Federal Income Taxation Black Letter

by Hudson, David M.

• ISBN13: 9780314263674
• ISBN10: 0314263675
• Edition: 8th
• Format: Hardcover
• Copyright: 2002-07-01
• Publisher: West Information Pub Group

Table of Contents

Capsule Summary	1	(26)
Perspective	27	(6)
Introduction	28	(2)
The Subject in General	28	(1)
Preparing for Examinations	29	(1)
Additional Reading	30	(1)
History of the U.S. Income Tax	30	(1)
Sources of Tax Law	31	(2)
Gross Income	33	(58)
The Nature of Gross Income	34	(3)
Economists' Concept of Income	34	(1)
Imputed Income	34	(1)
Accretion in Value	34	(1)
Tax Law Concept of Income	35	(1)
Realization Requirement	35	(1)
Receipt of an Economic Benefit	36	(1)
Borrowing	36	(1)
Illegal Gains	36	(1)
Rebates	37	(1)
Damages	37	(1)
Examples of Gross Income	37	(28)
Compensation for Services	37	(1)
Payments ``In Kind''	37	(1)
Bargain-Purchase	38	(1)
Compensation Without the Receipt of Cash or Property	38	(1)
Excessive Compensation	38	(1)
Fringe Benefits	39	(1)
In General	39	(1)
No-Additional-Cost Services	39	(1)
Qualified Employee Discounts	40	(1)
Qualified Employee Discounts for Property	40	(1)
Qualified Employee Discounts for Services	41	(1)
Working Condition Fringe Benefits	41	(1)
De Minimis Fringe Benefits	42	(1)
Qualified Transportation Fringe Benefits	42	(1)
Transportation Between Residence and Place of Employment	42	(1)
Qualified Parking	43	(1)
Limitations on Transportation Fringe Benefits	43	(1)
Qualified Moving Expense Reimbursement	43	(1)
Qualified Retirement Planning Services	43	(1)
Athletic Facilities	44	(1)
Additional Considerations	44	(1)
Nondiscrimination Rules	44	(1)
Definition of ``Employee''	44	(1)
Gains Derived From Dealings in Property	44	(1)
Basis	45	(1)
Introduction	45	(1)
Cost Basis	45	(1)
Deferred Payment	45	(1)
Exchanges	46	(1)
``Tax Cost'' Basis	47	(1)
Property Acquired From a Decedent	47	(1)
General Fair Market Value Rule	48	(1)
Exceptions	48	(1)
Test of Estate Inclusion	48	(1)
Special Community Property Rule	48	(1)
Section 1014(e) Denial of Stepped-up Basis	49	(1)
Property Acquired by Gift	49	(1)
Exception	50	(1)
Effect of Gift Tax	50	(2)
Part Gift-Part Sale-In General	52	(1)
Bargain Sale to Charitable Organization	52	(2)
Property Acquired From a Spouse	54	(1)
Adjustments to Basis	54	(1)
Increases	54	(1)
Reductions	54	(1)
Apportionment of Basis	55	(1)
Uniform Basis Rule	56	(1)
Personal-Use Property Converted to Business-Use	57	(1)
Amount Realized	58	(1)
Fair Market Value of Consideration Received	58	(1)
Selling Expenses	58	(1)
Apportionment	59	(1)
Mixed Motive Transactions	59	(1)
Role of Liabilities	60	(1)
Realized Gain (Loss) vs. Recognized Gain (Loss)	61	(1)
Items Specifically Included in Gross Income by Statute	61	(1)
Prizes and Awards	61	(1)
In General	61	(1)
Exceptions	62	(1)
Qualified Scholarships	62	(1)
Prizes and Awards Transferred to Charities	62	(1)
Employee Achievement Awards	62	(1)
Alimony and Separate Maintenance Payments	63	(1)
Services of a Child	63	(1)
Reimbursement for Expenses of Moving	63	(1)
Transfer of Appreciated Property to a Political Organization	63	(1)
Social Security Payments	63	(1)
Unemployment Compensation	64	(1)
Annuities	64	(1)
Items Specifically Excluded From Gross Income by Statute	65	(22)
Proceeds of Life Insurance	65	(1)
In General	65	(1)
Installment Payments of Proceeds	66	(1)
Transfer of Policy for Valuable Consideration	66	(1)
Gifts and Inheritances	67	(1)
Gifts	67	(1)
Inheritances	68	(1)
Interest on State and Local Bonds	69	(1)
Private Activity Bond Which Is Not a Qualified Bond	69	(1)
Arbitrage Bond	70	(1)
Registration Requirement	70	(1)
Compensation for Injuries or Sickness and Damages	70	(1)
Introduction	70	(2)
Compensation for Injuries or Sickness	72	(1)
Workmen's Compensation	72	(1)
Damages for Personal Physical Injuries or Physical Sickness	72	(1)
Generally	72	(1)
Defining Physical Injury or Physical Sickness	73	(1)
Punitive Damages	73	(1)
Recoveries Under Accident or Health Insurance	73	(1)
Payments for and Recoveries Under Employer-Provided Accident or Health Plans	74	(1)
Amounts Spent for Medical Care	74	(1)
Payments Unrelated to Absence From Work	75	(1)
Income From Discharge of Indebtedness	75	(1)
Bankruptcy and Insolvency	75	(1)
In General	75	(1)
Reduction of Tax Attributes	76	(1)
Reduction of Basis	76	(1)
Solvency or Partial Solvency	77	(1)
Purchase Price Adjustment	77	(1)
Gratuitous Debt Forgiveness	78	(1)
Equity for Debt	78	(1)
Student Loans	78	(1)
Qualified Farm Indebtedness	78	(1)
Qualified Real Property Business Indebtedness	78	(1)
Educational Provisions	79	(1)
Qualified Scholarships	79	(1)
Qualified Tuition Reduction	80	(1)
Educational Assistance Programs	81	(1)
Education Savings Accounts	81	(1)
Qualified Tuition Programs	81	(1)
United States Savings Bonds	82	(1)
HOPE Scholarship and Lifetime Learning Credits	82	(1)
Meals and Lodging	82	(1)
Exclusion of Meals	82	(1)
Business Premises of the Employer	83	(1)
Convenience of the Employer	83	(1)
Additional Considerations	83	(1)
``Meals''	83	(1)
Employee's Family	84	(1)
Meals and Lodging	84	(1)
Exclusion of Lodging	84	(1)
Business Premises of the Employer	84	(1)
Convenience of the Employer	84	(1)
Faculty Housing	85	(1)
Rental Value of Parsonages	85	(1)
Miscellaneous Items Excluded From Income by Statute	85	(1)
Improvements by Lessee on Lessor's Property	86	(1)
Armed Forces Personnel	86	(1)
Amounts Received Under Insurance Contracts for Certain Living Expenses	86	(1)
Certain Foster Care Payments	86	(1)
Group-Term Life Insurance Purchased for Employees	86	(1)
Adoption Assistance Programs	87	(1)
Disaster Relief Payments	87	(1)
Review Questions	87	(4)
Deductions and Allowances	91	(114)
Profit Related Deductions and Allowances	93	(56)
Trade or Business Expenses	93	(1)
``Ordinary and Necessary''	93	(1)
``Expenses''	94	(1)
Capital Expenditures vs. Repairs	94	(2)
Advertising	96	(1)
``Carrying On''	96	(1)
Expenses Incurred as an Entrepreneur	96	(1)
Expenses Incurred in Obtaining Employment as an Employee	97	(1)
``Trade or Business''	97	(1)
Salaries	98	(1)
Reasonable Compensation	98	(2)
Golden Parachute Payments	100	(1)
Traveling Expenses	101	(1)
In General	102	(1)
``Away From Home''	102	(1)
Overnight Rule	103	(1)
Travel for Business and Personal Reasons	104	(1)
Foreign Travel	104	(1)
Water Transportation	105	(1)
Other Persons Traveling With Taxpayer	105	(1)
Legislators	105	(1)
Meals	106	(1)
Rentals	106	(1)
In General	106	(1)
Transfer and Lease-Back	107	(1)
Expenses for Education	108	(1)
In General	108	(1)
Tests of Deductibility	108	(1)
Maintaining or Improving Skills	108	(1)
Meeting Requirements of Employer or Law	109	(1)
Tests of Nondeductibility	109	(1)
Minimum Educational Requirements	109	(1)
Qualification for New Trade or Business	110	(1)
The ``Carrying on'' Requirement	110	(1)
Travel as Education	111	(1)
Travel to Obtain Education	112	(1)
Qualified Tuition and Related Expenses	112	(1)
Miscellaneous Business Deductions	112	(1)
Entertainment	113	(1)
Uniforms	113	(1)
Dues	113	(1)
Periodicals	113	(1)
Utilities	113	(1)
Taxes	114	(1)
Health Insurance for Self-Employed Individuals	114	(1)
Substantiation Requirements	114	(1)
Nonbusiness Expenses	115	(2)
Production or Collection of Income	117	(1)
Management of Income Producing Property	117	(1)
Expenses in Connection With Taxes	118	(1)
Losses	118	(1)
In General	118	(1)
Amount of Loss	119	(1)
In General	119	(1)
``Compensated for by Insurance or Otherwise''	119	(1)
Losses on Property Converted From Personal Use to Business Use	120	(1)
Classification of Losses	120	(1)
Trade or Business Losses	120	(1)
Demolition Losses	121	(1)
Gambling Losses	121	(1)
Losses Incurred in a Transaction Entered Into for Profit	121	(1)
Worthless Securities	122	(1)
Registration Requirement	122	(1)
Casualty Losses	122	(1)
Timing of Losses	122	(1)
Bad Debts	123	(1)
In General	123	(1)
Bona Fide Debt Requirement	123	(1)
Determination of Worthlessness	123	(1)
Amount of Deduction	123	(1)
Special Rules for Business Bad Debts	124	(1)
Special Rules for Nonbusiness Debts	124	(1)
Worthless Securities	125	(1)
Debts Owed by Political Parties	125	(1)
Property	125	(1)
Depreciation Deductions (Non-ACRS)	126	(1)
Cost or Other Basis	126	(1)
Useful Life	127	(1)
Salvage Value	128	(1)
Methods of Computing Depreciation	129	(1)
Straight Line Method	129	(1)
Declining Balance Method	129	(1)
Sum of the Years-Digits Method	130	(1)
Other Methods	131	(1)
Relationship of Depreciation Deductions to Basis	131	(1)
Accelerated Cost Recovery System (ACRS)	131	(1)
In General	131	(1)
Tangible Property	132	(1)
Anti-Churning Rules	132	(1)
Operation of Current ACRS	133	(1)
Related Concept of Depletion	133	(1)
Special Rules for Personal Property	134	(1)
Introduction	134	(1)
Section 179 Bonus Depreciation	134	(1)
Section 179 Property	134	(1)
Limitations	135	(1)
Recapture	136	(1)
Special Depreciation Allowance for Certain Property Acquired after September 10, 2001, and before September 11, 2004	136	(1)
Regular Investment Tax Credit	137	(1)
Section 168 Accelerated Cost Recovery System (ACRS)	137	(1)
Applicable Depreciation Methods	138	(1)
Applicable Recovery Period	138	(1)
Applicable Convention	139	(2)
Alternative Depreciation System	141	(1)
Section 167 Depreciation	142	(1)
Section 280F Limitations	142	(1)
``Luxury Automobiles''	142	(1)
``Listed Property''	143	(1)
Summary of Interrelationship of Special Rules for Personal Property	144	(1)
Special Rules for Real Property	145	(1)
Section 168 Accelerated Cost Recovery System (ACRS)	145	(1)
Classifications of Real Property	145	(1)
Applicable Depreciation Method	146	(1)
Applicable Recovery Period	146	(1)
Applicable Convention	146	(1)
Alternative Depreciation System	146	(1)
Anti-Churning Rules	147	(1)
Section 167 Depreciation	147	(1)
Net Operating Loss Deduction	147	(2)
Personal Deductions and Allowances	149	(29)
Personal Exemptions	149	(1)
Taxpayer and Spouse	149	(1)
Exemptions for Dependents	150	(1)
In General	150	(1)
Gross Income Test	150	(1)
Relationship Test	151	(1)
Support Test	151	(1)
Children of Divorced Parents	152	(1)
Interest	153	(1)
In General	153	(1)
Trade or Business Interest	153	(1)
Investment Interest	153	(1)
Interest in Connection With a Passive Activity	154	(1)
Qualified Residence Interest	154	(1)
Interest Payable on Estate Tax Deficiencies	155	(1)
Year of Deduction	155	(1)
Additional Restrictions on Interest Deductions	156	(1)
Unstated Interest	156	(1)
Interest on Education Loans	156	(1)
Taxes	157	(1)
In General	157	(1)
Property Taxes	157	(1)
Personal Casualty and Theft Losses	158	(1)
Nature of the Casualty	158	(1)
Measure of the Loss	159	(1)
Amount of Deduction	160	(1)
Definitions of Personal Casualty Gains and Losses	160	(1)
Excess of Personal Casualty Losses Over Personal Casualty Gains	160	(1)
Excess of Personal Casualty Gains Over Personal Casualty Losses	161	(1)
Year of Deduction	161	(1)
Worthless Nonbusiness Debts	161	(1)
Charitable Contributions	162	(1)
Qualified Donees	162	(1)
Contributions	162	(1)
In General	162	(1)
Partial Consideration	162	(1)
Bargain Sale to a Qualified Donees	163	(1)
Amount of Charitable Contribution	164	(1)
Cash	164	(1)
Property	164	(1)
Ordinary Income and Short-Term Capital Gain Property	164	(1)
Long-Term Capital Gain Property	165	(1)
Services	166	(1)
Partial Interests in Property	166	(1)
Transfers in Trust	166	(1)
Transfers Not in Trust	167	(1)
Limitations on Contributions Amounts	167	(1)
In General	167	(1)
Contribution Base	167	(1)
Public Charities	167	(1)
50% Limitation	167	(1)
Capital Gain Property...30% Limitation	168	(1)
Private Foundations	168	(1)
30% Limitation	168	(1)
Capital Gain Property...20% Limitation	169	(1)
Carryovers	170	(1)
Year of Deduction	171	(1)
Verification	171	(1)
Extraordinary Medical Expenses	171	(1)
In General	171	(1)
Medical Care	172	(1)
Capital Expenditures	172	(1)
Alimony	173	(1)
Moving Expenses	173	(1)
In General	173	(1)
Conditions for Allowance of Deduction	173	(1)
Distance Requirement	173	(1)
Employment-Duration Requirement	174	(1)
Qualified Moving Expenses	174	(1)
Time for Deduction	175	(1)
Special Rules	175	(1)
Retirement Savings	175	(1)
Individual Retirement Accounts	175	(1)
Roth IRA's	176	(1)
Employment Plans	177	(1)
Jury Duty Pay	177	(1)
Archer Medical Savings Account (MSA)	177	(1)
Restrictions on Deductions	178	(22)
Personal, Living and Family Expenses	178	(1)
Illegal Activities	179	(1)
Activities Not Engaged in for Profit	179	(1)
In General	179	(1)
``Activity Not Engaged in for Profit''	179	(1)
Presumptions	179	(1)
Allowable Deductions	180	(1)
Expenses and Interest Relating to Tax-Exempt Income	180	(1)
Transactions Between Related Taxpayers	181	(1)
In General	181	(1)
Relationships	181	(1)
Losses and Relief on Subsequent Sales	182	(1)
Deferred Timing of Deductions	182	(1)
Entertainment Expenses	182	(1)
In General	182	(1)
Activity	183	(1)
Facility	183	(1)
Entertainment Tickets	184	(1)
Skyboxes	184	(1)
Exceptions to the Disallowance Rules	184	(1)
Substantiation	185	(1)
Business Use of Home and Rental of Vacation Homes	185	(1)
In General	185	(1)
``Dwelling Unit''	185	(1)
Use as a Residence	185	(1)
Business Use	186	(1)
Certain Business Use	186	(1)
Certain Storage Use	187	(1)
Use in Providing Day Care Services	188	(1)
Rental of Dwelling Unit	188	(1)
De Minimis Rule	188	(1)
Dwelling Unit Rented for More Than 14 Days, but Not Used as a ``Residence''	188	(1)
Dwelling Unit Rented for More Than 14 Days and Used as a ``Residence''	189	(1)
Rental of Principal Residence	189	(1)
Demolition of Structures	190	(1)
Deductions Limited to Amount at Risk	190	(1)
In General	190	(1)
Amounts Considered ``at Risk''	190	(1)
Recapture	191	(1)
Passive Activity Losses and Credits	192	(1)
Passive Activity	192	(1)
In General	192	(1)
Rental Activities	193	(1)
Working Interests in Oil and Gas Property	194	(1)
Passive Activity Loss or Credit	194	(1)
Treatment of Passive Activity Loss or Credit	194	(1)
In General	194	(1)
Special Rules for Rental Real Estate Activities	195	(1)
Treatment of Former Passive Activities	196	(1)
Taxable Disposition of Passive Activity	197	(1)
Nontaxable Disposition of Passive Activity	198	(1)
Interrelationship With Other Code Provisions	198	(1)
Loss From Wash Sales of Stock or Securities	199	(1)
In General	199	(1)
Substantially Identical Stock or Securities	199	(1)
Unadjusted Basis	200	(1)
Review Questions	200	(5)
Timing	205	(58)
Taxable Period	206	(1)
Methods of Accounting	206	(25)
Cash Receipts and Disbursements Method	207	(1)
Receipts	207	(1)
In General	207	(1)
Constructive Receipt	207	(1)
Disbursements	208	(1)
In General	208	(1)
Prepaid Expenses	209	(1)
Accrual Method	210	(1)
Effect of Economic and Legal Contingencies on Income and Deductions	210	(1)
Economic Contingencies	210	(1)
Legal Contingencies	210	(2)
Income	212	(1)
In Genera	212	(1)
Advance Payments for Services	212	(1)
Exceptions Under Case Law	213	(1)
Exceptions Allowed by the I.R.S.	214	(2)
Exceptions Under Statutes	216	(1)
Advance Payments for Goods	216	(1)
Advance Payments for Use of Property	216	(1)
Deductions	217	(1)
In General	217	(1)
Reserve Accounting	218	(1)
Inventories	218	(1)
Cost of Goods Sold	218	(1)
Valuation of Inventories	219	(1)
Last-In, First-Out Inventories	219	(1)
Mark-to-Market Method for Securities Dealers	220	(1)
Installment Method	221	(1)
Transactions Under IRC § 453	221	(1)
Installment Sale	221	(1)
Installment Method	222	(1)
In General	222	(1)
Contingent Payment Sales	222	(1)
Property Encumbered by Indebtedness	223	(2)
Character of Gain	225	(1)
Situations in Which § 453 Does Not Apply	225	(1)
Losses	225	(1)
Recapture Income	225	(1)
Sale of Depreciable Property to Controlled Entity	226	(1)
Revolving Credit Plans and Stock or Securities	226	(1)
Dealer Dispositions	226	(1)
Second Disposition by Related Person	227	(1)
Disposition of an Installment Obligation	228	(1)
Special Rules	229	(1)
Interest Payment on Certain Deferred Tax Liabilities	229	(1)
Pledges of Installment Obligations	230	(1)
Transactions Elected Out of IRC § 453	230	(1)
Election	231	(1)
Consequences of Election	231	(1)
Open Transaction Doctrine	231	(1)
Judicial Doctrines	231	(2)
Claim of Right Doctrine	231	(1)
In General	231	(1)
Computation of Tax Where Taxpayer Restores Substantial Amount Held Under Claim of Right	232	(1)
Tax Benefit Rule	233	(1)
In General	233	(1)
Recovery of Tax Benefit Items	233	(1)
Nonrecognition Provisions	233	(16)
Like Kind Exchanges	234	(1)
In General	234	(1)
Qualifying Property	235	(1)
Like Kind Property	236	(1)
Exchanges Not Solely in Kind	237	(1)
Deferred Exchanges	237	(1)
Liabilities	238	(1)
Exchanges Between Related Persons	238	(1)
Basis of Property Acquired in an Exchange	239	(1)
Involuntary Conversions	240	(1)
In General	240	(1)
Compulsory or Involuntary Conversion	240	(1)
Conversion Into Similar Property	241	(1)
Conversion Into Money or Dissimilar Property	241	(1)
Purchase	242	(1)
Qualifying Corporate Stock	242	(1)
Period for Replacement	242	(1)
Similar Property	242	(1)
Owner-Users	243	(1)
Owner-Investors	243	(1)
Condemnation of Real Property	244	(1)
Basis of Replacement Property	244	(1)
Conversion Into Similar Property	244	(1)
Conversion Into Money or Dissimilar Property	245	(1)
Conversion Into Qualifying Corporate Stock	245	(1)
Property Damaged by Presidentially Declared Disaster	246	(1)
Sale of Principal Residence	247	(1)
In General	247	(1)
Principal Residence	247	(1)
Limitations on the Exclusion of Gain Realized from the Sale or Exchange of a Principal Residence	248	(1)
Exclusion for Taxpayers Failing to Meet Certain Requirements	248	(1)
Recognition of Gain Attributable to Depreciation	249	(1)
Transfer of Property Between Spouses or Incident to Divorce	249	(1)
Miscellaneous	249	(1)
Unstated Interest	249	(9)
Loans With Below-market Interest Rates	250	(1)
Gift Loans	250	(1)
Term Gift Loans	251	(1)
Demand Gift Loans	251	(1)
Exceptions	252	(1)
Nongift Loans	252	(1)
Term Nongift Loans	253	(1)
Demand Nongift Loans	253	(1)
Exception	254	(1)
Original issue Discount	254	(1)
Deferred Payments for Property	254	(1)
Debt Instruments Without Adequate Stated Interest	254	(2)
Debt Instruments With Adequate Stated Interest	256	(1)
Exceptions	256	(1)
Loans	257	(1)
Interest on Certain Deferred Payments	257	(1)
Special Rules	258	(2)
Annuities	258	(1)
Deferred Compensation	259	(1)
Review Questions	260	(3)
Who Is the Proper Taxpayer?	263	(24)
Families	264	(1)
Assignment of Income	265	(14)
Income From Services	265	(2)
Income From Property	267	(1)
In General	267	(1)
Income Interest in Property	268	(1)
Ripeness	269	(1)
Timing	270	(1)
Anticipatory Assignment for Value	270	(1)
Income Producing Entities	271	(1)
In General	271	(1)
Assignment of Income Through a Partnership	272	(1)
Is the Partnership Valid?	272	(1)
Partnership Where Capital Is a Material Income-Producing Factor	273	(1)
In General	273	(1)
Reallocation of Partnership Income	273	(1)
Assignment of Income Through a Corporation	274	(2)
Assignment of Income Through a Trust	276	(1)
In General	276	(1)
Trusts for the Benefit of the Grantor	276	(1)
Permissible Reversions and Powers	277	(1)
Person Other Than Grantor Treated as Owner of Trust	278	(1)
Allocation of Income and Deductions Among Taxpayers	278	(1)
Alimony, Child Support, and Property Settlements	279	(6)
Alimony	279	(1)
In General	279	(1)
Definition of Alimony or Separate Maintenance Payments	280	(1)
Front-Loading Rules	280	(1)
General Rules	281	(2)
Exceptions	283	(1)
Indirect Alimony	283	(1)
Child Support	283	(1)
Transfers of Property Between Spouses or Incident to Divorce	284	(1)
Review Questions	285	(2)
Characterization of Income and Deductions	287	(38)
Introduction	289	(1)
Treatment of Capital Gains and Losses	289	(23)
Treatment of Capital Gains	289	(1)
Definitions	289	(1)
``Net Capital Gain''	289	(1)
``Adjusted Net Capital Gain''	290	(1)
``28% Rate Gain''	290	(1)
``Collectibles Gain''	290	(1)
``Unrecaptured Section 1250 Gain''	291	(1)
``Section 1202 Gain''	291	(1)
Maximum Rates for Capital Gains	291	(1)
General Rate Structure	291	(1)
Exceptions to the General Rates	292	(1)
Application of Capital Gain Rates	292	(1)
Treatment of Capital Losses	293	(1)
In General	293	(1)
Limitation on Capital Losses	294	(1)
Losses to the Extent of Gains	294	(1)
Additional Amount	294	(1)
Netting long-term capital gains against long term capital losses	295	(1)
Capital Loss Carryovers	295	(2)
Definition of Capital Asset	297	(1)
Statutory Definition	298	(1)
Inventory	298	(1)
Property Held Primarily for Sale to Customers in the Ordinary Course of Business	298	(1)
Real Property Subdivided for Sale	299	(1)
Depreciable Property and Real Property Used in Trade or Business	300	(1)
Copyrights and Similar Property	301	(1)
Accounts Receivable	301	(1)
Publications of the U.S. Government	301	(1)
Commodities Derivative Financial Instruments	302	(1)
Hedging Transactions	302	(1)
Supplies	302	(1)
Income Property	302	(1)
The ``Sale or Exchange'' Requirement	303	(1)
In General	303	(1)
Special Rules	304	(1)
Worthless Securities	304	(1)
Nonbusiness Bad Debts	304	(1)
Options	304	(1)
Cancellation of Lease or Distributor's Agreement	305	(1)
Transfers of Franchises, Trademarks, and Trade Names	305	(1)
Amounts Received on Retirement of Debt Instruments	305	(1)
Holding Period	306	(1)
In General	306	(1)
Special Rules	307	(1)
Nonbusiness Bad Debts	307	(1)
Exchanged Basis Property	307	(1)
Transferred or Carryover Basis Property	307	(1)
Wash Sales of Stock or Securities	308	(1)
Property Acquired From a Decedent	308	(1)
Short Sales of Property	308	(1)
Correlation With Prior Transactions	309	(1)
Special Provisions	310	(1)
Options	310	(1)
Patents	310	(1)
Dealers in Securities	311	(1)
Small Business Stock	311	(1)
Conversion Transactions	312	(1)
Quasi-Capital Assets	312	(4)
In General	312	(1)
Section 1231 Assets	313	(1)
The Subhotchpot	314	(1)
The Main Hotchpot	314	(1)
Recapture	315	(1)
Sale of Depreciable Property Between Related Taxpayers	316	(1)
Recapture of Depreciation	316	(5)
In General	316	(1)
Recapture Under Section 1245	317	(1)
In General	317	(1)
Section 1245 Property	317	(1)
Recomputed Basis	318	(1)
Exceptions	319	(1)
Recapture Under Section 1250	320	(1)
In General	320	(1)
Section 1250 Property	320	(1)
Additional Depreciation	320	(1)
Applicable Percentage	321	(1)
Exceptions	321	(1)
Review Questions	321	(4)
Computing Tax Liability	325	(24)
Adjusted Gross Income	327	(1)
Taxable Income	328	(4)
Standard Deduction	328	(1)
Background	328	(1)
Basic Standard Deduction	329	(1)
Additional Standard Deduction for Aged and Blind	329	(1)
Limitations	329	(1)
Itemized Deductions	330	(1)
In General	330	(1)
Miscellaneous Itemized Deductions	330	(1)
Overall Limitation	331	(1)
Deductions for Personal Exemptions	332	(1)
Classification of Taxpayers	332	(3)
In General	332	(1)
Determination of Marital Status	333	(1)
In General	333	(1)
Certain Married Individuals Living Apart	333	(1)
Married Taxpayers Filing Joint Returns	333	(1)
Surviving Spouses	334	(1)
Heads of Household	334	(1)
Unmarried Individuals	334	(1)
Other Classifications of Taxpayers	335	(1)
Tax Rates	335	(2)
In General	335	(1)
Tax Rate for Children Under Age 14	336	(1)
Alternative Minimum Tax	337	(1)
Tax Credits	338	(9)
Nonrefundable Personal Credits	339	(1)
Expenses for Household and Dependent Care Services Necessary for Gainful Employment	339	(1)
Credit for the Elderly and the Disabled	340	(1)
Adoption Expenses	340	(1)
Child Tax Credit	341	(1)
Interest on Certain Home Mortgages	341	(1)
HOPE Scholarship and Lifetime Learning Credits	341	(1)
Credit for Elective Deferrals and IRA Contributions	342	(1)
Miscellaneous Nonrefundable Credits	342	(1)
Foreign Tax Credit	342	(1)
Producing Fuel From a Nonconventional Source	342	(1)
Qualified Electric Vehicles	343	(1)
Nonrefundable General Business Credit	343	(1)
Investment Tax Credit	343	(1)
Work Opportunity Credit	343	(1)
Alcohol Fuels	344	(1)
Increasing Research Activities	344	(1)
Low-Income Housing	344	(1)
Enhanced Oil Recovery Credit	344	(1)
Expenditures by Small Business to Provide Handicapped Access	344	(1)
Electricity Produced From Certain Renewable Resources	344	(1)
Empowerment Zone Employment Credit	344	(1)
Indian Employment Credit	345	(1)
Employer Social Security Credit	345	(1)
Clinical Testing of Certain Drugs	345	(1)
New Markets Credit	345	(1)
Small Employer Pension Plan Startup Costs	345	(1)
Employer Funded Child Care	345	(1)
Nonrefundable Credit for Prior Year Minimum Tax Liability	346	(1)
Refundable Credits	346	(1)
Tax Withheld on Wages	346	(1)
Earned Income	346	(1)
Overpayments of Tax	347	(1)
Review Questions	347	(2)
Procedure	349	(86)
Pay as You Earn	350	(1)
Income Tax Returns	350	(2)
Annual Returns	350	(1)
Penalties	351	(1)
Refunds	352	(1)
Deficiencies	353	(1)
Taxpayer Bill of Rights	354	(1)
Court Structure	355	(2)
Trial Forums	355	(1)
Appellate Forums	355	(2)
APPENDICES
A. Answers to Review Questions	357	(32)
B. Practice Examination	389	(8)
C. Text Correlation Chart	397	(8)
D. Glossary	405	(10)
E. Table of Cases, IRC Sections, Treasury Regulations, Revenue Rulings and Procedures	415	(20)
F. Index	435