Talk:Realization (tax)

Does growing a plant from a seed trigger a realization event? It woul depend onwhat "undeniable accessions to wealth" means. Lets say I put a seed in the ground. Lets say that it is valued at 1/10 of one cent or 0.001 USD. The rain waters, the sun shines, the soil organisms do their role. The seed germinates and grows into a plant. The plant grows fruit. The fruit has a fair market value of around 75 USD. Have I not come into additional wealth valued at 74.999 USD? Is this not considered "gross income"? Is the rain water and sunshine a form of gross income, a treasure trove, or a gift? Let's say I calculated that I would not have enough rain to grow this plant and therefore considered myself to have a rain deficit. If it unecpectedly rains, have I received a "cancelation of a liability," the liability to water the plant from the city utilities? (Ryan Close (talk) 17:46, 29 November 2012 (UTC))

No, it doesn't depend on what "undeniable accessions to wealth" means. Let me explain.

At least in the context of U.S. Federal income tax law, an (A) "accession to wealth" and (B) a realization, are two separate things. The fact that the value of the asset has increased is not, in and of itself, a "realization."

In your example, both the growth of the plant and the increase in value associated with the growth of the plant are tied to what we call unrealized income. The realization would occur when (for example) you sell that plant.

It's the same concept as in an investment in corporate stock. Assume that you buy shares of stock for $1,000. Assume that six months later, the stock is worth $1,800, and that you still haven't sold the stock yet. At that point, you have unrealized income -- an unrealized gain -- of $800. There is no realization -- no taxable event.

At the moment you actually sell the stock for $1,800, you now have $800 of realized gain.

And no, neither the rain, etc., nor the receiving of the rain, etc., would be realization of income.

For Federal income tax purposes, a mere accession to wealth, a mere increase in value (even if accompanied by the growing plant, in your example) by itself is not enough to constitute realization of income. Famspear (talk) 18:45, 29 November 2012 (UTC)

It may help the understanding a bit if you actually number each of the three elements of the Glenshaw Glass definition of income as quoted in the article:

(1) "undeniable accessions to wealth",

(2) "clearly realized", and

(3) "over which the taxpayers have complete dominion."

The "accession to wealth" (or element 1), is separate from the realization (element 2). Famspear (talk) 19:01, 29 November 2012 (UTC)

Also, in your example, the rain itself is not a treasure trove. Compare the rain on your plant to the example of the home run baseball caught by the spectator in the article.

The rain itself does not "contain" the value. The value is really in the plant, not in the rain that helped the plant to grow. Having rain fall on your garden may be wonderful, and it may even be considered magical or a gift from God, but it's not the receipt of a treasure trove in the Federal tax law sense.

By contrast, in the baseball example, that baseball itself happens to be worth millions because of the particular circumstances of who hit the home run, etc. The receipt of that baseball could be considered the receipt of a treasure trove for Federal income tax purposes. Famspear (talk) 19:11, 29 November 2012 (UTC)