses rather than having such expenses treated as deductions and barred by Section 280E of the Code. ]
[Actually try to help people minimize their taxes]
[while a bad idea what are the facts, is the caregiver receiving reimbursement payments which exceed his cash expenses (the value of the time spent by caregiver is not an expense for Fed tax purposes]
[thanks for your reply]
)
