Fundamentals of Federal Income Taxation

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  • Edition: 15th
  • Format: Hardcover
  • Copyright: 2009-07-15
  • Publisher: Foundation Pr

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This casebook provides detailed information on federal income taxation, with specific assignments to the Internal Revenue Code, selected cases, and administrative rulings from the Internal Revenue Service. The revised and updated Fifteenth Edition retains the book?s long standing format and much of its prior materials, but it is updated to reflect recent events including all legislative developments, especially the American Recovery and Reinvestment Act of 2009. The new edition contains coverage of changes in the cost recovery system, the rules related to principal residences, and personal tax credits. Coverage of personal tax credits has been substantially revised to include sections on the American Opportunity Tax Credit, the Making Work Pay Credit, and the First-Time Homebuyer Credit. The material on computation of tax liability has also been updated to consider some of the changes contained in President Obama's 2009 Budget Message. The problems have been updated and recent cases and rulings have been selectively added to the text. The Text is accompanied by an extensive Teachers' Manual containing answers to the problems, comments on cases not contained in the text, and suggestions on teaching the course.

Table of Contents

Prefacep. v
Table of Internal Revenue Code Sectionsp. xxix
Table of Treasury Regulationsp. lxxi
Table of Internal Revenue Rulingsp. lxxix
Table of Miscellaneous Rulingsp. lxxxi
Table of Casesp. lxxxiii
Table of Authoritiesp. xcv
Introductionp. 1
Orientationp. 2
A Look Forwardp. 2
A Glimpse Backwardp. 5
The Income Tax and the United States Constitutionp. 10
The Tax Practitioner's Toolsp. 17
Tax Policy Considerationsp. 29
The Road Aheadp. 41
Identification of Income Subject to Taxationp. 45
Gross Income: The Scope of Section 61p. 46
Introduction to Incomep. 46
Equivocal Receipt of Financial Benefitp. 47
Cesarini v. United Statesp. 47
Old Colony Trust Co. v. Commissionerp. 52
Commissioner v. Glenshaw Glass Co.p. 54
Charley v. Commissionerp. 58
Income Without Receipt of Cash or Propertyp. 64
Helvering v. Independent Life Ins. Co.p. 64
Revenue Ruling 79-24p. 64
Dean v. Commissionerp. 65
The Exclusion of Gifts and Inheritancesp. 67
Rules of Inclusion and Exclusionp. 67
Giftsp. 68
The Income Tax Meaning of Giftp. 68
Commissioner v. Dubersteinp. 69
Employee Giftsp. 78
Bequests, Devises, and Inheritancesp. 80
Lyeth v. Hoeyp. 80
Wolder v. Commissionerp. 85
Employee Benefitsp. 89
Exclusions for Fringe Benefitsp. 89
Exclusions for Meals and Lodgingp. 99
Herbert G. Hattp. 100
Awardsp. 105
Prizesp. 105
Allen J. McDonellp. 107
Scholarships and Fellowshipsp. 111
Gain From Dealings in Propertyp. 115
Factors in the Determination of Gainp. 115
Determination of Basisp. 116
Cost as Basisp. 116
Philadelphia Park Amusement Co. v. United Statesp. 116
Property Acquired by Giftp. 120
Taft v. Bowersp. 120
Farid-Es-Sultaneh v. Commissionerp. 122
Property Acquired Between Spouses or Incident to Divorcep. 127
Property Acquired From a Decedentp. 129
The Amount Realizedp. 132
International Freighting Corporation, Inc. v. Commissionerp. 132
Crane v. Commissionerp. 135
Commissioner v. Tuftsp. 143
Life Insurance Proceeds and Annuitiesp. 153
Life Insurance Proceedsp. 153
Annuity Paymentsp. 157
Discharge of Indebtednessp. 163
United States v. Kirby Lumber Co.p. 163
Zarin v. Commissionerp. 164
Revenue Ruling 2008-34p. 178
Damages and Related Receiptsp. 183
Introductionp. 183
Damages In Generalp. 184
Raytheon Production Corporation v. Commissionerp. 184
Damages and Other Recoveries for Personal Injuriesp. 187
Revenue Ruling 79-313p. 193
Separation and Divorcep. 196
Alimony and Separate Maintenance Paymentsp. 196
Direct Paymentsp. 196
Indirect Paymentsp. 206
I.T. 4001p. 206
Property Settlementsp. 209
Young v. Commissionerp. 213
Other Tax Aspects of Divorcep. 218
Child Supportp. 218
Alimony Payments Made by a Third Partyp. 220
Divorcep. 223
Other Exclusions From Gross Incomep. 227
Gain From the Sale of a Principal Residencep. 227
Excerpts from Senate Report No. 105-33 (pages 35-37), and Conference Report No. 105-220 (page 387), 105th Cong., 1st Sess. (1997)p. 228
Income Earned Abroadp. 234
Exclusions and Other Tax Benefits Related to the Costs of Higher Educationp. 235
Federal Taxes and State Activitiesp. 243
Identification of the Proper Taxpayerp. 249
Assignment of Incomep. 250
Introductionp. 250
Income From Servicesp. 252
Lucas v. Earlp. 252
Commissioner v. Gianninip. 253
Revenue Ruling 66-167p. 258
Revenue Ruling 74-581p. 260
Income From Propertyp. 263
Helvering v. Horstp. 263
Blair v. Commissionerp. 267
Estate of Stranahan v. Commissionerp. 269
Susie Salvatorep. 272
Revenue Ruling 69-102p. 276
Income Producing Entitiesp. 284
Introductionp. 284
Trusts and Estatesp. 290
Corliss v. Bowersp. 290
Helvering v. Cliffordp. 291
Partnershipsp. 300
Commissioner v. Culbertsonp. 300
Corporationsp. 307
Overton v. Commissionerp. 307
Johnson v. Commissionerp. 309
Borge v. Commissionerp. 312
Deductions in Computing Taxable Incomep. 317
Business Deductionsp. 318
Introductionp. 318
The Anatomy of the Business Deduction Workhorse: Section 162p. 320
"Ordinary and Necessary"p. 320
Welch v. Helveringp. 320
"Expenses"p. 323
Midland Empire Packing Co. v. Commissionerp. 325
INDOPCO, Inc. v. Commissionerp. 332
"Carrying On" Businessp. 341
Morton Frank v. Commissionerp. 341
Specific Business Deductionp. 349
"Reasonable" Salariesp. 349
Exacto Spring Corporation v. Commissionerp. 349
Harolds Club v. Commissionerp. 356
Travel "Away From Home"p. 363
Rosenspan v. United Statesp. 363
Andrews v. Commissionerp. 371
Revenue Ruling 99-7p. 377
Necessary Rental and Similar Paymentsp. 382
Starr's Estate v. Commissionerp. 382
Expenses for Educationp. 387
Hill v. Commissionerp. 388
Coughlin v. Commissionerp. 392
Miscellaneous Business Deductionsp. 395
Introductionp. 395
Business Lossesp. 403
Depreciationp. 406
Introductionp. 406
Sharp v. United Statesp. 418
Simon v. Commissionerp. 423
Special Depreciation Rules on Personal Propertyp. 431
Special Rules on Realtyp. 442
Deductions for Profit-Making, Nonbusiness Activitiesp. 447
Section 212 Expensesp. 447
Higgins v. Commissionerp. 447
Bowers v. Lumpkinp. 451
Surasky v. United Statesp. 454
Revenue Ruling 64-236p. 459
Meyer J. Fleischman v. Commissionerp. 459
Charges Arising Out of Transactions Entered Into for Profitp. 468
William C. Horrmann v. Commissionerp. 468
Lowry v. United Statesp. 471
Deductions Not Limited to Business or Profit-Seeking Activitiesp. 479
Introductionp. 479
Tax Subsidies as a Device for Implementing Government Policy: A Comparison With Direct Government Expendituresp. 480
Interestp. 481
Revenue Ruling 69-188p. 482
J. Simpson Dean v. Commissionerp. 484
Taxesp. 508
Cramer v. Commissionerp. 508
Bad Debts, Charitable Contributions and Casualty and Theft Lossesp. 512
Restrictions on Deductionsp. 513
Introductionp. 513
Deductions Limited to Amount at Riskp. 517
Activities Not Engaged in for Profitp. 520
Restrictions on Deductions of Homesp. 522
Passive Activity Limitationsp. 528
Illegality or Improprietyp. 542
Commissioner v. Tellierp. 544
Deductions for Individuals Onlyp. 548
The Concept of Adjusted Gross Incomep. 548
Excerpt From Senate Finance Committee Report No. 885p. 548
Moving Expensesp. 551
Extraordinary Medical Expensesp. 556
Raymon Gerard v. Commissionerp. 556
Revenue Ruling 2002-19p. 558
Qualified Tuition and Related Expensesp. 567
Personal and Dependency Exemptionsp. 569
The Standard Deductionp. 574
Commissioner v. Banksp. 577
The Year of Inclusion or Deductionp. 587
Fundamental Timing Principlesp. 588
Introductionp. 588
The Cash Receipts and Disbursements Methodp. 592
Receiptsp. 592
Charles F. Kahler v. Commissionerp. 593
Williams v. Commissionerp. 594
Cowden v. Commissionerp. 596
Hornung v. Commissionerp. 601
Disbursementsp. 605
Commissioner v. Boylston Market Ass'np. 605
Cathcart v. Commissionerp. 609
Revenue Ruling 87-22p. 610
Revenue Ruling 54-465p. 613
Vander Poel, Francis & Co., Inc. v. Commissionerp. 613
The Accrual Methodp. 618
Income Itemsp. 618
Spring City Foundry Co. v. Commissionerp. 619
Revenue Ruling 70-151p. 620
North American Oil Consolidated v. Burnetp. 620
New Capital Hotel, Inc. v. Commissionerp. 623
Artnell Co. v. Commissionerp. 625
Deduction Itemsp. 636
Revenue Ruling 57-463p. 637
Schuessler v. Commissionerp. 637
Revenue Ruling 2007-3p. 645
Forced Matching of Methodsp. 650
How Ineluctable is the Integrity of the Taxable Year?p. 654
Taxpayer's Restoration of Previously Taxed Incomep. 654
United States v. Lewisp. 654
Van Cleave v. United Statesp. 658
The Tax Benefit Doctrinep. 663
Alice Phelan Sullivan Corp. v. United Statesp. 663
Income Averagingp. 666
Statutory Averagingp. 666
Do-It-Yourself Averagingp. 667
Revenue Ruling 60-31p. 667
Statutory Deferred Compensation and Medical Insurance Arrangementsp. 675
The Carryover and Carryback Devicesp. 679
The Characterization of Income and Deductionsp. 683
Capital Gains and Lossesp. 684
Introductionp. 684
The Mechanics of Capital Gainsp. 689
The Mechanics of Capital Lossesp. 697
The Meaning of "Capital Asset"p. 702
The Statutory Definitionp. 702
Mauldin v. Commissionerp. 702
Malat v. Riddellp. 705
The Sale or Exchange Requirementp. 710
Kenan v. Commissionerp. 710
Hudson v. Commissionerp. 714
The Holding Periodp. 718
Revenue Ruling 66-7p. 719
Revenue Ruling 66-97p. 720
Judicial Gloss on the Statutep. 725
"Income" Propertyp. 725
Hort v. Commissionerp. 725
Metropolitan Bldg. Co. v. Commissionerp. 727
Watkins v. Commissionerp. 733
Correlation With Prior Transactionsp. 737
Arrowsmith v. Commissionerp. 737
United States v. Skelly Oil Co.p. 741
Statutorily Created Capital Gain and Loss Consequencesp. 746
In Generalp. 746
Section 1231 Recharacterizationp. 751
Stephen P. Wasnok v. Commissionerp. 754
Williams v. McGowanp. 758
Characterization on the Sale of Depreciable Propertyp. 764
Introductionp. 764
Characterization Under Section 1239p. 764
United States v. Parkerp. 765
Recapture Under Section 1245p. 770
Revenue Ruling 69-487p. 775
Recapture of Depreciation on the Sale of Depreciable Real Propertyp. 776
Deductions Affected by Characterization Principlesp. 780
Bad Debts and Worthless Securitiesp. 780
Howard S. Bugbee v. Commissionerp. 780
Charles J. Haslam v. Commissionerp. 789
The Charitable Deductionp. 794
Revenue Ruling 83-104p. 794
Revenue Ruling 67-246p. 799
Casualty and Theft Lossesp. 817
Nature of Losses Allowedp. 817
Revenue Ruling 63-232p. 818
Pulvers v. Commissionerp. 820
Mary Frances Allen v. Commissionerp. 821
Other Aspects of Casualty and Theft Lossesp. 823
Deferral and Nonrecognition of Income and Deductionsp. 829
The Interrelationship of Timing and Characterizationp. 830
Transactions Under Section 453p. 830
The General Rulep. 830
Contingent Sales Pricep. 832
Situations in Which Section 453 is Inapplicablep. 835
Special Rules Related to Section 453p. 837
Transactions Outside of Section 453p. 848
Open Transactionsp. 848
Burnet v. Loganp. 848
Closed Transactionsp. 855
The Original Issue Discount Rules and Other Unstated, Hidden, and Imputed Interestp. 857
Property Transferred in Connection with Servicesp. 865
Income in Respect of Decedentsp. 872
Disallowance of Lossesp. 879
Losses Between Related Taxpayersp. 879
McWilliams v. Commissionerp. 879
Wash Salesp. 886
Nonrecognition Provisionsp. 889
Introductionp. 889
Like Kind Exchangesp. 891
The Like Kind Exchange Requirementsp. 891
Bloomington Coca-Cola Bottling Co. v. Commissionerp. 892
Commissioner v. Crichtonp. 892
Leslie Co. v. Commissionerp. 895
Three-Cornered Exchangesp. 902
Revenue Ruling 77-297p. 903
Other Section 1031 Issuesp. 907
Involuntary Conversionsp. 911
Harry G. Masser v. Commissionerp. 913
Clifton Inv. Co. v. Commissionerp. 914
Revenue Ruling 76-319p. 917
Revenue Ruling 67-254p. 918
Revenue Ruling 71-41p. 919
Other Nonrecognition Provisionsp. 922
Converting Taxable Income Into Tax Liabilityp. 927
Computationsp. 928
Tax Ratesp. 928
Credits Against Taxp. 941
Introductionp. 941
Personal Creditsp. 943
Credits for Prepaid Taxesp. 948
The Alternative Minimum Taxp. 949
Klaassen v. Commissionerp. 957
Federal Tax Procedure and Professional Responsibilityp. 963
Procedure and Professional Responsibilityp. 964
Overview of Federal Tax Procedurep. 964
Introductionp. 964
The Self-Assessment Systemp. 965
Administrative Proceduresp. 966
Judicial Proceduresp. 973
Collection of Taxesp. 981
Special Rules Applicable to Deficiency Proceduresp. 984
Timing Rules, Interest and Penaltiesp. 984
The Innocent Spouse Rulesp. 988
Special Rules Applicable to Refund Proceduresp. 991
Professional Responsibility Issuesp. 995
Indexp. 1001
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