Preface xxiii
Introduction xxx
PARTⅠ
CONCEPTUAL FOUNDATIONS OF THE TAX LAW 1
CHAPTER 1 Federal IncomeTaxation-An Overview 2
CHAPTER 2 Income Tax Concepts 50
PARTⅡ
GROSS INCOME
CHAPTER 3 Income Sources
CHAPTER 4 Income Exclusions
PART Ⅲ
DEDUCTIONS
CHAPTER 5 Introduction to Business Expenses
CHAPTER 6 Business Expenses
CHAPTER 7 Losses-Deductions and Limitations
CHAPTER 8 Taxation of Individuals
PART Ⅳ
PROPERTY TRANSACTIONS
CHAPTER 9 Acquisitions of Property
CHAPTER 10 Cost Recovery on Property: Depreciation, Depletion,
and Amortization
CHAPTER 11 Property Dispositions
CHAPTER 12 Nonrecognition Transactions
PART Ⅴ
INCOMETAXENTITIES
CHAPTER 13 Choice of Business Entity-Part
CHAPTER 14 Choice of Business Entity-Part
PART Ⅵ
TAX RESEARCH
CHAPTER15 TaxResearch
APPENDIX A Tax Rate Schedules and Tax Tables
APPENDIX B Tax Return Problem
APPENDIX C TaxForms
APPENDIX D Statements on Responsibilities in Tax Practice
GLOSSARY
INDEX
Prefac xxiii
INTRODUCTION xxx
Why Study Federal Income Taxation xxx
Significance of Tax Costs xxxi
Conservation of Wealth xxxiii
Taxes Influence Routine Decisions xxxiv
Self-Protection xxxiv
PART Ⅰ
CONCEPTUAL FOUNDATIONS OFTHETAX LAW
CHAPTER 1 FEDERAL INCOME TAXATION-AN OVERVIEW
Introduction
Definition and Evaluation of a Tax
Definition of a Tax
Standards for Evaluating a Tax
Tax Rates and Structures
Tax Rate Definitions
Tax Rate Structures
Major Types of U.S. Taxes
Income Taxes
Employment Taxes
Social Security Taxes
Unemployment Taxes
Sales Tax
Property Taxes
Other Taxes
Excisr Taxes
Weallh Transfer Taxe
Sources of Federal Income Tax Law
Federal Income Tax Tenninology
Income
Deductions
Income Tax Rates
Tax Prepayments
Tax Credits
Filing Returns
The Audit and Appeal Process within the IRS
Tax Return Selection Processes
Types of Examinations
Settlement Procedures
Administrative Appeals
Individual Income Tax Calculation
Deductions for Adjusted Gross Income
Deductions from Adjusted Gross Income
Personal and Dependency Exemptions
Tax Planning
Mechanics of Tax Planning
Timing Income and Deductions
Income Shiftinf;
Tax Evasion and Tax Avoidance
Ethical Considerations in Tax Practice
Summary
Key Tenns
Primary Tax Law Sources
Discussion Questions
Problems
Discussion Cases
Tax Planning Case
Ethics Discussion Case
CHAPTER 2 income Tax Concepts
introduction
General Concepts
Ability-to-Pay Concept
Administrative Convenience Concept
Arm's-Length Transaction Concept
Pay-as-You-Go Concept
Accounting Concepts
Entity Concept
Assignment-of-lncome Doctrine
Annual Accounting Period Concept
Accounlifig Method
Tax Benefit Rule
Substance-over-Form Docfrine
Income Concepts
All-lnclusive Income Concept
Legislative Grace Concept
Capital Recovery Concept
Realization Concept
Claim-of-Right Doctrine
Constructive Receipt Doctrine
Comparing Claim of Right and Constructwe Receipt
Wherewithal-to-Pay Concept
Deduction Concepts
Legislative Grace Concept
Business Purpose Concept
Capital Recovery Concept
Summary
Table of Contents
Key Tenns
Primary Tax Law Sources
Discussion Questions
Problems
Discussion Case
Tax Planning Case
Ethics Discussion Case
PART Ⅱ
GROSS INCOME
CHAPTER 3 Income Sources
Concept Review
Introduction
What Constitutes Income
Income Is Derived from Labor and Capital
Income as an Increase in Wealth
What Constitutes Income: Current View
Common Income Sources
Eamed Income
Uneamed Income
Rental and Royalty Incom
Annuities
Calculation of GainlLoss on Sale oflnvestment
Income from Conduit Entities
Transfers from Others
Prizes and Awards
Unemployment Compensatwn
Social Security Benefits
Alimony Received
Imputed Income
Below Market-Rate Loans
Payment of Expenses by Others
Bargam Purchases
Capital Gains and Losses-An Introduction
Capital Gain-and-Loss Netting Procedure
Tax Treatment of Capital Gains
Tax Treatment of Capital Losses
Capital Gains and Losses of Conduit Entities
Effect of Accounting Method
Cash Method
Exceptions Applicable to the Cash Method
Accrual Method
Exceptions Applkable to the Accrual Method
Hybrid Method
Exceptions Applicable to All Methods
Installment Sflles
Table of Content
Long-Term Construction Contract
Summary
Key Tenns
Primary Tax Law Sources
Discussion Questions
Problems
Discussion Cases
Tax Planning Case
Ethics Discussion Case
CHAPTER4 Income Exclusions
Concept Review
Introduction
Donative Items
Gifts
Inheritances
Life Insurance Proceeds
Scholarships
Certain Death Benefits
Employment-Related Exclusions
Foreign Earned Income
Payments Made on Behalf of an Employee
Payments to Qualified Pension Plans
Group Term Life Insurance
Health and Accident Insurance Premiums
Meals and Lodgng Provided by the Employer
General Fnnge Benefits
Other Benefils Paid by an Employe
Employer Benefit Plans
Medical Scvings Accounts
Retums of Human Capital
Workers' Compensation
Damage Payments for Personal Physical Injury or Physical Sickness
Payments from Health and Accident Policies
Investment-Related Exclusions
Municipal Bond Interest
Stock Dividends
Discharge of Indebtedness
Improvements by a Lessee
Summary
Key Terms
Primary Tax Law Sources
Discussion Questions
Problems
Integrative Problems
Discussion Case
Tax Planning Case
Ethics Discussion Case
PART Ⅲ
DEDUCTIONS
CHAPTER 5 Introduction to Business Expenses
Concept Review
Introduction
Reporting Deductions
Conduit Entity Reporting
Classification of Deductions
Profit-Motivated Expenditures
Trade or Business or Production-of-Income Expenses?
Trade or Business Expenses
Expenses for the Production of Incomi
Rental Activity
Personal Expenditures
Mixed Business and Personal Expenditures
Mixed-Use Assets
Mixed-Use Expenditures
Tests for Deductibility
Ordinary, Necessary, and Reasonable in Amount
Ordinary Expense
Necessary Expense
Reasonable m Amounl
Not a Personal Expense
Not a Capital Expenditure
Repair-and-Maintenance Expense
Start-up Costs
Not Frustrate Public Policy
Expenses ofan lllegal Business
Lobbying Expenses and Other Political Activitie
Not Related to Tax-Exempt Income
Expenditure Must Be for Taxpayer's Benefit
Limited Mixed-Use Expenses
Hobby Expenses
Vacation Home Expenses
Home Office Expenses
Timing of Deductions--Effect of Accounting Method
Cash Method
Accrual Method
Related Party Accrued Expenses
Financial and Taxable Income Difference
Summary
Key Terms
Primary Tax Law Sources
Discussion Questions
Problems
Comprehensive Problem
Discussion Cases
Table of Content
Tax Planning Case
Ethics Discussion Case
CHAPTER 6 Business Expenses
Concept Review
Introduction
Business Expenses
Entertainment, Auto, Travel, Gift, and Education Expenses
Meals and Entertciinment
Auto Expenses
Travel Expenses
Business Gifts
Substantiation Requirement
Educatwn Expenses
Compensation of Employees
Bad Debts
Other Business Expenses
Insurance Expense
Taxes
Legal Fees
Individual Deductions for Adjusted Gross Income
Reimbursed Employee Business Expenses
Accountable Reimbursement Plans
Nonaccountable Reimbursement Plans
Deductions for Self-Employed Taxpayers
Retirement Plan Contribution Deductions
Individual Retirement Accounts
Moving Expenses
Summary
Key Terms
Primary Tax Law Sources
Discussion Questions
Problems
Integrative Problem
Discussion Cases
Tax Planning Case
Ethics Discussion Case
CHAPTER 7 Losses-Deductions and Limitations
Concept Review
Introduction
Annual Losses
Net Operating Losses
Tax-Shelter Losses: An Overview
The At-Risk Rules
Passive Activity Losses
Passive Activity Definition
Types of Income
Taxpayers Subject to the Limit
General Rulefor Passive Activities
Dispositions of Passive Activities
Exceptions for Rental Real Estate
Transaction Losses
Trade or Business Losses
Business Casualty and Theft Losses
fnvestment-Related Losses
Capital Losses
Specially Treated investment Losses
Personiil Use Losses
Summary
Key Terms
Primary Tax Law Sources
Discussion Questions
Problems
Comprehensive Problem
Discussion Cases
Tax Planning Case
Ethics Discussion Case
CHAPTER 8 Taxation of individuals
Concept Review
Introduction
Personal and Dependency Exemptions
Dependency Requirements
Gross Income Test
Support Test
Relationship m Member ofHousehold Test
Citiun or Residency Test
Joint Return Test
Filing Status
Married, Filing Jointly
Married, Filing Separately
Single
Head of Household
Deductions from Adjusted Gross Income
Standard Deduction
Itemized Deduchons
Medical Expenses
Taxes
Interest Expense
Charitable Conlributions
Miscellaneous Itemized Deductions
Itemized Deductions and Exemptions--Reductions by High-:lncome Taxpayers
Exemption and Standard Deduction Restrictions on Dependents
Calculating Tax Liability
Tax on Unearned Income of a Minor Child
Income Tax Credits
Eamed Income Credit
Adoption Tctx Credit
Child- and Dependent-Care Credit
Filing Requirements
Summary
Key Terms
Primary Tax Law Sources
Discussion Questions
Problems
Integrative Problems
Discussion Cases
Tax Planning Case
Ethics Discussion Case
APPENDlX TO CHAPTER 8
Schedule ElC (Earned Income Credit)
199b Earned Income CreditTable
PART IV
PROPERTY TRANSACTlONS
CHAPTER 9 Acquisitions of Property
Concept Review
Introduction
Classes of Property
The Property Investment Cycle
Adjusted Basis
Increases in Basis
Decreases m Basis
Basis in Conduit Entities
Property Dispositions
Initial Basis
Purchase of Assets
Determining the Amount Invested
Basis of a Bargain Purchase
Purchase of Multiple Assets
Purchase of a Business
Purchase of the Assets ofa Busines
Purchase ofCorpomte Stock
Constructed Assets
Specially Valued Property Acquisitions
Basis of Property Acquired by Gift
General Rule for Gift Basis
Split Basis Rule for Loss Property
Special Sales Price Basis
Holding Period
Basis of Property Acquired by Inheritance
Primary Valuation Date
Alternate Valuation Date
Distribution Date
Other Considerations
Property Acquired from a Spouse
Personal Use Property Converted to Business Use
General Rule for Basis
Split Basis Rule
Basis in Securities
Stock Dividends
Taxable Stock Dividends
Wash Sale Stock Basis
Summary
Key Tenns
Primary Tax Law Sources
Discussion Questions
Problems
Integrative Problem
Discussion Cases
Tax Planning Case
Ethics Discussion Case
CHAPTER lO Cost Recovery on Property:
Depreciation, Depletion, and Amortization
Concept Review
introduction
Capital Recovery from Depreciation or Cost Recovery
Section 179 Election to Expense Assets
Qualified Taxpayers
Qualified Property
Limitations on Deduction
Annual Deduclion Limit
Annual Investment Limit
Active Trade or Business Income Limit
Modified Accelerated Cost Recovery (MACRS)
Property Subject to MACRS
Basis Subject to Cost Recovery
MACRS Recovery Period
MACRS Conventions
Mid-quarter Convention
Depredation Method Alternatives
Using MACRS Percentage Tables
MACRS Straight-line Election
Alternative Depreciation System (ADS)
Limitations on Listed Property
Listed Property in General
Limitation on Passenger Autos
Adequate Record Keeping
Depletion
Depletion Methods
Cost Depletion
Percentage Depletion
Intangible Assets
Summary
Key Tenns
Primary Tax Law Sources
Discussion Questions
Problems
Integrative Problems
Discussion Cases
Tax Planning Cases
Ethics Discussion Case
APPENDlXTOCHAPTERlO
MACRS Class Lives and MACRS Depreciation Schedules
CHAPTER11 Property Dispositions
Concept Review
Ointroduction
Realized Gain or Loss
Amount Realized
Effect of Debt Assumptions
Character of Gain or Loss
Capital Gains and Losses
Capital Asset Definition
Long-Term versus Short-Term Classification
Capital Gain-and-Loss Netting Procedure
Capital Gain Exclusion on Qualified Smaff Business Stock
Capital Gains and Losses-Planning Strategies
Net Capital Gain Position
Net Capital Loss Position
Short Sales
Worthless Securities
Basis of Securities Sold
Section 1231 Gains and Losses
Definition of Section 1231 Property
Section 1231 Netting Procedure
Disposition of Rental Activities
Depreciation Recapture
Section 1245 Recapture Rule
Section 1250 Recapture Rule
Installment Sales of Depreciable Assets
Section 1245 and Section 1250Properties
Summary
Key Tenns
Primary Tax Law Sources
Discussion Questions
Problems
Integrative Problem
Comprehensive Problems
Discussion Cases
Tax Planning Cases
Ethics Discussion Case
CHAPTER l 2 Nonrecognition Transactions
Concept Review
Introduction
Rationales for Nonrecognition
Commonalities of Nonrecognition Transactions
Life-Kind Exchanges
Exchange Requirement
Life-Kind Property Requirements
Effect of Boot
Receipl of Boot
Related Party Exchanges
Carryover of Tax Attributes
Involuntary Conversions
Treatment of Involuntary Conversion Gains and Losses
Qualified Replacement Property
Sale of a Principal Residence
Principal Residence
Replacement Period
Deferral of Gain
Sale of a Principal Residence--Taxpayers Older Than 55
Gain Exclusion Requirements
One-Time Exclusion of Gain
Interaction of Deferral and Exclusion Provisions
Summary
Key Terms
Primary Tax Law Sources
Discussion Questions
Problems
Comprehensive Problem
Discussion Cases
Bax Planning Cases
Ethics Discussion Case
APPENDlXTOCHAPTER12
Selected SlC Product Classes
PART Ⅴ
INCOMETAXENTlTlES
CHAPTER 13 Choice of Business Entity-Part l
Concept Review
Introduction
Nontax Factors
Sole Proprietorship
Partnership
Corporation
S Corporation
Limited Liabilify Company
Limited Liability Partnership
Planning Commentary
General Income Tax Factors
Incidence of Income Taxation
Sole Proprieforship
Partnership
Corporation
Personal Service Corporation
S Corporalion
Double Taxation
Employee versus Owner
Planning Commentary
Fonnation
Transfers to an Entity
Sole Proprietorship
Partnership
Corporation
Basis Considerations
Sole Proprietorship
Parfnership
Partnership Debt Effects
Recourse and Nonrecourse Loan
Corporation
Corporation Debt Effect
Organizational Costs
Accounting Periods
Partnership
S Corporation
Accounting Methods
Partnership
Corporation
S Corporation
Planning Commentary
Operations
Sole Proprietorship
Investment Income and Expense
Capital Gains and Losses
Section 1231 Gains and Losse
Passive Activity Items
Charitable Contribution
Personal Expenses
Tax Credits
Net Operating Loss
Partnership
Income Reporting
Net Operating Losses
Transactions between Partners and Partnership
Basis Considerations
Corporation
Capital Gains and Losses
Depreciation Recapture
Dividends-Received Deduction
Passive Activity Losses
Charitable Contributions
Net Operating Losses
Tax Credits
Basis Considerafion
S Corporation
Corporate Depreciation Recapture
Dividends-Received Deduction
Net Operciting Losscs
Basis Considerations
Planning Commentary
Summary
Key Terms
Primary Tax Law Sources
Discussion Questions
Problems
Discussion Cases
Tax Planning Cases
Ethics Discussion Case
CHAPTER 14 Choice of Business Entity-Part 11
Concept Review
Introduction
Compensation Plans
Qualified and Nonqualified Pension Plans
Other Pension Plans
Keogh Plan
Individual Retirement Accounts
Simplified Employee Pension Plan
Savings Incentive Match Plan for Employee
Distributions
Penalties
Planning Commentary
Stock Options
Nonqualified Stock Options
Incentive Sfock Options
Reasonableness of Compensation
Fringe Benefits
Planning Commentary
Other Tax Liability Considerations
Social Security Taxes
Income Tax Credits
Investment Tax Credit
Foreign Tax Credit
Research and Experimental Credit
Rehabilitation Tax Credit
General Business Credit
Reporting of Tax Credits
The Altemative Minimum Tax
Basic Altemative Minimum Tax Computation
Alternative Minimum Tax Adjustments
Alternative Minimum Tax Preferences
Alternative Minimum Tax Exemptwns
Alternative Minimum Tax Credits
Alternative Minimum Tax Credit agamst the Regular Tax
Tax Planning and the Alternative Minimum Tax
Penalty Taxes on Corporations
Accumulated Eamings Tax
Personal Holding Company Tax
Planning Commentary
Entity Distributions
Sole Proprietorship
Partnership
Corporation
S Corporation
Planning Commentary
Tax Planning
Income Splitting
Children as Employee
Family Entities
Planning Commentary
Summary
Key Terms
Primary Tax Law Sources
Discussion Questions
Problems
Discussion Cases
Tax Planning
Ethics Discussion Case
PART Ⅵ
TAX RESEARCH
CHAPTER15 Tax Research
Introduction
Primary Sources of Federal Income Tax Law
Legislative Sources
The U. S. Constitution
Internal Revenue Code of 1986
Tax Treafies
Administrative Sources
Treasury Regulations
Revenue Rnlings and Procedures
Acquiescence and Nonacquiescence
Olher Pronouncements
Judicial Sources
Trial Courts
Appellate Courts
Supreme Courl
Citations to Primary Authorities
Committee Reports
Code and Regulations
Other IRS Pronouncements
Court Decisions
Secondary Sources of Federal Income Tax Law
Tax Services
Citators
Tax Periodicals
Computer Assisted Tax Research
Tax Research
Tax Compliance versus Tax Planning
Step 1: Establish the Facts and Determine the Issue
Step 2: Locate the Relevant Authorities
Step 3: Assess the Importance of the Authorities
Code and Regulations
Pronouncements
Court Decisions
Step 4: Reach Conclusions, Make Recommendations, and Communicate the Results
Comprehensive Research Example
Step 1: Establish the Facts and Determine the Issues
Step 2: Locate the Relevant Authorities
Step 3: Assess the Importance of the Authorities
The Code
Regulations
Court Decision
Step 4: Reach Conclusions, Make Recommendations, and Communicate the Results
Summary
Key Tenns
Primary Tax Law Sources
Discussion Questions
Problems
Research Cases
APPENDIX A Tax Rate Schedules and Tax Tables
Table of Content
APPENDlX B Tax Return Problem
APPENDlx C Tax Forms
APPENDlX D Statements on Responsibilities in Tax Practice
Glossary
Index
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