Federal Income Taxation

by Klein, William A.; Bankman, Joseph; Shaviro, Daniel N.

• ISBN13: 9780735537484
• ISBN10: 0735537488
• Edition: 13th
• Format: Hardcover
• Copyright: 2003-03-01
• Publisher: Wolters Kluwer

Summary

The latest edition of this classic casebook continues to integrate theory policy, making the study of federal income taxation challenging but accessible. Students will appreciate how the authors cover a wealth of new material - and all the fundamentals for individual taxation - in a manageable length Federal Income Taxation, Thirteenth Edition, retains the strengths that have made is such a highly regarded casebook: problems interspersed with notes and questions, To reinforce the text and hold student interest built on the foundation established by original author Boris Bittker, with the current author team among the best scholars of the present day unique introduction provides insightful historical background and some brief economic analysis integration of theory and policy throughout the text makes the book intellectually stimulating while demonstrating real-world applications Scrupulously updated for its Thirteenth Edition, The book now includes: The 2001 Tax Act, major legislation that will have long-term effects on the code new developments in corporate tax shelters major new cases: Chamales v. Commissioner, Henderson v. Commissioner, and Wayne Baseball, Inc. v. Commissioner

Table of Contents

Preface	xxi
Editorial Notice	xxiii
Introduction	1	(36)
The Importance of Income Taxes	1	(2)
Some Data	1	(1)
Effects on the Law	2	(1)
Economic Consequences	3	(1)
History	3	(3)
Theory and Policy	6	(7)
Why ``Income''?	6	(1)
The Definition of Income	7	(1)
The Tax Expenditure Budget	8	(2)
Tax Incidence	10	(1)
Inflation	11	(1)
Income Versus Consumption	12	(1)
The Rate Structure, Progression, and Marginal Rates	13	(1)
Rate Schedules, the Taxable Unit, and the Marriage Penalty	14	(2)
Compliance and Administration	16	(6)
Some Tax Terminology and Concepts	22	(8)
The Tax Base and Calculation of the Tax Payable	22	(2)
Capital Gain	24	(1)
Tax Accounting	25	(2)
Realization and Recognition	27	(1)
Recovery of Cost, Depreciation, and Basis	28	(1)
Entities	28	(2)
Deferral and Its Value	30	(2)
The Sources of Federal Tax Law in a Nutshell	32	(5)
Some Characteristics of Income	37	(154)
Noncash Benefits	38	(24)
Meals and Lodging Provided to Employees	39	(1)
Example 1	40	(1)
Notes and Questions	40	(1)
Example 2	41	(1)
Questions	41	(1)
Example 3	41	(1)
Notes and Questions	42	(1)
Benaglia v. Commissioner	42	(4)
Notes and Questions	46	(1)
Statutory Aftermath to Benaglia	46	(3)
Other Fringe Benefit Statutes	49	(1)
Section 132 Fringe Benefits	50	(1)
Questions	51	(1)
Further Notes on Fringe Benefits	51	(4)
Questions	55	(1)
Economic Effects: An Example	56	(2)
Another Approach to Valuation	58	(1)
Turner v. Commissioner	59	(1)
Notes and Questions	60	(1)
The Kid Who Catches the Historic Home Run Ball	61	(1)
Imputed Income	62	(7)
Property Other than Cash	62	(3)
Services	65	(2)
Psychic Income and Leisure	67	(1)
Questions	67	(1)
Drawing the Line	67	(1)
Revenue Ruling 79-24	68	(1)
Questions	68	(1)
Windfalls and Gifts	69	(35)
Punitive Damages	69	(1)
Commissioner v. Glenshaw Glass Co.	69	(3)
Notes and Questions	72	(1)
Gift: The Basic Concept	72	(1)
Example	73	(1)
Notes and Questions	73	(1)
Commissioner v. Duberstein	74	(6)
Notes and Questions	80	(2)
United States v. Harris	82	(7)
Notes	89	(1)
Gift: Some Applications	90	(4)
Questions	94	(1)
Transfer of Unrealized Gain by Gift While the Donor Is Alive	94	(1)
Taft v. Bowers	95	(2)
Notes and Questions	97	(1)
Transfers at Death	98	(3)
Questions	101	(1)
Gifts of Divided Interests	102	(1)
Example	102	(1)
Notes and Questions	103	(1)
Recovery of Capital	104	(21)
Sale of Easements	106	(1)
Inaja Land Co. v. Commissioner	106	(1)
Notes and Questions	107	(1)
Life Insurance	108	(6)
Annuities and Pensions	114	(5)
Gains and Losses from Gambling	119	(1)
Recovery of Loss	120	(1)
Clark v. Commissioner	120	(2)
Current Legal Status of Clark	122	(1)
Notes and Questions	123	(1)
Hypothetical	124	(1)
Annual Accounting and Its Consequences	125	(15)
The Use of Hindsight	125	(1)
Burnet v. Sanford & Brooks Co.	125	(2)
Notes and Questions	127	(2)
Problems	129	(1)
Claim of Right	130	(1)
North American Oil Consolidated v. Burnet	130	(2)
Notes and Questions	132	(1)
United States v. Lewis	133	(2)
Notes and Questions	135	(2)
The Tax Benefit Rule	137	(2)
Notes and Questions	139	(1)
Recoveries for Personal and Business Injuries	140	(4)
The Basic Rules	140	(2)
Deferred Payments and Structured Settlements	142	(1)
Medical Expenses and Other Recoveries and Benefits	142	(2)
Transactions Involving Loans and ``Income from Discharge of Indebtedness''	144	(35)
Loan Proceeds Are Not Income	144	(1)
True Discharge of Indebtedness	145	(1)
United States v. Kirby Lumber Co.	145	(2)
Notes and Questions	147	(1)
Relief Provision	148	(1)
Misconceived Discharge Theory	149	(1)
Zarin v. Commissioner	149	(8)
Notes	157	(1)
Diedrich v. Commissioner	158	(2)
Notes and Questions	160	(2)
Transfer of Property Subject to Debt	162	(2)
Crane v. Commissioner	164	(5)
Notes and Questions	169	(3)
Commissioner v. Tufts	172	(6)
Notes and Questions	178	(1)
Illegal Income	179	(5)
Gilbert v. Commissioner	179	(4)
Notes and Questions	183	(1)
Interest on State and Municipal Bonds	184	(5)
Basic Concepts	184	(2)
Limitations on Exempt Status	186	(1)
Constitutional Barrier?	187	(1)
Tax Arbitrage	187	(2)
U.S. Treasury Bonds	189	(1)
Gain on the Sale of a Home	189	(2)
Notes and Questions	190	(1)
Problems of Timing	191	(144)
Gains and Losses from Investment in Property	191	(44)
Origins	191	(1)
Eisner v. Macomber	192	(9)
Notes and Questions	201	(3)
Development: Tenant Improvements	204	(1)
Helvering v. Bruun	204	(3)
Notes and Questions	207	(2)
Nonrecourse Borrowing in Excess of Basis	209	(1)
Woodsam Associates, Inc. v. Commissioner	209	(2)
Notes and Questions	211	(1)
Losses	211	(1)
Introductory Note	211	(2)
Cottage Savings Association v. Commissioner	213	(7)
Note	220	(1)
Questions	221	(1)
Problems	221	(1)
Express Nonrecognition Provisions	222	(2)
Revenue Ruling 82-166	224	(1)
Questions	225	(1)
Jordan Marsh Co. v. Commissioner	225	(3)
Questions	228	(1)
Notes	229	(1)
``Boot'' and Basis	229	(2)
Three-Party Transactions and Substance Versus Form in Tax Matters	231	(4)
Recognition of Losses	235	(4)
Revenue Ruling 84-145	236	(2)
Questions	238	(1)
Constructive Sales	238	(1)
Original Issue Discount and Related Rules	239	(4)
Open Transactions, Installment Sales, and Deferred Sales	243	(8)
Open Transactions	243	(1)
Burnet v. Logan	244	(1)
Notes and Questions	245	(3)
The Installment Method	248	(3)
Constructive Receipt and Related Doctrines	251	(46)
Basic Principles	251	(1)
Amend v. Commissioner	251	(3)
Notes	254	(2)
Pulsifer v. Commissioner	256	(1)
Question	257	(1)
Retirement Benefits: Early Case Law	257	(1)
United States v. Drescher	257	(5)
Notes and Questions	262	(3)
Questions	265	(1)
Deferred Compensation	266	(1)
Minor v. United States	266	(4)
Notes	270	(1)
Problem	271	(1)
Al-Hakim v. Commissioner	272	(1)
Questions	273	(1)
Commissioner v. Olmsted Incorporated Life Agency	274	(4)
Notes and Questions	278	(1)
Qualified Employee Plans	279	(4)
Stock Options, Restricted Property, and Other Employee Compensation	283	(1)
Example	284	(1)
Questions	285	(1)
Statutory Rules for Determining the Tax Treatment of Employee Stock Options	286	(1)
Incentive Stock Options	286	(1)
Questions	287	(1)
Nonstatutory Stock Options	287	(2)
Notes and Questions	289	(1)
Cramer v. Commissioner	290	(6)
Notes and Questions	296	(1)
Transfers Incident to Marriage and Divorce	297	(17)
Introduction	297	(1)
Property Settlements	298	(1)
Transfers Incident to a Divorce or Separation Agreement	298	(1)
United States v. Davis	298	(4)
Notes and Questions	302	(1)
Problems	303	(1)
Antenuptial Settlements	303	(1)
Farid-Es-Sultaneh v. Commissioner	303	(3)
Questions	306	(1)
Alimony, Child Support, and Property Settlements	306	(1)
The Basic Scheme	306	(1)
The Rules	307	(2)
Policy Questions	309	(1)
The Tax Incentive	309	(1)
A Final Question	310	(1)
Problems	310	(1)
Child Support Obligations in Default	311	(1)
Diez-Arguelles v. Commissioner	311	(1)
Notes and Questions	312	(2)
Theoretical Issues	314	(1)
Consumption Tax	315	(3)
Cash Receipts and Payments of Accrual-Method Taxpayers	318	(12)
Delay in the Receipt of Cash	319	(1)
Georgia School-Book Depository v. Commissioner	319	(2)
Notes and Questions	321	(1)
Prepaid Income	322	(1)
American Automobile Association v. United States	322	(4)
Notes and Questions	326	(2)
Deposits Versus Advance Payments	328	(1)
Questions	329	(1)
Current Deduction of Future Expenses	329	(1)
Questions	330	(1)
Corporate Transactions: Incorporations and Reorganizations	330	(5)
Incorporation	330	(2)
Reorganization	332	(3)
Personal Deductions, Exemptions, and Credits	335	(54)
Introduction	335	(3)
The Mechanics of Personal Deductions	335	(2)
The Role of the Personal Deduction	337	(1)
Casualty Losses	338	(13)
Dyer v. Commissioner	339	(1)
Notes and Questions	340	(1)
Chamales v. Commissioner	341	(6)
Questions	347	(1)
Problems	347	(1)
Blackman v. Commissioner	348	(3)
Questions	351	(1)
Extraordinary Medical Expenses	351	(9)
Overview	351	(1)
What Is ``Medical Care?''	352	(1)
Taylor v. Commissioner	353	(1)
Henderson v. Commissioner	353	(2)
Questions	355	(1)
Ochs v. Commissioner	355	(2)
Notes and Questions	357	(2)
Policy	359	(1)
Charitable Contributions	360	(18)
Overview	360	(1)
Contributions of Capital Gain Property	361	(1)
Policy	362	(1)
Gifts with Private Objectives or Benefits	363	(1)
Ottawa Silica Co. v. United States	363	(3)
Notes and Questions	366	(1)
More on Private Benefits	367	(1)
Overvaluation of Contributed Property	368	(1)
The Special Case of Collegiate Athletics	369	(1)
Religious Benefits and Services	369	(1)
Voluntariness	370	(1)
What Is Charitable?	371	(1)
Bob Jones University v. United States	371	(6)
Notes and Questions	377	(1)
Interest	378	(5)
The Rules	378	(1)
Policy Issues	379	(2)
Tracing	381	(1)
Problems	381	(1)
What Is ``Interest''?	381	(1)
Interest and Inflation	382	(1)
Interest on Student Loans	382	(1)
Taxes	383	(1)
Personal and Dependency Exemptions	384	(1)
Credits Based on Personal Circumstances	385	(4)
The Earned Income Tax Credit	385	(1)
Credit for the Elderly and the Permanently and Totally Disabled	386	(1)
Credit for Adoption Expenses	386	(1)
Child Tax Credit	387	(1)
Credits, Phaseouts, and Effective Tax Rates	387	(2)
Allowances for Mixed Business and Personal Outlays	389	(82)
Controlling the Abuse of Business Deductions	391	(27)
Hobby Losses	391	(1)
Nickerson v. Commissioner	391	(5)
Notes and Questions	396	(3)
Home Offices and Vacation Homes	399	(1)
Problems	400	(1)
Popov v. Commissioner	401	(4)
Questions	405	(1)
Income Unconnected to a Trade or Business	406	(1)
Moller v. United States	406	(6)
Questions	412	(1)
Note	412	(1)
Whitten v. Commissioner	413	(3)
Questions	416	(1)
Problem	416	(1)
Office Decoration	416	(1)
Henderson v. Commissioner	416	(2)
Questions	418	(1)
Automobiles, Computers, and Other Listed Property	418	(1)
Travel and Entertainment Expenses	418	(19)
Question Presented	418	(2)
Rudolph v. United States	420	(3)
Section 274	423	(3)
Problems	426	(1)
Business Lunches	427	(1)
Moss v. Commissioner	427	(2)
Note	429	(1)
Questions	430	(1)
More on Entertaining Customers	430	(1)
Danville Plywood Corporation v. United States	430	(5)
Notes and Questions	435	(2)
Child-Care Expenses	437	(3)
Smith v. Commissioner	437	(1)
Notes and Questions	438	(2)
Commuting Expenses	440	(16)
Commissioner v. Flowers	440	(5)
Notes and Questions	445	(1)
Hantzis v. Commissioner	446	(5)
Notes and Questions	451	(3)
Problems: Testing the Rationale	454	(2)
Clothing Expenses	456	(3)
Pevsner v. Commissioner	456	(2)
Note	458	(1)
Questions	459	(1)
Legal Expenses	459	(6)
United States v. Gilmore	459	(4)
Notes and Questions	463	(2)
Expenses of Education	465	(3)
Carroll v. Commissioner	465	(1)
Notes and Questions	466	(2)
Business Deductions and Taxpayer Behavior	468	(3)
Deductions for the Costs of Earning Income	471	(102)
Current Expenses Versus Capital Expenditures	471	(12)
Encyclopaedia Britannica v. Commissioner	471	(5)
Notes and Questions	476	(2)
Revenue Ruling 85-82	478	(1)
Question	479	(1)
Note on Uniform Capitalization Rules (§263A)	480	(1)
Note on the INDOPCO Decision	481	(1)
Questions Concerning INDOPCO	482	(1)
Repair and Maintenance Expenses	483	(13)
Midland Empire Packing Co. v. Commissioner	483	(2)
Notes and Questions	485	(1)
Revenue Ruling 94--38	486	(3)
Notes and Questions	489	(1)
Norwest Corporation and Subsidiaries v. Commissioner	489	(7)
Questions	496	(1)
Inventory Accounting	496	(3)
Problems	499	(1)
Rent Payment Versus Installment Purchase	499	(4)
Starr's Estate v. Commissioner	499	(2)
Notes and Questions	501	(1)
Problem	502	(1)
Goodwill and Other Assets	503	(5)
Welch v. Helvering	503	(2)
Notes and Questions	505	(3)
``Ordinary and Necessary''	508	(14)
Extraordinary Behavior	508	(1)
Gilliam v. Commissioner	508	(5)
Notes and Questions	513	(2)
Reasonable Compensation	515	(1)
Costs of Illegal or Unethical Activities	516	(2)
Stephens v. Commissioner	518	(3)
Questions	521	(1)
Depreciation and the Investment Credit	522	(7)
General Principles	522	(3)
History	525	(1)
Basic Rules	526	(2)
Goodwill and Other Intangibles	528	(1)
Depletion and Intangible Drilling Costs	529	(3)
``Legitimate'' Tax Reduction, Tax Avoidance, and Tax Shelters	532	(41)
The Tax Shelter Problem	532	(2)
The Judicial Response to Tax Shelters	534	(1)
Knetsch v. United States	534	(3)
Notes and Questions	537	(2)
Subsequent Case	539	(3)
Estate of Franklin v. Commissioner	542	(4)
Notes and Questions	546	(1)
The Role of the Tax Lawyer	546	(2)
The Congressional Response to Tax Shelters	548	(5)
Notes and Questions	553	(1)
Sale and Leaseback Transactions	554	(3)
Rules Aimed at the Tax Lawyer	557	(2)
The Alternative Minimum Tax	559	(2)
Notes and Questions	561	(1)
Klaasen v. Commissioner	562	(3)
Questions	565	(1)
Prosman v. Commissioner	565	(2)
Questions	567	(1)
Problems	567	(1)
The New Market in Corporate Tax Shelters	568	(1)
Winn-Dixie Stores, Inc. v. Commissioner	569	(2)
Notes	571	(2)
The Splitting of Income	573	(66)
Income from Services: Diversion by Private Agreement	575	(2)
Lucas v. Earl	575	(1)
Notes and Questions	576	(1)
Income from Services: Diversion by Operation of Law	577	(4)
Poe v. Seaborn	577	(3)
Notes and Questions	580	(1)
The Marriage Penalty (and Bonus)	581	(2)
The Legislative Solution: Partial Income Splitting	581	(1)
Proposals to Eliminate the Marriage Penalty	582	(1)
Income from Services: More on Diversion by Private Agreement	583	(8)
Armantrout v. Commissioner	583	(5)
Notes and Questions	588	(3)
Transfers of Property and Income from Property	591	(8)
Blair v. Commissioner	592	(1)
Helvering v. Horst	593	(4)
Notes and Questions	597	(2)
Services Transformed into Property	599	(4)
Helvering v. Eubank	599	(1)
Heim v. Fitzpatrick	600	(2)
Notes and Questions	602	(1)
Trusts	603	(4)
Overview	603	(1)
Tax Treatment of (Ordinary) Simple Trusts	604	(1)
Tax Treatment of (Ordinary) Complex Trusts	605	(2)
The Use of Multiple Trusts	607	(1)
Grantor Trusts	607	(5)
Revocable Trusts	607	(1)
Totten Trusts and Similar Arrangements	608	(1)
Trusts for the Benefit of the Grantor	608	(1)
Reversions	608	(1)
Powers of Control	609	(1)
Administrative Powers	610	(1)
The Obligation of Support	610	(1)
Example	611	(1)
Nongrantors with Power to Demand Trust Income or Corpus	612	(1)
Gifts to Minors Under Uniform Acts	612	(2)
Revenue Ruling 59-357	612	(2)
Question	614	(1)
Family Partnerships and S Corporations	614	(1)
Gift and Leaseback	615	(5)
Brooke v. United States	615	(4)
Notes and Questions	619	(1)
Shifting Income Through and to Corporations	620	(9)
Shifting Income Through a Corporation	620	(1)
Foglesong v. Commissioner	621	(6)
Notes and Questions	627	(2)
Pension Trust	629	(10)
United States v. Basye	629	(7)
Notes and Questions	636	(3)
Capital Gains and Losses	639	(86)
Background	639	(1)
The Statutory Framework	640	(2)
Policy	642	(3)
Rationale for Favorable Treatment of Capital Gain	642	(2)
Rationale for the Limitation on Deduction of Capital Losses	644	(1)
Property Held ``Primarily for Sale to Customers''	645	(13)
Sale to ``Customers''	645	(1)
Bielfeldt v. Commissioner	645	(2)
Notes and Questions	647	(2)
``Primarily for Sale''	649	(1)
Biedenharn Realty Co. v. United States	649	(6)
Notes and Questions	655	(3)
Transactions Related to the Taxpayer's Regular Business	658	(11)
Corn Products Refining Co. v. Commissioner	659	(4)
Arkansas Best Corporation v. Commissioner	663	(5)
Notes and Questions	668	(1)
Substitutes for Ordinary Income	669	(24)
Payment for Cancellation of a Lease	669	(1)
Hort v. Commissioner	669	(2)
Notes and Questions	671	(4)
Sale of Interest in a Trust	675	(1)
McAllister v. Commissioner	675	(2)
Notes and Questions	677	(2)
Oil Payments	679	(1)
Commissioner v. P. G. Lake, Inc.	679	(2)
Notes and Questions	681	(1)
Bootstrap Sale to Charity	682	(1)
Commissioner v. Brown	682	(9)
Notes and Questions	691	(2)
Other Claims and Contract Rights	693	(20)
Termination Payments	693	(1)
Baker v. Commissioner	693	(7)
Notes and Questions	700	(1)
Theatrical Production Rights	701	(1)
Commissioner v. Ferrer	701	(7)
Notes and Questions	708	(1)
Right of Privacy or of Exploitation	709	(1)
Miller v. Commissioner	709	(3)
Questions	712	(1)
Patents and Copyrights	712	(1)
Bail-Out of Corporate Earnings	713	(3)
Gregory v. Helvering	713	(2)
Note	715	(1)
Fragmentation Versus Unification of Collective Assets	716	(3)
Williams v. McGowan	716	(2)
Notes and Questions	718	(1)
Correlation with Prior Related Transactions	719	(3)
Merchants National Bank v. Commissioner	719	(1)
Arrowsmith v. Commissioner	719	(3)
Note	722	(1)
Requirement of a Sale or Exchange	722	(3)
Table of Cases	725	(6)
Table of Internal Revenue Code Provisions	731	(8)
Table of Treasury Regulations	739	(2)
Table of Revenue Rulings	741	(2)
Table of Miscellaneous IRS Pronouncements	743	(2)
Index	745