West Federal Taxation 2003 An Introduction to Business Entities

by Smith, James E.; Raabe, William A.; Maloney, David M.

• ISBN13: 9780324154580
• ISBN10: 0324154585
• Format: Hardcover
• Copyright: 2002-05-16
• Publisher: South-Western College/West

Table of Contents

Preface	iii
Introduction to Taxation	1	(1)
The Structure of Taxes	2	(2)
Tax Rates	2	(1)
Tax Bases	3	(1)
Types of Taxes	4	(14)
Taxes on the Production and Sale of Goods	4	(1)
Tax in the News: When Temporary Becomes Permanent and a Luxury Becomes a Necessity!	5	(1)
International Implications: Why Is Gasoline Expensive? It Depends on Where You Live	6	(1)
Tax in the News: Internet Sales Often Go Untaxed	7	(1)
Employment Taxes	7	(2)
Death Taxes	9	(1)
Gift Taxes	10	(1)
Tax in the News: What are the Chances?	10	(2)
Property Taxes	12	(1)
Tax in the News: Property Taxes-It Matters Where You Live!	13	(1)
Taxes on Privileges and Rights	13	(1)
Tax Fact: What Is the U.S. Tax Burden?	14	(1)
Income Taxes	15	(3)
Income Taxation of Business Entities	18	(3)
Proprietorships	18	(1)
Tax in the News: Visitors Beware! The City and State You Visit May Not Be All That Friendly	19	(1)
Corporations	20	(1)
Partnerships	20	(1)
S Corporations	20	(1)
Limited Liability Companies and Limited Liability Partnerships	21	(1)
Dealings Between Individuals and Entities	21	(1)
Tax Planning Fundamentals	21	(5)
Overview of Tax Planning	21	(1)
The Goal of Tax Planning	22	(1)
Determining the Tax Burden	22	(2)
Tax Minimization Strategies	24	(2)
Understanding the Federal Tax Law	26	(9)
Revenue Needs	26	(1)
Economic Considerations	26	(1)
Tax Fact: Who Pays the Federal Income Tax?	27	(1)
Social Considerations	28	(1)
Equity Considerations	29	(2)
Political Considerations	31	(1)
Influence of the Internal Revenue Service	32	(1)
Influence of the Courts	33	(1)
Tax Fact: The Costs of Complexity	34	(1)
Summary	34	(1)
Suggested Further Readings	35	(1)
Problem Materials	35
Working with the Tax Law	1	(1)
Tax Sources	2	(16)
Statutory Sources of the Tax Law	2	(1)
Tax Fact: Measuring Tax System Complexity	3	(4)
International Implications: Protection Against Double Taxation	7	(1)
Administrative Sources of the Tax Law	7	(5)
Judicial Sources of the Tax Law	12	(6)
Working with the Tax Law-Tax Research	18	(15)
Identifying the Problem	20	(1)
Refining the Problem	20	(1)
Locating the Appropriate Tax Law Sources	21	(1)
Assessing Tax Law Sources	22	(1)
Tax in the News: Internal Revenue Code: Interpretation Pitfalls	23	(3)
Arriving at the Solution or at Alternative Solutions	26	(1)
Communicating Tax Research	26	(1)
Follow-Up Procedures	27	(1)
Computer-Assisted Tax Research	28	(2)
Tax Fact: An Electronic IRS	30	(3)
Suggested Further Readings	33	(1)
Problem Materials	33
Gross Income	1	(1)
The Tax Formula	2	(2)
Components of the Tax Formula	3	(1)
Gross Income-What Is It?	4	(3)
Economic and Accounting Concepts of Income	4	(1)
Comparison of the Accounting and Tax Concepts of Income	5	(1)
Tax in the News: A Free Computer May Not Be Free	6	(1)
Form of Receipt	6	(1)
Year of Inclusion	7	(7)
Taxable Year	7	(1)
Accounting Methods	7	(2)
Planning Considerations: Cash Receipts Method	9	(1)
Tax in the News: Players' Back Wages Are Taxed in the Year of Receipt	10	(1)
Special Rules for Cash Basis Taxpayers	10	(1)
Tax in the News: Congress Rescues Lottery Winners from Constructive Receipt Problems	11	(1)
Tax in the News: Original Issue Discount Rules May Dampen Enthusiasm for Inflation-Adjusted Bonds	12	(1)
Special Rules for Accrual Basis Taxpayers	13	(1)
Planning Considerations: Prepaid Income	14	(1)
Income Sources	14	(4)
Personal Services	14	(1)
Income from Property	14	(1)
Tax Fact: How Much and What Type of Income?	15	(1)
Tax Fact: Business Income and Loss	16	(1)
Income Received by an Agent	16	(1)
Planning Considerations: Techniques for Reducing Gross Income	17	(1)
Tax in the News: Deferring Income	18	(1)
Specific Items of Gross Income	18	(12)
Imputed Interest on Below-Market Loans	18	(1)
International Implications: From ``All Sources'' is a Broad Definition	19	(2)
Tax Benefit Rule	21	(1)
Interest on Certain State and Local Government Obligations	22	(1)
Planning Considerations: State and Municipal Bonds	23	(1)
Improvements on Leased Property	23	(1)
Life Insurance Proceeds	23	(2)
Planning Considerations: Life Insurance	25	(1)
Income from Discharge of Indebtedness	25	(3)
Tax in the News: Employer-Financed Stock Purchase Leads to Tax Disaster	28	(1)
Gains and Losses from Property Transactions	28	(2)
Suggested Further Readings	30	(1)
Problem Materials	30
Business Deductions	1	(1)
Overview of Business Deductions	2	(2)
Ordinary and Necessary Requirement	2	(1)
Reasonableness Requirement	3	(1)
Planning Considerations: Unreasonable Compensation	4	(1)
Timing of Expense Recognition	4	(3)
Cash Method Requirements	5	(1)
Planning Considerations: Time Value of Tax Deductions	5	(1)
Accrual Method Requirements	6	(1)
Disallowance Possibilities	7	(7)
Public Policy Limitations	7	(1)
Political Contributions and Lobbying Activities	8	(1)
Excessive Executive Compensation	9	(1)
Disallowance of Deductions for Capital Expenditures	9	(1)
Investigation of a Business	10	(1)
Transactions between Related Parties	11	(2)
Lack of Adequate Substantiation	13	(1)
Expenses and Interest Related to Tax-Exempt Income	13	(1)
Charitable Contributions	14	(2)
Property Contributions	14	(2)
Limitations Imposed on Charitable Contribution Deductions	16	(1)
Research and Experimental Expenditures	16	(2)
Tax Fact: What Ten Percent Ceiling?	17	(1)
Expense Method	17	(1)
Deferral and Amortization Method	17	(1)
International Implications: Review of Government's Fiscal Incentive System	18	(1)
Other Expense Rules	18	(2)
Interest Expense	18	(1)
Taxes	19	(1)
Tax Fact: Cost Recovery by Any Other Name	20	(1)
Cost Recovery Allowances	20	(13)
Overview	20	(2)
Modified Accelerated Cost Recovery System (MACRS)	22	(1)
Eligible Property Under MACRS	22	(1)
Cost Recovery for Personal Property	23	(3)
Cost Recovery for Real Estate	26	(1)
The MACRS Straight-Line Election	27	(1)
Election to Expense Assets Under § 179	27	(1)
Tax in the News: Stimulating the Economy by Changing the Depreciation Rules	28	(1)
Business and Personal Use of Automobiles and Other Listed Property	29	(4)
Alternative Depreciation System (ADS)	33	(1)
Amortization	33	(1)
International Implications: Costs of Acquiring Chinese Companies	34	(1)
Planning Considerations: Structuring the Sale of a Business	34	(1)
Depletion	34	(4)
Intangible Drilling and Development Costs (IDC)	35	(1)
Depletion Methods	35	(2)
Tax in the News: Percentage Depletion	37	(1)
Planning Considerations: Switching Depletion Methods	38	(1)
Cost Recovery Tables	38	(4)
Suggested Further Readings	42	(1)
Problem Materials	43
Losses and Loss Limitations	1	(1)
Bad Debts	2	(4)
Tax Fact: Just How Good Is Your Credit?	3	(1)
Specific Charge-Off Method	3	(1)
Tax in the News: Unpaid Debts Are Taxable Income	4	(1)
Business versus Nonbusiness Bad Debts	4	(1)
Loans between Related Parties	5	(1)
Worthless Securities	6	(2)
Tax Fact: Nerves of Steel in the Face of a Market Adjustment: An Update	6	(1)
Small Business Stock	7	(1)
Planning Considerations: Maximizing the Benefits of % 1244	7	(1)
Casualty and Theft Losses	8	(5)
Definition of Casualty	8	(1)
Definition of Theft	9	(1)
Planning Considerations: Documentation of Related-Taxpayer Loans, Casualty Losses, and Theft Losses	9	(1)
When to Deduct Casualty Losses	9	(1)
Measuring the Amount of Loss	10	(1)
Tax in the News: A Destroyed Baseball Card Is Really a Loss	11	(1)
Casualty and Theft Losses of Individuals	12	(1)
Net Operating Losses	13	(3)
Introduction	13	(1)
Tax Fact: The Utility of the NOL Deduction	14	(1)
Tax in the News: Examining Rhode Island's Tax Structure	15	(1)
Carryback and Carryover Periods	15	(1)
The Tax Shelter Problem	16	(2)
Tax in the News: The Attack on Corporate Tax Shelters: While Some Debate, Others Act	17	(1)
At-Risk Limitations	18	(2)
Passive Loss Limits	20	(16)
Classification and Impact of Passive Income and Loss	20	(1)
Tax Fact: The Declining Interest in Limited Partnerships	21	(3)
Taxpayers Subject to the Passive Loss Rules	24	(1)
Activity Defined	25	(1)
Material Participation	26	(4)
Rental Activities	30	(1)
Interaction of At-Risk and Passive Activity Limits	31	(1)
Special Rules for Real Estate	32	(1)
Tax in the News: Tax Breaks Make the Difference	33	(2)
Disposition of Passive Activities	35	(1)
Planning Considerations: Utilizing Passive Losses	36	(1)
Suggested Further Readings	36	(1)
Problem Materials	37
Accounting Periods and Methods	1	(1)
Accounting Periods	3	(6)
In General	3	(1)
Specific Provisions for Partnerships, S Corporations, and Personal Service Corporations	4	(3)
Choosing a Tax Year	7	(1)
Changes in the Accounting Period	7	(1)
Taxable Periods of Less than One Year	7	(1)
Tax Fact: Free to Choose?	8	(1)
Tax Year Relief	9	(1)
Change of Accounting Methods	9	(4)
Tax in the News: Tax Rate Reductions Create Tax Planning Opportunities	10	(1)
Tax in the News: A Strict Definition of ``Services'' Cost American Express a Bundle	11	(1)
Correction of an Error	11	(1)
Change from an Incorrect Method	11	(1)
Net Adjustments Due to Change in Accounting Method	12	(1)
Installment Method	13	(7)
In General	13	(2)
Planning Considerations: The Installment Method	15	(1)
Contingent Sales Prices	15	(1)
Imputed Interest	16	(1)
Related-Party Sales	17	(2)
Disposition of Installment Note	19	(1)
Planning Considerations: Terminating the Installment Method	19	(1)
Interest on Deferred Taxes	20	(1)
Electing Out of the Installment Method	20	(1)
Long-Term Contracts	20	(3)
Completed Contract Method	21	(1)
Tax in the News: IRS Changes Its Position That the Cash Method Does Not Clearly Reflect the Income of Small Contractors	22	(1)
Percentage of Completion Method	23	(1)
Inventories	23	(6)
International Implications: A Tax Advantage from Moving Abroad	24	(1)
Determining Inventory Cost	25	(2)
Tax in the News: A Slight Change in Inventory Causes a Dramatic Change in Income	27	(1)
The LIFO Election	28	(1)
Planning Considerations: LIFO Inventory	29	(1)
Suggested Further Readings	29	(1)
Problem Materials	30
Property Transactions: Basis, Gain and Loss, and Nontaxable Exchanges	1	(1)
Determination of Gain or Loss	3	(5)
Realized Gain or Loss	3	(1)
Recognized Gain or Loss	3	(3)
Nonrecognition of Gain or Loss	6	(1)
Recovery of Capital Doctrine	7	(1)
Basis Considerations	8	(11)
Determination of Cost Basis	8	(1)
Tax in the News: Mutual Fund Cost: The Complexity	9	(2)
Gift Basis	11	(1)
Planning Considerations: Gift Planning	12	(2)
Property Acquired from a Decedent	14	(1)
Tax in the News: Effect of 2001 Tax Legislation on the Basis of Inherited Property: Bad News/Good News!	15	(1)
Planning Considerations: Property from a Decedent	16	(1)
Disallowed Losses	16	(2)
Planning Considerations: Avoiding Wash Sales	18	(1)
Conversion of Property from Personal Use to Business or Income-Producing Use	18	(1)
Summary of Basis Adjustments	19	(1)
General Concept of a Nontaxable Exchange	19	(2)
Like-Kind Exchanges-§ 1031	21	(6)
Planning Considerations: Like-Kind Exchanges	22	(1)
Like-Kind Property	22	(2)
Exchange Requirement	24	(1)
Boot	24	(1)
Basis and Holding Period of Property Received	25	(2)
Involuntary Conversions-§ 1033	27	(4)
Planning Considerations: Recognizing Involuntary Conversion Gains	28	(1)
Involuntary Conversion Defined	28	(1)
Replacement Property	29	(1)
Tax in the News: Taking Private Property for Private Use	30	(1)
Time Limitation on Replacement	30	(1)
Other Nonrecognition Provisions	31	(2)
Transfer of Assets to Business Entity-§§ 351 and 721	31	(1)
Exchange of Stock for Property-§ 1032	32	(1)
Certain Exchanges of Insurance Policies-§ 1035	32	(1)
Exchange of Stock for Stock of the Same Corporation-§ 1036	32	(1)
Rollovers into Specialized Small Business Investment Companies-§ 1044	32	(1)
Sale of a Principal Residence-§ 121	33	(1)
Transfers of Property between Spouses or Incident to Divorce-§ 1041	33	(1)
Suggested Further Readings	33	(1)
Problem Materials	34
Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions	1	(1)
General Considerations	2	(1)
Rationale for Separate Reporting of Capital Gains and Losses	2	(1)
General Scheme of Taxation	3	(1)
Capital Assets	3	(4)
Definition of a Capital Asset	3	(2)
Tax in the News: An Artist's Dilemma	5	(1)
Statutory Expansions	6	(1)
Sale or Exchange	7	(6)
Worthless Securities and § 1244 Stock	7	(1)
Retirement of Corporate Obligations	8	(1)
Options	8	(2)
Patents	10	(1)
Franchises, Trademarks, and Trade Names	11	(1)
Lease Cancellation Payments	12	(1)
Tax in the News: Losses from Day Trading	13	(1)
Holding Period	13	(3)
Special Holding Period Rules	14	(1)
International Implications: Trading ADRS on U.S. Stock Exchanges	15	(1)
Short Sales	15	(1)
Tax Treatment of Capital Gains and Losses of Noncorporate Taxpayers	16	(8)
Capital Gains	16	(1)
Planning Considerations: Timing Capital Gains	16	(1)
Tax Fact: Beneficial Tax Treatment for Capital Gains	17	(1)
Planning Considerations: Gifts of Appreciated Securities	18	(1)
Capital Losses	19	(2)
Tax Fact: Detrimental Tax Treatment for Capital Losses	21	(1)
Planning Considerations: Matching Gains with Losses	22	(1)
International Implications: Capital Gain Treatment and Foreign Stock	23	(1)
Small Business Stock	23	(1)
Tax Treatment of Capital Gains and Losses of Corporate Taxpayers	24	(1)
International Implications: Capital Gain Treatment in the United States and Other Countries	25	(1)
Section 1231 Assets	25	(6)
Relationship to Capital Assets	25	(1)
Property Included	26	(1)
Property Excluded	26	(1)
Casualty or Theft and Nonpersonal-Use Capital Assets	26	(1)
Tax in the News: Sale of ``Campus'' Land Yields Potential Long-Term Capital Gain	27	(1)
General Procedure for § 1231 Computation	27	(4)
Section 1245 Recapture	31	(3)
Section 1245 Property	32	(1)
Tax in the News: Gain from a Terrorist Attack	33	(1)
Observations on § 1245	34	(1)
Planning Considerations: Depreciation Recapture and § 179	34	(1)
Section 1250 Recapture	34	(5)
Computing Recapture on Nonresidential Real Property	35	(1)
Computing Recapture on Residential Rental Housing	36	(1)
Unrecaptured § 1250 Gains	36	(2)
Planning Considerations: Selling Depreciable Real Estate	38	(1)
Additional Recapture for Corporations	38	(1)
Exceptions to §§ 1245 and 1250	39	(2)
Gifts	39	(1)
Death	40	(1)
Charitable Transfers	40	(1)
Certain Nontaxable Transactions	40	(1)
International Implications: Exchange for Foreign Property Yields Recognized Recapture Gain	41	(1)
Like-Kind Exchanges and Involuntary Conversions	41	(1)
Reporting Procedures	41	(1)
Planning Considerations: Timing of Recapture	42	(1)
Summary	42	(1)
Suggested Further Readings	42	(1)
Problem Materials	43
Corporations: Organization, Capital Structure, and Operating Rules	1	(1)
An Introduction to Corporate Tax	2	(5)
International Implications: Choice of Organizational Form When Operating Overseas	3	(1)
Tax Fact: The Surprisingly Low Average Corporate Tax Rate	4	(1)
Comparison of Corporations and Other Forms of Doing Business	4	(1)
Nontax Considerations	5	(1)
Limited Liability Companies	6	(1)
Entity Classification	7	(1)
Planning Considerations: Consolidated Groups May Utilize Check-the-Box Regulations	7	(1)
Organization of and Transfers to Controlled Corporations	7	(14)
In General	7	(2)
Transfer of Property	9	(1)
Stock	10	(1)
Control of the Corporation	10	(2)
Planning Considerations: Utilizing § 351	12	(2)
International Implications: Does § 351 Cover the Incorporation of a Foreign Business?	14	(1)
Assumption of Liabilities-§ 357	15	(3)
Planning Considerations: Avoiding § 351	18	(1)
Basis Determination and Other Issues	18	(2)
Recapture Considerations	20	(1)
Planning Considerations: Other Considerations When Incorporating a Business	21	(1)
Capital Structure of a Corporation	21	(3)
Capital Contributions	21	(1)
Debt in the Capital Structure	22	(2)
Corporate Operations	24	(8)
Deductions Available Only to Corporations	24	(3)
Planning Considerations: Organizational Expenditures	27	(1)
Determining the Corporate Income Tax Liability	27	(1)
Tax Liability of Related Corporations	28	(1)
Controlled Groups	29	(3)
Tax Fact: Sources of Federal Government Revenues	32	(1)
Procedural Matters	32	(3)
Filing Requirements for Corporations	32	(1)
Estimated Tax Payments	33	(1)
Reconciliation of Taxable Income and Financial Net Income	33	(2)
Summary	35	(1)
Suggested Further Readings	35	(1)
Problem Materials	36
Corporations: Earnings & Profits and Dividend Distributions	1	(1)
Taxable Dividends-In General	2	(1)
Tax in the News: The Case for Dividends	3	(1)
Earnings and Profits (E & P)-§ 312	3	(8)
Computation of E & P	4	(3)
Summary of E & P Adjustments	7	(1)
Allocating E & P to Distributions	7	(4)
Planning Considerations: Corporate Distributions	11	(1)
Property Dividends	11	(5)
Property Dividends-Effect on the Shareholder	12	(1)
Tax Fact: The Downward Trajectory of Dividends	13	(1)
Tax in the News: The Story of Disappearing Dividends	14	(1)
Property Dividends-Effect on the Corporation	14	(2)
Constructive Dividends	16	(5)
Types of Constructive Dividends	16	(1)
Tax Fact: Executive Compensation: Amount and Composition	17	(1)
Tax in the News: Hard Work Pays Off!	18	(1)
Tax Treatment of Constructive Dividends	19	(1)
Planning Considerations: Constructive Dividends	19	(2)
Stock Dividends	21	(1)
Tax Fact: Stock Split Trends	22	(1)
Stock Redemptions	22	(2)
Tax in the News: Stock Redemptions, Divorce, and Tax Avoidance	24	(1)
Restrictions on Corporate Accumulations	24	(1)
Suggested Further Readings	25	(1)
Problem Materials	25
Partnerships and Limited Liability Entities	1	(1)
Overview of Partnership Taxation	2	(8)
Tax Fact: Partnership Power	3	(1)
Forms of Doing Business-Federal Tax Consequences	3	(2)
What Is a Partnership?	5	(1)
Partnership Taxation and Reporting	5	(1)
Tax Fact: Look at All the LLCS	6	(2)
Partner's Ownership Interest in a Partnership	8	(2)
Formation of a Partnership: Tax Effects	10	(6)
Gain or Loss on Contributions to the Partnership	10	(1)
Exceptions to Nonrecognition	11	(1)
Tax Issues Related to Contributed Property	12	(2)
Inside and Outside Bases	14	(1)
Tax Accounting Elections	14	(1)
Initial Costs of a Partnership	15	(1)
Operations of the Partnership	16	(13)
Reporting Operating Results	17	(2)
Tax Fact: What Do Partnerships Do?	19	(1)
Planning Considerations: Drafting the Partnership Agreement	19	(1)
Partnership Allocations	19	(2)
Basis of a Partnership Interest	21	(2)
Partner's Basis, Gain, and Loss	23	(3)
Loss Limitations	26	(1)
Planning Considerations: Make Your Own Tax Shelter	27	(1)
Tax Fact: Whose Money Are We Losing?	28	(1)
Planning Considerations: Formation and Operation of a Partnership	29	(1)
Transactions between Partner and Partnership	29	(3)
Guaranteed Payments	29	(1)
Other Transactions between a Partner and a Partnership	30	(2)
Partners as Employees	32	(1)
Planning Considerations: Transactions between Partners and Partnerships	32	(1)
Limited Liability Entities	32	(4)
Limited Liability Companies	32	(2)
International Implications: Partnerships Around the World-and Beyond	34	(1)
Limited Liability Partnerships	35	(1)
Summary	35	(1)
Suggested Further Readings	36	(1)
Problem Materials	36
S Corporations	1	(1)
An Overview of S Corporations	2	(3)
Tax Fact: The Business of S Corporations	3	(2)
Planning Considerations: When to Elect S Corporation Status	5	(1)
Qualifying for S Corporation Status	5	(6)
Definition of a Small Business Corporation	5	(1)
Tax in the News: S Corporation Elections Continue to Grow	6	(1)
Planning Considerations: Beating the 75-Shareholder Limit	7	(1)
Making the Election	8	(1)
Shareholder Consent	8	(1)
Planning Considerations: Making a Proper Election	9	(1)
Loss of the Election	9	(2)
Planning Considerations: Preserving the S Election	11	(1)
Operational Rules	11	(20)
Computation of Taxable Income	11	(2)
Tax Fact: A ``Small'' Business Corporation	13	(1)
Allocation of Income and Loss	13	(2)
Planning Considerations: Salary Structure	15	(1)
Tax Treatment of Distributions to Shareholders	15	(4)
Planning Considerations: The Accumulated Adjustments Account	19	(1)
Tax Treatment of Property Distributions by the Corporation	19	(2)
Shareholder's Basis	21	(2)
Planning Considerations: Working with Suspended Losses	23	(1)
Treatment of Losses	23	(1)
Planning Considerations: Loss Considerations	24	(1)
Tax on Pre-Election Built-in Gain	25	(2)
Planning Considerations: Managing the Built-in Gains Tax	27	(1)
Passive Investment Income Penalty Tax	28	(1)
Tax Fact: No Double Taxation?	29	(1)
Other Operational Rules	29	(1)
Tax Fact: The S Corporation Economy	30	(1)
Summary	31	(1)
Suggested Further Readings	31	(1)
Problem Materials	32
Business Tax Credits and Corporate Alternative Minimum Tax	1	(1)
Tax Policy and Tax Credits	2	(1)
Tax Fact: Where Have All the Credits Gone?	3	(1)
Specific Business-Related Tax Credit Provisions	3	(12)
General Business Credit	3	(1)
Tax in the News: A Credit That Went Up in Smoke	4	(2)
Tax in the News: What Behavior Should Tax Credits Include?	6	(1)
Tax Credit for Rehabilitation Expenditures	7	(1)
Work Opportunity Tax Credit	8	(1)
Welfare-to-Work Credit	9	(1)
Research Activities Credit	9	(2)
Disabled Access Credit	11	(1)
Credit for Small Employer Pension Plan Startup Costs	12	(1)
Credit for Employer-Provided Child Care	12	(1)
Foreign Tax Credit	13	(2)
Corporate Alternative Minimum Tax	15	(16)
Tax Fact: The Reach of the AMT	16	(1)
The AMT Formula	16	(1)
Tax in the News: Small Corporations Overpaying AMT	17	(1)
Tax Preferences	18	(1)
AMT Adjustments	19	(1)
Tax in the News: Municipal Bonds and the AMT	20	(5)
Planning Considerations: Avoiding Preferences and Adjustments	25	(1)
Adjusted Current Earnings (ACE)	25	(3)
Computing Alternative Minimum Taxable Income	28	(1)
Planning Considerations: Optimum Use of the AMT and Regular Corporate Income Tax Rate Difference	28	(1)
AMT Rate and Exemption	29	(1)
Planning Considerations: Controlling the Timing of Preferences and Adjustments	29	(1)
Minimum Tax Credit	29	(2)
Other Aspects of the AMT	31	(1)
Planning Considerations: The Subchapter S Option	31	(1)
The Individual Alternative Minimum Tax	31	(1)
Tax in the News: Agreement between Democrats and Republicans: Is It Possible?	32	(1)
Suggested Further Readings	32	(1)
Problem Materials	33
Comparative Forms of Doing Business	1	(1)
Tax in the News: Should You Check That Box?	3	(1)
Forms of Doing Business	3	(3)
Principal Forms	3	(1)
Tax in the News: Professional Service Firms and Organizational Form	4	(1)
Limited Liability Companies	4	(1)
Tax Fact: Revenue Relevance of Corporate versus Individual Taxpayers	5	(1)
Nontax Factors	6	(5)
Capital Formation	6	(1)
Limited Liability	6	(2)
Other Factors	8	(1)
Single versus Double Taxation	8	(1)
Overall Impact on Entity and Owners	8	(1)
Tax in the News: Do Income Taxes Influence Business and Nonbusiness Decisions?	9	(1)
Alternative Minimum Tax	10	(1)
Planning Considerations: Planning for the AMT	11	(1)
State Taxation	11	(1)
Minimizing Double Taxation	11	(5)
Making Deductible Distributions	11	(1)
Tax in the News: Who Pays Corporate AMT?	12	(1)
Not Making Distributions	13	(1)
Return of Capital Distributions	14	(1)
Electing S Corporation Status	14	(1)
Tax Fact: Number of Income Tax Returns Filed by Different Types of Taxpayers (in Millions)	15	(1)
Conduit versus Entity Treatment	16	(5)
Effect on Recognition at Time of Contribution to the Entity	16	(1)
Effect on Basis of Ownership Interest	17	(1)
Effect on Results of Operations	17	(2)
Effect on Recognition at Time of Distribution	19	(1)
Effect on Passive Activity Losses	19	(1)
Effect of At-Risk Rules	19	(1)
Tax Fact: Partnership Income Tax Returns: Profits versus Losses	20	(1)
Effect of Special Allocations	21	(1)
Disposition of a Business or an Ownership Interest	21	(3)
Sole Proprietorships	22	(1)
Partnerships and Limited Liability Entities	23	(1)
C Corporations	23	(1)
Planning Considerations: Selling Stock or Assets	24	(1)
S Corporations	24	(1)
Overall Comparison of Forms of Doing Business	24	(7)
Planning Considerations: Choosing a Business Form: Case Study	31	(1)
Suggested Further Readings	31	(1)
Problem Materials	32
Introduction to the Taxation of Individuals	1	(1)
The Individual Tax Formula	2	(7)
Tax Fact: The Government's Interest in Our Work	3	(1)
Components of the Tax Formula	3	(3)
International Implications: Citizenship Is Not Tax-Free	6	(2)
Application of the Tax Formula	8	(1)
Special Limitations for Individuals Who Can Be Claimed as Dependents	8	(1)
Personal and Dependency Exemptions	9	(6)
Personal Exemptions	10	(1)
Dependency Exemptions	10	(2)
Planning Considerations: Multiple Support Agreements and the Medical Expense Deduction	12	(2)
Planning Considerations: Problems with a Joint Return	14
Phaseout of Exemptions	4	(11)
Tax in the News: How to Subtly Pluck the Chicken	15	(1)
Tax Determination	15	(5)
Tax Table Method	16	(1)
Tax Rate Schedule Method	17	(1)
Tax Fact: The Tightening Tax Squeeze	17	(1)
Planning Considerations: Shifting Income and Deductions across Time	17	(1)
Computation of Net Taxes Payable or Refund Due	18	(1)
Unearned Income of Children Under Age 14 Taxed at Parents' Rate	18	(2)
Planning Considerations: Income of Minor Children	20	(1)
Filing Considerations	20	(6)
Filing Requirements	20	(1)
Tax in the News: An IRS Dilemma that Will Not Go Away	21	(1)
Tax Fact: What Tax Form Is Right for You?	22	(1)
Tax in the News: Increase in E-Filings Is Lower Than Expected	23	(1)
Filing Status	23	(2)
International Implications: Filing a Joint Return	25	(1)
Overview of Income Provisions Applicable to Individuals	26	(1)
Specific Inclusions Applicable to Individuals	26	(3)
Alimony and Separate Maintenance Payments	26	(2)
Prizes and Awards	28	(1)
Unemployment Compensation	28	(1)
Social Security Benefits	29	(1)
Specific Exclusions Applicable to Individuals	29	(5)
Gifts and Inheritances	29	(1)
Tax in the News: Begging as a Tax-Disfavored Occupation	30	(1)
Scholarships	30	(1)
Damages	31	(1)
Workers' Compensation	32	(1)
Accident and Health Insurance Benefits	32	(1)
Educational Savings Bonds	33	(1)
Itemized Deductions	34	(18)
Medical Expenses	35	(2)
Tax in the News: Average Itemized Deductions	37	(1)
Taxes	38	(2)
International Implications: Deductibility of Foreign Taxes	40	(1)
Planning Considerations: Timing the Payment of Deductible Taxes	40	(1)
Interest	40	(4)
Tax in the News: Charitable Contributions by the President and Vice President	44	(1)
Charitable Contributions	44	(2)
International Implications: Choose the Charity Wisely	46	(3)
Miscellaneous Itemized Deductions Subject to Two Percent Floor	49	(1)
Other Miscellaneous Deductions	50	(1)
Overall Limitation on Certain Itemized Deductions	50
Planning Considerations: Effective Utilization of Itemized Deductions	52	(2)
Individual Tax Credits	52	(6)
Adoption Expenses Credit	52	(1)
Child Tax Credit	53	(1)
Credit for Child and Dependent Care Expenses	54	(1)
Education Tax Credits	55	(1)
Earned Income Credit	56	(2)
Suggested Further Readings	58	(1)
Problem Materials	59
Individuals as Employees and Proprietors	1
Employee versus Self-Employed	2
Factors Considered in Classification	3
Planning Considerations: Self-Employed Individuals	5
Exclusions Available to Employees	5
Advantages of Qualified Fringe Benefits	5
Employer-Sponsored Accident and Health Plans	6
Medical Reimbursement Plans	7
Long-Term Care Benefits	7
Tax in the News: Medical Savings Accounts: Questions and Answers	8
Meals and Lodging Furnished for the Convenience of the Employer	9
Group Term Life Insurance	11
Qualified Tuition Reduction Plans	12
Other Specific Employee Fringe Benefits	12
Cafeteria Plans	13
Tax in the News: Employees Lose Some Under ``Use or Lose Plans''	14
Flexible Spending Plans	14
General Classes of Excluded Benefits	14
Taxable Fringe Benefits	19
Employee Expenses	19
Transportation Expenses	21
Travel Expenses	22
Planning Considerations: Transportation and Travel Expenses	24
Moving Expenses	24
International Implications: Expatriates and the Moving Expense Deduction	26
Planning Considerations: Moving Expenses	26
Education Expenses	27
Planning Considerations: Education Expenses	28
A Limited Deduction Approach	29
Entertainment Expenses	29
Tax in the News: How Permanent Is the Cutback Adjustment?	30
Planning Considerations: Entertainment Expenses	31
Other Employee Expenses	32
Tax in the News: A New Reason for Working at Home?	34
Classification of Employee Expenses	35
Planning Considerations: Unreimbursed Employee Business Expenses	36
Contributions to Individual Retirement Accounts	36
Tax Fact: The Vacillating Popularity of IRAs	38
Individuals as Proprietors	40
The Proprietorship as a Business Entity	40
Income of a Proprietorship	41
Deductions Related to a Proprietorship	41
Retirement Plans for Self-Employed Individuals	43
Tax Fact: Increasing Popularity of Keogh Plans	44
Planning Considerations: Important Dates Related to IRAs and Keogh Plans	44
Planning Considerations: Factors Affecting Retirement Plan Choices	46
Accounting Periods and Methods	46
Estimated Tax Payments	46
Hobby Losses	48
General Rules	48
Presumptive Rule of § 183	48
Determining the Amount of the Deduction	49
Suggested Further Readings	50
Problem Materials	51
APPENDIXES
Tax Rate Schedules and Tables	1
Tax Forms	1
Glossary of Key Terms	1
Table of Code Sections Cited	1
Table of Regulations Cited	8
Table of Revenue Procedures and Revenue Rulings Cited	11
Table of Cases Cited	1
Present Value and Future Value Tables	1
Subject Index	1