West Federal Taxation Individual Income Taxes 2004, Professional Version

by Hoffman, William H.; Smith, James E.; Willis, Eugene

• ISBN13: 9780324275162
• ISBN10: 0324275161
• Format: Hardcover
• Copyright: 2003-04-29
• Publisher: South-Western College/West

Table of Contents

Preface	iii
PART ONE Introduction and Basic Tax Model
An Introduction to Taxation and Understanding the Federal Tax Law	1	(1)
History of U.S. Taxation	3	(1)
Early Periods	3	(1)
Revenue Acts	3	(1)
Historical Trends	4	(1)
Criteria Used in the Selection of a Tax Structure	4	(1)
The Tax Structure	5	(1)
Tax Base	5	(1)
Tax in the News: Adam Smith Stopped Too Soon	5	(1)
Tax Rates	6	(1)
Incidence of Taxation	6	(1)
Major Types of Taxes	6	(13)
Property Taxes	6	(2)
Transaction Taxes	8	(1)
Tax in the News: How Much Tax Will Make Me Quit?	9	(2)
Tax in the News: The Wrong Way to Buy Artwork	11	(1)
Death Taxes	11	(2)
Gift Taxes	13	(1)
Income Taxes	14	(2)
Tax in the News: When to Tax the Visitor	16	(1)
Employment Taxes	16	(1)
Other U.S. Taxes	17	(1)
Proposed U.S. Taxes	18	(1)
Tax Administration	19	(6)
Internal Revenue Service	19	(1)
The Audit Process	19	(2)
Statute of Limitations	21	(1)
Interest and Penalties	22	(1)
Tax Practice	23	(1)
Ethical Considerations: Do You Sign or Not?	24	(1)
Ethical Considerations: Getting Extra Use Out of a Client List!	25	(1)
Understanding the Federal Tax Law	25	(10)
Revenue Needs	25	(1)
Economic Considerations	26	(1)
Social Considerations	27	(1)
Equity Considerations	28	(2)
Political Considerations	30	(2)
Influence of the Internal Revenue Service	32	(1)
Influence of the Courts	33	(1)
Summary	34	(1)
Problem Materials	35
Working with the Tax Law	1	(1)
Tax Sources	2	(20)
Tax in the News: Small Is Beautiful?	3	(1)
Statutory Sources of the Tax Law	3	(4)
Administrative Sources of the Tax Law	7	(1)
Global Tax Issues: Tax Treaties	8	(1)
Ethical Considerations: The President and the IRS	8	(5)
Tax in the News: Potpourri of News about the IRS	13	(1)
Judicial Sources of the Tax Law	13	(2)
Tax in the News: The U.S. Tax Court	15	(7)
Working with the Tax Law---Tax Research	22	(10)
Identifying the Problem	24	(1)
Refining the Problem	24	(1)
Locating the Appropriate Tax Law Sources	25	(2)
Assessing the Validity of the Tax Law Sources	27	(1)
Tax in the News: Internal Revenue Code: Interpretation Pitfalls	28	(3)
Arriving at the Solution or at Alternative Solutions	31	(1)
Communicating Tax Research	31	(1)
Working with the Tax Law---Tax Planning	32	(11)
Nontax Considerations	32	(2)
Tax Avoidance and Tax Evasion	34	(1)
Tax in the News: The Disappearing Taxpayers	35	(1)
Ethical Considerations: I Hate the IRS	35	(1)
Follow-up Procedures	35	(1)
Tax Planning---A Practical Application	36	(1)
Electronic Tax Research	36	(3)
Global Tax Issues: Data Warehousing Reduces Global Taxes	39	(4)
Problem Materials	43
Tax Determination; Personal and Dependency Exemptions; An Overview of Property Transactions	1	(1)
Tax Formula	3	(7)
Components of the Tax Formula	3	(2)
Global Tax Issues: Citizenship Is Not Tax-Free	5	(3)
Application of the Tax Formula	8	(1)
Individuals Not Eligible for the Standard Deduction	9	(1)
Special Limitations for Individuals Who Can Be Claimed As Dependents	9	(1)
Personal and Dependency Exemptions	10	(7)
Personal Exemptions	10	(1)
Dependency Exemptions	11	(1)
Ethical Considerations: Should a Dependent Pay Her Own Way?	12	(3)
Ethical Considerations: A Change of Residence Can Be Rewarding	15	(1)
Phaseout of Exemptions	15	(1)
Tax in the News: How to Subtly Pluck the Chicken	16	(1)
Ethical Considerations: Who Can Claim the Exemption?	16	(1)
Child Tax Credit	17	(1)
Tax Determination	17	(6)
Tax Table Method	17	(1)
Tax Rate Schedule Method	18	(1)
Computation of Net Taxes Payable or Refund Due	19	(1)
Tax in the News: Do You Plan for That Big Refund? Uncle Sam Loves You!	19	(1)
Unearned Income of Children Under Age 14 Taxed At Parents' Rate	20	(3)
Filing Considerations	23	(7)
Filing Requirements	23	(2)
Tax in the News: An IRS Dilemma That Will Not Go Away	25	(1)
Tax in the News: Free E-Filing!	26	(1)
Tax in the News: ``Charge It''---Convenient But Not Cheap!	27	(1)
Filing Status	27	(1)
Global Tax Issues: Filing a Joint Return	28	(2)
Gains and Losses from Property Transactions---In General	30	(1)
Gains and Losses from Property Transactions---Capital Gains and Losses	31	(2)
Definition of a Capital Asset	31	(1)
Taxation of Net Capital Gain	32	(1)
Determination of Net Capital Gain	32	(1)
Treatment of Net Capital Loss	33	(1)
Tax Planning Considerations	33	(3)
Taking Advantage of Tax Rate Differentials	33	(1)
Income of Minor Children	34	(1)
Dependency Exemptions	34	(1)
Ethical Considerations: Manipulating Deductions	35	(1)
Problem Materials	36
PART TWO Gross Income
Gross Income: Concepts and Inclusions	1	(1)
Global Tax Issues: From ``All Sources'' Is a Broad Definition	3	(1)
Gross Income---What Is It?	3	(3)
Definition	3	(1)
Economic and Accounting Concepts	3	(2)
Comparison of the Accounting and Tax Concepts of Income	5	(1)
Tax in the News: Frequent-Flyer Miles Yield Taxable Income That Is Not Taxed	5	(1)
Form of Receipt	6	(1)
Recovery of Capital Doctrine	6	(1)
Year of Inclusion	6	(8)
Taxable Year	6	(1)
Accounting Methods	7	(1)
Ethical Considerations: The Client's Error	8	(1)
Exceptions Applicable to Cash Basis Taxpayers	9	(3)
Exceptions Applicable to Accrual Basis Taxpayers	12	(1)
Global Tax Issues: Tax Credit Neutralizes Foreign Income Taxes	12	(2)
Income Sources	14	(5)
Personal Services	14	(1)
Income from Property	14	(2)
Ethical Considerations: Enhancing Lottery Winnings	16	(1)
Income Received by an Agent	16	(1)
Income from Partnerships, S Corporations, Trusts, and Estates	16	(1)
Income in Community Property States	17	(2)
Items Specifically Included in Gross Income	19	(16)
Alimony and Separate Maintenance Payments	19	(3)
Imputed Interest on Below-Market Loans	22	(2)
Ethical Considerations: A Concealed Loan	24	(1)
Tax in the News: Loans to Executives Prohibited	25	(2)
Income from Annuities	27	(3)
Prizes and Awards	30	(2)
Group Term Life Insurance	32	(1)
Unemployment Compensation	33	(1)
Social Security Benefits	33	(1)
Tax in the News: A Taxpayer Learns about the ``Quirky'' Social Security Benefits Taxation Formula	34	(1)
Tax Planning Considerations	35	(4)
Nontaxable Economic Benefits	35	(1)
Tax Deferral	35	(2)
Shifting Income to Relatives	37	(1)
Accounting for Community Property	38	(1)
Alimony	38	(1)
Problem Materials	39
Gross Income: Exclusions	1	(1)
Items Specifically Excluded from Gross Income	2	(2)
Statutory Authority	4	(1)
Gifts and Inheritances	4	(2)
General	4	(1)
Gifts to Employees	5	(1)
Employee Death Benefits	5	(1)
Tax in the News: Begging as a Tax-Disfavored Occupation	5	(1)
Life Insurance Proceeds	6	(3)
General Rule	6	(1)
Tax in the News: Frequent-Flyer Miles Will Not Be Taxed	6	(1)
Accelerated Death Benefits	7	(1)
Ethical Considerations: Should the Terminally Ill Pay Social Security Taxes?	8	(1)
Transfer for Valuable Consideration	8	(1)
Scholarships	9	(2)
General Information	9	(1)
Timing Issues	10	(1)
Disguised Compensation	10	(1)
Qualified Tuition Reduction Plans	10	(1)
Compensation for Injuries and Sickness	11	(2)
Damages	11	(1)
Ethical Considerations: Damage Allocation with a View toward the Tax Consequences	12	(1)
Workers' Compensation	13	(1)
Accident and Health Insurance Benefits	13	(1)
Employer-Sponsored Accident and Health Plans	13	(3)
Medical Reimbursement Plans	14	(1)
Tax in the News: Medical Savings Accounts: Questions and Answers	15	(1)
Long-Term Care Insurance Benefits	15	(1)
Meals and Lodging	16	(3)
Furnished for the Convenience of the Employer	16	(2)
Ethical Considerations: ``Employer Required'' Lodging	18	(1)
Other Housing Exclusions	18	(1)
Other Employee Fringe Benefits	19	(7)
Specific Benefits	19	(1)
Cafeteria Plans	19	(1)
Flexible Spending Plans	20	(1)
General Classes of Excluded Benefits	20	(5)
Taxable Fringe Benefits	25	(1)
Foreign Earned Income	26	(2)
Interest on Certain State and Local Government Obligations	28	(1)
Global Tax Issues: U.S. Taxpayers Abroad Are Gone but Not Forgotten	28	(1)
Dividends	29	(1)
General Information	29	(1)
Stock Dividends	30	(1)
Educational Savings Bonds	30	(1)
Qualified Tuition Programs	31	(1)
Tax in the News: Financial Planners See Growth Potential for College Savings Plans	32	(1)
Tax Benefit Rule	32	(1)
Income from Discharge of Indebtedness	33	(1)
Tax Planning Considerations	34	(2)
Life Insurance	34	(1)
Employee Benefits	34	(1)
Investment Income	35	(1)
Problem Materials	36
PART THREE Deductions
Deductions and Losses: In General	1	(1)
Classification of Deductible Expenses	2	(7)
Deductions for Adjusted Gross Income	3	(1)
Tax in the News: Home Schooling: Who Is a Teacher?	4	(1)
Itemized Deductions	5	(1)
Trade or Business Expenses and Production of Income Expenses	5	(1)
Tax in the News: Forward to the Future	6	(2)
Tax in the News: Janitor Dies and Employer Profits	8	(1)
Business and Nonbusiness Losses	9	(1)
Reporting Procedures	9	(1)
Deductions and Losses---Timing of Expense Recognition	9	(4)
Importance of Taxpayer's Method of Accounting	9	(2)
Cash Method Requirements	11	(1)
Accrual Method Requirements	11	(2)
Disallowance Possibilities	13	(18)
Public Policy Limitation	13	(2)
Political Contributions and Lobbying Activities	15	(1)
Excessive Executive Compensation	15	(1)
Investigation of a Business	16	(1)
Hobby Losses	17	(3)
Rental of Vacation Homes	20	(1)
Tax in the News: Investing in Real Estate: An Alternative to the Stock Market?	20	(4)
Ethical Considerations: A Golf Widow's Dream	24	(1)
Expenditures Incurred for Taxpayer's Benefit or Taxpayer's Obligation	24	(2)
Ethical Considerations: How the Payment Is Made	26	(1)
Disallowance of Personal Expenditures	26	(1)
Disallowance of Deductions for Capital Expenditures	27	(1)
Transactions Between Related Parties	28	(1)
Substantiation Requirements	29	(1)
Expenses and Interest Relating to Tax-Exempt Income	30	(1)
Tax Planning Considerations	31	(3)
Time Value of Tax Deductions	31	(1)
Unreasonable Compensation	31	(2)
Excessive Executive Compensation	33	(1)
Shifting Deductions	33	(1)
Hobby Losses	33	(1)
Capital Expenditures	34	(1)
Problem Materials	34
Deductions and Losses: Certain Business Expenses and Losses	1	(1)
Bad Debts	3	(3)
Specific Charge-Off Method	3	(1)
Business versus Nonbusiness Bad Debts	4	(1)
Loans Between Related Parties	5	(1)
Worthless Securities	6	(2)
Small Business Stock	6	(1)
Tax in the News: When Is Enron Stock Worthless?	6	(2)
Losses of Individuals	8	(8)
Ethical Considerations: What Is a Casualty Loss?	8	(1)
Events That Are Not Casualties	9	(1)
Tax in the News: Losses Caused by the Southern Pine Beetle	9	(1)
Theft Losses	10	(1)
When to Deduct Casualty Losses	10	(1)
Measuring the Amount of Loss	11	(3)
Statutory Framework for Deducting Losses of Individuals	14	(1)
Personal Casualty Gains and Losses	14	(2)
Ethical Considerations: The Amount of a Casualty Loss	16	(1)
Research and Experimental Expenditures	16	(2)
Expense Method	17	(1)
Deferral and Amortization Method	17	(1)
Net Operating Losses	18	(6)
Global Tax Issues: Reducing the Cost of Government Incentives for Investors	18	(1)
Carryback and Carryover Periods	19	(1)
Computation of the Net Operating Loss	20	(1)
Tax in the News: Compromises Made to Reach Accord on California Budget	20	(3)
Recomputation of Tax Liability for Year to Which Net Operating Loss is Carried	23	(1)
Calculation of the Remaining Net Operating Loss	24	(1)
Tax Planning Considerations	24	(3)
Tax Consequences of the Groetzinger Case	24	(1)
Documentation of Related-Taxpayer Loans, Casualty Losses, and Theft Losses	25	(1)
Small Business Stock	25	(1)
Casualty Losses	26	(1)
Net Operating Losses	26	(1)
Problem Materials	27
Depreciation, Cost Recovery, Amortization, and Depletion	1	(1)
Overview	3	(1)
Accelerated Cost Recovery System (ACRS and MACRS)	4	(17)
General Considerations	4	(1)
Eligible Property Under ACRS or MACRS	5	(1)
Personalty: Recovery Periods and Methods	5	(3)
Tax in the News: Repercussions from Additional First-Year Depreciation	8	(1)
Realty: Recovery Periods and Methods	9	(2)
Straight-Line Election Under ACRS and MACRS	11	(1)
Election to Expense Assets	12	(1)
Global Tax Issues: Will Changing a Depreciation Rule Sink Boat Builders?	12	(2)
Tax in the News: Stimulating the Economy by Changing the Depreciation Rules	14	(1)
Business and Personal Use of Automobiles and Other Listed Property	15	(4)
Ethical Considerations: Substantiating Business Usage of an Automobile	19	(1)
Alternative Depreciation System (ADS)	19	(2)
Amortization	21	(1)
Depletion	22	(4)
Intangible Drilling and Development Costs (IDC)	22	(1)
Depletion Methods	23	(1)
Ethical Considerations: Computing Cost Depletion	24	(2)
Reporting Procedures	26	(4)
Tax Planning Considerations	30	(2)
Cost Recovery	30	(1)
Amortization	31	(1)
Depletion	31	(1)
Tables	32	(7)
Problem Materials	39
Deductions: Employee and Self-Employed-Related Expenses	1	(1)
Employee versus Self-Employed	3	(1)
Employee Expenses---In General	4	(1)
Tax in the News: Caddies or Golf Carts?	4	(1)
Transportation Expenses	5	(2)
Qualified Expenditures	5	(1)
Computation of Automobile Expenses	6	(1)
Travel Expenses	7	(4)
Definition of Travel Expenses	7	(1)
Away-From-Home Requirement	7	(2)
Restrictions on Travel Expenses	9	(1)
Combined Business and Pleasure Travel	10	(1)
Moving Expenses	11	(2)
Distance Test	11	(1)
Global Tax Issues: Conventions in Faraway Lands	11	(1)
Time Test	12	(1)
Treatment of Moving Expenses	12	(1)
Ethical Considerations: How Much Is That House Really Worth?	13	(1)
Education Expenses	13	(4)
General Requirements	13	(1)
Requirements Imposed by Law or by the Employer for Retention of Employment	14	(1)
Maintaining or Improving Existing Skills	14	(1)
Classification of Specific Items	15	(1)
A Limited Deduction Approach	15	(1)
Other Provisions Dealing with Education	16	(1)
Entertainment Expenses	17	(3)
Cutback Adjustment	17	(1)
Ethical Considerations: Your Turn or Mine?	18	(1)
Classification of Expenses	18	(1)
Restrictions Upon Deductibility	19	(1)
Other Employee Expenses	20	(4)
Office in the Home	20	(2)
Miscellaneous Employee Expenses	22	(1)
Tax in the News: One Side Effect of 9/11	22	(2)
Contributions to Retirement Accounts	24	(1)
Employee IRAs	24	(1)
Self-Employed Keogh (H.R. 10) Plans	24	(1)
Classification of Employee Expenses	25	(2)
Accountable Plans	25	(1)
Nonaccountable Plans	26	(1)
Reporting Procedures	27	(1)
Limitations on Itemized Deductions	27	(2)
Miscellaneous Itemized Deductions Subject to the 2 Percent Floor	27	(1)
Miscellaneous Itemized Deductions Not Subject to the 2 Percent Floor	28	(1)
Tax Planning Considerations	29	(3)
Self-Employed Individuals	29	(1)
Shifting Deductions Between Employer and Employee	29	(1)
Tax in the News: Self-Employed or Employed? Misclassification Can Be Costly!	29	(1)
Transportation and Travel Expenses	30	(1)
Moving Expenses	30	(1)
Global Tax Issues: Expatriates and the Moving Expense Deduction	30	(1)
Education Expenses	31	(1)
Entertainment Expenses	31	(1)
Unreimbursed Employee Business Expenses	31	(1)
Problem Materials	32
Deductions and Losses: Certain Itemized Deductions	1	(1)
General Classification of Expenses	2	(1)
Medical Expenses	3	(8)
General Requirements	3	(1)
Tax in the News: Average Itemized Deductions	3	(1)
Medical Expenses Defined	4	(1)
Tax in the News: Weight Reduction Programs	5	(1)
Ethical Considerations: Pigging Out to Get a Deduction	6	(1)
Capital Expenditures for Medical Purposes	6	(1)
Medical Expenses Incurred for Spouse and Dependents	7	(1)
Transportation, Meal, and Lodging Expenses for Medical Treatment	7	(1)
Amounts Paid for Medical Insurance Premiums	8	(1)
Year of Deduction	9	(1)
Reimbursements	9	(1)
Medical Savings Accounts	10	(1)
Taxes	11	(4)
Deductibility as a Tax	12	(1)
Property Taxes	12	(2)
State and Local Income Taxes	14	(1)
Global Tax Issues: Deductibility of Foreign Taxes	14	(1)
Interest	15	(5)
Allowed and Disallowed Items	15	(4)
Restrictions on Deductibility and Timing Considerations	19	(1)
Classification of Interest Expense	19	(1)
Charitable Contributions	20	(8)
Criteria for a Gift	21	(1)
Qualified Organizations	22	(1)
Time of Deduction	22	(1)
Global Tax Issues: Choose the Charity Wisely	23	(1)
Record-Keeping and Valuation Requirements	23	(1)
Tax in the News: Spring Cleaning and Charitable Contributions	24	(1)
Limitations on Charitable Contribution Deduction	24	(4)
Miscellaneous Itemized Deductions	28	(1)
Ethical Considerations: Job Hunting in Ski Country: A Deductible Expense?	29	(1)
Other Miscellaneous Deductions	29	(1)
Comprehensive Example of Schedule A	30	(1)
Overall Limitation on Certain Itemized Deductions	30	(3)
Tax Planning Considerations	33	(4)
Effective Utilization of Itemized Deductions	33	(1)
Utilization of Medical Deductions	33	(1)
Timing the Payment of Deductible Taxes	34	(1)
Protecting the Interest Deduction	34	(1)
Assuring the Charitable Contribution Deduction	35	(2)
Problem Materials	37
Passive Activity Losses	1	(1)
The Tax Shelter Problem	2	(1)
At-Risk Limits	3	(3)
Tax in the News: Some Taxpayers' Deductions Are Too High, and Some Taxpayers' Deductions Are Too Low	4	(2)
Passive Loss Limits	6	(20)
Classification and Impact of Passive Income and Losses	6	(3)
Taxpayers Subject to the Passive Loss Rules	9	(1)
Passive Activities Defined	10	(10)
Interaction of the At-Risk and Passive Activity Limits	20	(1)
Special Passive Activity Rules for Real Estate Activities	21	(1)
Tax in the News: Tax Breaks Make the Difference	22	(2)
Ethical Considerations: Punching the Time Clock at Year-End	24	(1)
Dispositions of Passive Interests	24	(1)
Ethical Considerations: How Much Latitude Can a Taxpayer Take in Setting Fair Market Value?	25	(1)
Tax Planning Considerations	26	(2)
Utilizing Passive Losses	26	(2)
Problem Materials	28
PART FOUR Special Tax Computation Methods, Payment Procedures, and Tax Credits
Alternative Minimum Tax	1	(1)
Tax in the News: More Taxpayers Will Be Paying the AMT	3	(1)
Individual Alternative Minimum Tax	3	(24)
AMT Formula for Alternative Minimum Taxable Income (AMTI)	3	(4)
AMT Formula: Other Components	7	(1)
Tax in the News: Watch Out: The AMT May Get You	7	(2)
Ethical Considerations: Minimizing the Tax Liability	9	(1)
AMT Adjustments	10	(12)
AMT Preferences	22	(2)
Tax in the News: A Proposal to Reduce Complexity: The AMT Could Be a Big Hit	24	(1)
Illustration of the AMT Computation	24	(1)
AMT Credit	25	(2)
Corporate Alternative Minimum Tax	27	(6)
Repeal of AMT for Small Corporations	29	(1)
Ethical Considerations: Avoiding the Corporate AMT	29	(1)
AMT Adjustments	30	(2)
TAX Preferences	32	(1)
Exemption	32	(1)
Other Aspects of the AMT	32	(1)
Tax Planning Considerations	33	(1)
Responding to Bob and Carol	33	(1)
Avoiding Preferences and Adjustments	33	(1)
Controlling the Timing of Preferences and Adjustments	33	(1)
Taking Advantage of the AMT/Regular Tax Rate Differential	33	(1)
Problem Materials	34
Tax Credits and Payment Procedures	1	(1)
Tax Policy Considerations	3	(1)
Overview and Priority of Credits	4	(3)
Refundable versus Nonrefundable Credits	4	(2)
General Business Credit	6	(1)
Treatment of Unused General Business Credits	7	(1)
Specific Business-Related Tax Credit Provisions	7	(9)
Tax Credit for Rehabilitation Expenditures	7	(2)
Business Energy Credits	9	(1)
Work Opportunity Tax Credit	9	(1)
Welfare-To-Work Credit	10	(1)
Research Activities Credit	11	(2)
Ethical Considerations: When Does ``Research'' Qualify as R & D?	13	(1)
Low-Income Housing Credit	13	(1)
Disabled Access Credit	14	(1)
Credit for Small Employer Pension Plan Startup Costs	14	(1)
Credit for Employer-Provided Child Care	15	(1)
Other Tax Credits	16	(11)
Earned Income Credit	16	(1)
Ethical Considerations: Snagging the Earned Income Credit with the Aid of a Transient Child	17	(1)
Tax in the News: It All Depends on What You Mean by ``Child''	18	(1)
Tax Credit for Elderly or Disabled Taxpayers	18	(2)
Foreign Tax Credit	20	(1)
Adoption Expenses Credit	21	(1)
Global Tax Issues: Sourcing Income in Cyberspace---Getting It Right When Calculating the Foreign Tax Credit	21	(1)
Child Tax Credit	22	(1)
Credit for Child and Dependent Care Expenses	23	(2)
Education Tax Credits	25	(1)
Credit for Certain Retirement Plan Contributions	26	(1)
Payment Procedures	27	(16)
Procedures Applicable to Employers	27	(6)
Tax in the News: The IRS's Procedure for Assessing FICA Tax Liability Garners the Ultimate Approval	33	(5)
Tax in the News: Continuing the Push into Cyberspace	38	(1)
Procedures Applicable to Self-Employed Persons	39	(1)
Global Tax Issues: Foreign ``Withholding Tax'' Performs an Important Role	39	(4)
Tax Planning Considerations	43	(3)
Foreign Tax Credit	43	(1)
Credit for Child and Dependent Care Expenses	44	(1)
Adjustments to Increase Withholding	45	(1)
Adjustments to Avoid Overwithholding	45	(1)
Problem Materials	46
PART FIVE Property Transactions
Property Transactions: Determination of Gain or Loss and Basis Considerations	1	(1)
Determination of Gain or Loss	3	(5)
Realized Gain or Loss	3	(1)
Tax in the News: Watch Those Investments!	4	(2)
Recognized Gain or Loss	6	(1)
Nonrecognition of Gain or Loss	7	(1)
Recovery of Capital Doctrine	7	(1)
Basis Considerations	8	(16)
Determination of Cost Basis	8	(1)
Tax in the News: Determining the Basis of Shares Sold	9	(3)
Gift Basis	12	(1)
Tax in the News: Frequent-Flier Miles and Basis	12	(2)
Ethical Considerations: Looking a Gift Horse in the Eye	14	(1)
Property Acquired From a Decedent	15	(1)
Tax in the News: Effect of 2001 Tax Legislation on the Basis of Inherited Property: Bad News/Good News!	16	(1)
Ethical Considerations: Helping a Friend Increase Basis	17	(2)
Disallowed Losses	19	(2)
Conversion of Property from Personal Use to Business or Income-Producing Use	21	(1)
Tax in the News: Avoiding the Wash Sale Rules: The Stomach Test	21	(2)
Additional Complexities in Determining Realized Gain or Loss	23	(1)
Summary of Basis Adjustments	24	(1)
Tax Planning Considerations	24	(5)
Tax Consequences of Alice's Proposed Transaction	24	(2)
Cost Identification and Documentation Considerations	26	(1)
Selection of Property for Making Gifts	27	(1)
Selection of Property for Making Bequests	27	(1)
Disallowed Losses	28	(1)
Problem Materials	29
Property Transactions: Nontaxable Exchanges	1	(1)
General Concept of a Nontaxable Exchange	2	(1)
Like-Kind Exchanges---§ 1031	3	(7)
Like-Kind Property	4	(1)
Tax in the News: What Happens When the Exchange Is Not Completed Soon Enough?	5	(1)
Exchange Requirement	6	(1)
Boot	6	(1)
Basis and Holding Period of Property Received	7	(3)
Involuntary Conversions---§ 1033	10	(6)
Involuntary Conversion Defined	10	(1)
Ethical Considerations: Purchasing Property in Expectation of Condemnation	11	(1)
Computing the Amount Realized	11	(1)
Tax in the News: How Eminent Is the Right of Eminent Domain?	12	(1)
Replacement Property	12	(1)
Time Limitation on Replacement	13	(1)
Nonrecognition of Gain	14	(1)
Involuntary Conversion of a Personal Residence	15	(1)
Reporting Considerations	16	(1)
Sale of a Residence---§ 121	16	(7)
Tax in the News: Income Tax Consequences on the Sale of a Personal Residence: A Mixed Message	16	(1)
Requirements for Exclusion Treatment	17	(1)
Exceptions to the Two-Year Ownership Rule	17	(2)
Calculation of the Amount of the Exclusion	19	(2)
Ethical Considerations: Maximizing the § 121 Exclusion	21	(1)
Principal Residence	22	(1)
Involuntary Conversion and Using §§ 121 and 1033	22	(1)
Other Nonrecognition Provisions	23	(2)
Exchange of Stock for Property---§ 1032	23	(1)
Certain Exchanges of Insurance Policies---§ 1035	23	(1)
Exchange of Stock for Stock of the Same Corporation---§ 1036	23	(1)
Certain Reacquisitions of Real Property---§ 1038	23	(1)
Transfers of Property Between Spouses or Incident to Divorce---§ 1041	24	(1)
Rollovers into Specialized Small Business Investment Companies---§ 1044	24	(1)
Rollover of Gain from Qualified Small Business Stock into Another Qualified Small Business Stock---§ 1045	24	(1)
Tax Planning Considerations	25	(3)
Like-Kind Exchanges	25	(1)
Involuntary Conversions	26	(1)
Sale of a Principal Residence	26	(2)
Problem Materials	28
Property Transactions: Capital Gains and Losses	1	(1)
General Considerations	2	(2)
Rationale for Separate Reporting of Capital Gains and Losses	2	(1)
General Scheme of Taxation	3	(1)
Tax in the News: Switching Funds Creates a Loss	3	(1)
Capital Assets	4	(4)
Definition of a Capital Asset	4	(2)
Ethical Considerations: Capital Assets for a Song	6	(1)
Effect of Judicial Action	6	(1)
Statutory Expansions	7	(1)
Sale or Exchange	8	(8)
Worthless Securities and § 1244 Stock	9	(1)
Special Rule---Retirement of Corporate Obligations	9	(1)
Tax in the News: A Deal Too Good to Pass Up	9	(1)
Options	10	(2)
Patents	12	(1)
Franchises, Trademarks, and Trade Names	13	(2)
Lease Cancellation Payments	15	(1)
Tax in the News: Cancellation of a Lease Agreement	16	(1)
Holding Period	16	(5)
Review of Special Holding Period Rules	16	(2)
Global Tax Issues: Trading ADRs on U.S. Stock Exchanges	18	(1)
Special Rules for Short Sales	18	(3)
Tax Treatment of Capital Gains and Losses of Noncorporate Taxpayers	21	(9)
Capital Gain and Loss Netting Process	21	(4)
Ethical Considerations: Which Capital Gain Tax Rate Applies?	25	(1)
Alternative Tax on Net Capital Gain	25	(1)
Treatment of Capital Losses	26	(2)
Tax in the News: Increasing the Deduction for Net Capital Losses	28	(1)
Reporting Procedures	29	(1)
Tax Treatment of Capital Gains and Losses of Corporate Taxpayers	30	(3)
Tax Planning Considerations	33	(3)
Importance of Capital Asset Status	33	(1)
Planning for Capital Asset Status	33	(1)
Effect of Capital Asset Status in Transactions Other Than Sales	34	(1)
Stock Sales	35	(1)
Maximizing Benefits	35	(1)
Global Tax Issues: Capital Gain Treatment in the United States and Other Countries	35	(1)
Year-End Planning	36	(1)
Problem Materials	36
Property Transactions: § 1231 and Recapture Provisions	1	(1)
Section 1231 Assets	3	(9)
Relationship to Capital Assets	3	(1)
Tax in the News: A Definition for Unrecaptured § 1250 Gain	3	(1)
Justification for Favorable Tax Treatment	4	(1)
Property Included	5	(1)
Property Excluded	5	(1)
Special Rules for Certain § 1231 Assets	5	(3)
Global Tax Issues: Canadian Slow Depreciation	8	(1)
General Procedure for § 1231 Computation	8	(4)
Section 1245 Recapture	12	(3)
Ethical Considerations: Preparing Tax Returns without Proper Preparation	12	(1)
Tax in the News: More Depreciation and More Depreciation Recapture	13	(1)
Section 1245 Property	14	(1)
Observations on § 1245	15	(1)
Section 1250 Recapture	15	(5)
Computing Recapture on Nonresidential Real Property	16	(1)
Tax in the News: Demolition Creates Taxable Gain	16	(1)
Computing Recapture on Residential Rental Housing	17	(1)
Section 1250 Recapture Situations	18	(1)
Unrecaptured § 1250 Gain (Real Estate 25% Gain)	18	(2)
Considerations Common to §§ 1245 and 1250	20	(2)
Exceptions	20	(1)
Global Tax Issues: Exchange for Foreign Property Yields Recognized Recapture Gain	21	(1)
Other Applications	22	(1)
Special Recapture Provisions	22	(2)
Special Recapture for Corporations	22	(1)
Gain from Sale of Depreciable Property Between Certain Related Parties	22	(2)
Global Tax Issues: Depreciation Recapture in Other Countries	24	(1)
Intangible Drilling Costs	24	(1)
Reporting Procedures	24	(7)
Ethical Considerations: Lookback Required	31	(1)
Tax Planning Considerations	31	(1)
Timing of § 1231 Gain	31	(1)
Timing of Recapture	31	(1)
Postponing and Shifting Recapture	32	(1)
Avoiding Recapture	32	(1)
Problem Materials	32
PART SIX Accounting Periods, Accounting Methods, and Deferred Compensation
Accounting Periods and Methods	1	(1)
Tax in the News: Tax Rate Reductions Create Tax Planning Opportunities	2	(1)
Accounting Periods	3	(7)
In General	3	(1)
Specific Provisions for Partnerships, S Corporations, and Personal Service Corporations	4	(3)
Making the Election	7	(1)
Changes in the Accounting Period	7	(1)
Taxable Periods of Less Than One Year	8	(1)
Mitigation of the Annual Accounting Period Concept	9	(1)
Ethical Considerations: Net Operating Loss Carryback Limits Can Put the Government Ahead of Creditors	10	(1)
Accounting Methods	10	(9)
Permissible Methods	10	(1)
Cash Receipts and Disbursements Method---Cash Basis	11	(1)
Tax in the News: The Horizontal-Severing Method	12	(1)
Accrual Method	13	(2)
Global Tax Issues: A Potential Tax Benefit from Moving Abroad	15	(1)
Hybrid Method	16	(1)
Change of Method	16	(2)
Tax in the News: Trucking Company Permitted to Deduct Prepaid Licenses and Permits: What's the Big Deal?	18	(1)
Special Accounting Methods	19	(11)
Installment Method	19	(5)
Ethical Considerations: A Related-Party Installment Sale Has Unexpected Results	24	(1)
Disposition of Installment Obligations	24	(1)
Interest on Deferred Taxes	25	(1)
Electing Out of the Installment Method	25	(1)
Long-Term Contracts	26	(4)
Ethical Considerations: Deliberate Deferral	30	(1)
Inventories	30	(7)
Determining Inventory Cost	31	(2)
Tax in the News: WorldCom's Dilemma	33	(1)
Global Tax Issues: Inventory Acquired from a Foreign Subsidiary	34	(2)
The LIFO Election	36	(1)
Tax Planning Considerations	37	(2)
Taxable Year	37	(1)
Cash Method of Accounting	37	(1)
Installment Method	37	(1)
Completed Contract Method	38	(1)
Inventories	38	(1)
Problem Materials	39
Deferred Compensation	1	(1)
Qualified Pension, Profit Sharing, and Stock Bonus Plans	3	(16)
Tax in the News: Compensation and Performance	4	(1)
Types of Plans	5	(2)
Ethical Considerations: Conversion to Cash Balance Plans	7	(1)
Qualification Requirements	7	(2)
Tax in the News: Underfunded Pension Plans	9	(3)
Tax Consequences to the Employee and Employer	12	(1)
Global Tax Issues: Covering Expatriate Employees	12	(3)
Limitations on Contributions to and Benefits from Qualified Plans	15	(2)
§ 401(k) Plans	17	(2)
Retirement Plans for Self-Employed Individuals	19	(1)
Coverage Requirements	19	(1)
Contribution Limitations	19	(1)
Individual Retirement Accounts (IRAs)	20	(9)
General Rules	20	(6)
Penalty Taxes for Excess Contributions	26	(1)
Taxation of Benefits	26	(3)
Nonqualified Deferred Compensation Plans	29	(4)
Underlying Rationale for Tax Treatment	29	(1)
Global Tax Issues: Moving Offshore	29	(1)
Tax Treatment to the Employer and Employee	30	(2)
Tax in the News: How Much Is Too Much?	32	(1)
Ethical Considerations: Taxing Athletes' Huge Salaries	33	(1)
Restricted Property Plans	33	(3)
General Provisions	33	(1)
Substantial Risk of Forfeiture	34	(1)
Special Election Available	34	(1)
Employer Deductions	35	(1)
Stock Options	36	(3)
In General	36	(1)
Incentive Stock Options	36	(2)
Nonqualified Stock Options	38	(1)
Tax Planning Considerations	39	(4)
Deferred Compensation	39	(1)
Qualified Plans	39	(1)
Self-Employed Retirement Plans	40	(1)
Individual Retirement Accounts	40	(1)
Comparison of § 401(k) Plan with IRA	40	(1)
Nonqualified Deferred Compensation (NQDC) Plans	41	(1)
Stock Options	42	(1)
Flexible Benefit Plans	43	(1)
Problem Materials	43
PART SEVEN Corporations and Partnerships
Corporations and Partnerships	1	(1)
What Is a Corporation?	3	(1)
Compliance with State Law	3	(1)
Entity Classification Prior to 1997	3	(1)
Entity Classification After 1996	4	(1)
Income Tax Considerations	4	(12)
General Tax Consequences of Different Forms of Business Entities	4	(1)
Individuals and Corporations Compared---An Overview	5	(1)
Ethical Considerations: Who Gets the Deduction?	5	(1)
Specific Provisions Compared	6	(4)
Deductions Available Only to Corporations	10	(3)
Determination of Corporate Tax Liability	13	(1)
Tax in the News: One Way to Reduce Taxes	13	(1)
Corporate Filing Requirements	14	(1)
Reconciliation of Corporate Taxable Income and Accounting Income	14	(2)
Forming the Corporation	16	(4)
Capital Contributions	16	(1)
Transfers to Controlled Corporations	16	(1)
Tax in the News: A Weird Twist on the Debt versus Equity Issue	17	(3)
Operating the Corporation	20	(3)
Dividend Distributions	20	(1)
Global Tax Issues: Transferring Assets to Foreign Corporations---Forget § 351?	21	(1)
Ethical Considerations: Year-End Bonuses That Serve a Purpose	22	(1)
Stock Redemptions	23	(1)
Liquidating the Corporation	23	(2)
General Rule of § 331	23	(1)
Exception to the General Rule	24	(1)
Basis Determination---§§ 334 and 338	24	(1)
Effect of the Liquidation on the Corporation	24	(1)
The S Election	25	(5)
Justification for the Election	25	(1)
Tax in the News: Why No Salaries?	26	(1)
Operational Rules	27	(3)
Partnerships	30	(5)
Nature of Partnership Taxation	30	(1)
Partnership Formation	30	(2)
Partnership Operation	32	(3)
Tax Planning Considerations	35	(3)
Corporate versus Noncorporate Forms of Business Organization	35	(1)
Regular Corporation versus S Status	35	(1)
Global Tax Issues: Taxing the Income of Foreign Corporations	36	(1)
Use of an Entity to Reduce the Family Income Tax Burden	36	(2)
Problem Materials	38
APPENDIXES
Tax Rate Schedules and Tables	1	(1)
Tax Forms	1	(1)
Glossary of Tax Terms	1	(1)
Table of Code Sections Cited	1	(9)
Table of Regulations Cited	10	(3)
Table of Revenue Procedures and Revenue Rulings Cited	13
Citator Example	1	(1)
Comprehensive Tax Return Problems	1	(1)
Table of Cases Cited	1	(1)
Depreciation	1	(1)
Subject Index	1