Concepts in Federal Taxation 2005

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ISBN: 9780324223446 | 0324223447
Cover: Hardcover
Copyright: 4/13/2004

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Concepts in Federal Taxation is designed for a more conceptual, less detailed approach to federal taxation of individuals and corporations in an introductory taxation course. This conceptual approach presents taxation as a small number of unifying concepts, stressing the overriding principles that apply to all specific tax rules and regulations. Concepts in Federal Taxation offers an excellent balance between tax concepts and the Internal Revenue Code and regulations, preparing users for a future in the business environment.

Preface

Introduction

xxv

Why Study Federal Income Taxation?

xxv

Significance of Tax Costs

xxvi

Conservation of Wealth

xxvii

Taxes Influence Routine Decisions

xxviii

Self-Protection

xxix

PART I Conceptual Foundations of the Tax Law

(78)

Federal Income Taxation---An Overview

(41)

Introduction

(1)

Definition and Evaluation of a Tax

(7)

Definition of a Tax

(1)

Standards for Evaluating a Tax

(2)

Tax Rates and Structures

(4)

Major Types of U.S. Taxes

(5)

Income Taxes

(1)

Employment Taxes

(1)

Sales Tax

(1)

Property Taxes

(1)

Other Taxes

(2)

Sources of Federal Income Tax Law

(1)

Federal Income Tax Terminology

(5)

Income

(1)

Deductions

(1)

Income Tax Rates

(1)

Tax Prepayments

(2)

Tax Credits

(1)

Filing Returns

(1)

The Audit and Appeal Process within the IRS

(2)

Tax Return Selection Processes

(1)

Types of Examinations

(1)

Settlement Procedures

(1)

Administrative Appeals

(1)

Individual Income Tax Calculation

(3)

Deductions for Adjusted Gross Income

(1)

Deductions from Adjusted Gross Income

(1)

Personal and Dependency Exemptions

(1)

Tax Planning

(5)

Mechanics of Tax Planning

(4)

Tax Evasion and Tax Avoidance

(1)

Ethical Considerations in Tax Practice

(2)

Summary

(1)

Key Terms

(1)

Primary Tax Law Sources

(1)

Discussion Questions

(1)

Problems

(4)

Issue Identification Problems

(1)

Technology Applications

(1)

Discussion Cases

(1)

Tax Planning Cases

(1)

Ethics Discussion Case

(1)

Income Tax Concepts

(36)

Introduction

(1)

General Concepts

(3)

Ability-to-Pay Concept

(1)

Administrative Convenience Concept

(1)

Arm's-Length Transaction Concept

(2)

Pay-as-You-Go Concept

(1)

Accounting Concepts

(6)

Entity Concept

(3)

Annual Accounting Period Concept

(3)

Income Concepts

(6)

All-Inclusive Income Concept

(1)

Legislative Grace Concept

(1)

Capital Recovery Concept

(1)

Realization Concept

(2)

Wherewithal-to-Pay Concept

(2)

Deduction Concepts

(5)

Legislative Grace Concept

(1)

Business Purpose Concept

(2)

Capital Recovery Concept

(3)

Summary

(1)

Key Terms

(1)

Primary Tax Law Sources

(1)

Discussion Questions

(1)

Problems

(7)

Issue Identification Problems

(1)

Technology Applications

(1)

Discussion Cases

(1)

Tax Planning Case

(1)

Ethics Discussion Case

(1)

PART II GROSS INCOME

(88)

Income Sources

(50)

Introduction

(1)

What Constitutes Income

(4)

Income Is Derived from Labor and Capital

(1)

Income as an Increase in Wealth

(1)

What Constitutes Income: Current View

(1)

Common Income Sources

(16)

Earned Income

(2)

Unearned Income

(4)

Transfers from Others

(5)

Imputed Income

(5)

Capital Gains and Losses--an Introduction

101

(7)

Capital Gain-and-Loss Netting Procedure

102

(2)

Tax Treatment of Capital Gains

104

(2)

Tax Treatment of Dividends

106

(1)

Tax Treatment of Capital Losses

107

(1)

Capital Gains and Losses of Conduit Entities

108

(1)

Effect of Accounting Method

108

(5)

Cash Method

109

(1)

Accrual Method

110

(2)

Hybrid Method

112

(1)

Exceptions Applicable to All Methods

112

(1)

Summary

113

(1)

Key Terms

113

(1)

Primary Tax Law Sources

114

(2)

Discussion Questions

116

(1)

Problems

117

(9)

Issue Identification Problems

126

(1)

Technology Applications

127

(1)

Discussion Cases

128

(1)

Tax Planning Cases

128

(1)

Ethics Discussion Case

129

(1)

Income Exclusions

130

(37)

Introduction

131

(1)

Donative Items

132

(4)

Gifts

132

(1)

Inheritances

133

(1)

Life Insurance Proceeds

134

(1)

Scholarships

135

(1)

Employment-Related Exclusions

136

(8)

Foreign-Earned Income

136

(1)

Payments Made on Behalf of an Employee

137

(5)

Employer Benefit Plans

142

(2)

Returns of Human Capital

144

(3)

Workers' Compensation

144

(1)

Damage Payments for Personal Physical Injury or Physical Sickness

145

(1)

Payments from Health and Accident Policies

145

(2)

Investment-Related Exclusions

147

(4)

Municipal Bond Interest

147

(1)

Stock Dividends

148

(1)

Discharge of Indebtedness

149

(1)

Improvements by a Lessee

150

(1)

Summary

151

(1)

Key Terms

151

(1)

Primary Tax Law Sources

152

(2)

Discussion Questions

154

(1)

Problems

154

(7)

Issue Identification Problems

161

(1)

Technology Applications

162

(1)

Integrative Problems

163

(2)

Discussion Cases

165

(1)

Tax Planning Cases

165

(1)

Ethics Discussion Case

166

(1)

PART III Deductions

167

(204)

Introduction to Business Expenses

168

(51)

Introduction

169

(2)

Reporting Deductions

171

(3)

Conduit Entity Reporting

173

(1)

Classification of Deductions

174

(7)

Profit-Motivated Expenditures

174

(1)

Trade or Business or Production-of-Income Expenses?

175

(3)

Rental Activity

178

(1)

Personal Expenditures

179

(1)

Mixed Business and Personal Expenditures

179

(2)

Tests for Deductibility

181

(7)

Ordinary, Necessary, and Reasonable in Amount

181

(2)

Not a Personal Expense

183

(1)

Not a Capital Expenditure

183

(2)

Not Frustrate Public Policy

185

(2)

Not Related to Tax-Exempt Income

187

(1)

Expenditure Must Be for Taxpayer's Benefit

188

(1)

Limited Mixed-Use Expenses

188

(6)

Hobby Expenses

188

(2)

Vocation Home Expenses

190

(2)

Home Office Expenses

192

(2)

Timing of Deductions---Effect of Accounting Method

194

(7)

Cash Method

194

(2)

Accrual Method

196

(3)

Related Party Accrued Expenses

199

(1)

Financial and Taxable Income Differences

200

(1)

Summary

201

(1)

Key Terms

202

(1)

Primary Tax Law Sources

202

(2)

Discussion Questions

204

(1)

Problems

205

(8)

Issue Identification Problems

213

(1)

Technology Applications

214

(2)

Comprehensive Problem

216

(1)

Discussion Cases

217

(1)

Tax Planning Cases

218

(1)

Ethics Discussion Case

218

(1)

Business Expenses

219

(50)

Introduction

220

(1)

Business Expenses

221

(16)

Entertainment, Auto, Travel, Gift, and Education Expenses

221

(9)

Compensation of Employees

230

(1)

Bad Debts

231

(2)

Other Business Expenses

233

(4)

Individual Deductions for Adjusted Gross Income

237

(12)

Reimbursed Employee Business Expenses

238

(2)

Deductions for Self-Employed Taxpayers

240

(1)

Retirement Plan Contribution Deductions

241

(5)

Deduction for Higher Education Expenses

246

(1)

Interest on Education Loans

246

(2)

Moving Expenses

248

(1)

Summary

249

(1)

Key Terms

250

(1)

Primary Tax Law Sources

250

(2)

Discussion Questions

252

(1)

Problems

253

(9)

Issue Identification Problems

262

(1)

Technology Applications

263

(2)

Integrative Problem

265

(2)

Discussion Cases

267

(1)

Tax Planning Cases

267

(1)

Ethics Discussion Case

268

(1)

Losses---Deductions and Limitations

269

(43)

Introduction

270

(1)

Annual Losses

271

(1)

Net Operating Losses

272

(2)

Tax-Shelter Losses: An Overview

274

(13)

The At-Risk Rules

275

(3)

Passive Activity Losses

278

(9)

Transaction Losses

287

(10)

Trade or Business Losses

289

(2)

Investment-Related Losses

291

(6)

Summary

297

(1)

Key Terms

298

(1)

Primary Tax Law Sources

298

(1)

Discussion Questions

299

(1)

Problems

300

(8)

Issue Identification Problems

308

(1)

Technology Applications

309

(1)

Comprehensive Problem

310

(1)

Discussion Cases

310

(1)

Tax Planning Cases

311

(1)

Ethics Discussion Case

311

(1)

Taxation of Individuals

312

(59)

Introduction

313

(1)

Personal and Dependency Exemptions

314

(2)

Dependency Requirements

314

(2)

Filing Status

316

(3)

Married, Filing Jointly

317

(1)

Married, Filing Separately

317

(1)

Single

317

(1)

Head of Household

318

(1)

Deductions from Adjusted Gross Income

319

(10)

Standard Deduction

319

(1)

Itemized Deductions

320

(9)

Itemized Deductions and Exemptions---Reductions by High-Income Taxpayers

329

(2)

Exemption and Standard Deduction Restrictions on Dependents

331

(1)

Calculating Tax Liability

332

(8)

Tax on Unearned Income of a Minor Child

332

(1)

Income Tax Credits

333

(7)

Filing Requirements

340

(1)

Summary

341

(1)

Key Terms

341

(1)

Primary Tax Law Sources

341

(1)

Discussion Questions

342

(1)

Problems

343

(8)

Issue Identification Problems

351

(1)

Technology Applications

352

(2)

Integrative Problems

354

(4)

Discussion Cases

358

(1)

Tax Planning Cases

358

(1)

Ethics Discussion Case

359

(2)

Appendix to Chapter 8

360

(1)

Schedule EIC (Earned Income Credit)

361

(5)

2003 Earned Income Credit Table

366

(5)

PART IV Property Transactions

371

(176)

Acquisitions of Property

372

(40)

Introduction

373

(1)

Classes of Property

374

(1)

The Property Investment Cycle

375

(7)

Adjusted Basis

376

(3)

Basis in Conduit Entities

379

(1)

Property Dispositions

380

(2)

Initial Basis

382

(1)

Purchase of Assets

382

(5)

Determining the Amount Invested

382

(2)

Basis of a Bargain Purchase

384

(1)

Purchase of Multiple Assets

384

(1)

Purchase of a Business

385

(2)

Constructed Assets

387

(1)

Specially Valued Property Acquisitions

387

(1)

Basis of Property Acquired by Gift

387

(3)

General Rule for Gift Basis

388

(1)

Split Basis Rule for Loss Property

389

(1)

Holding Period

390

(1)

Basis of Property Acquired by Inheritance

390

(2)

Primary Valuation Date

390

(1)

Alternate Valuation Date

390

(1)

Distribution Date

391

(1)

Other Considerations

391

(1)

Personal Use Property Converted to Business Use

392

(2)

General Rule for Basis

392

(1)

Split Basis Rule

393

(1)

Basis in Securities

394

(3)

Stock Dividends

394

(1)

Wash Sale Stock Basis

395

(2)

Summary

397

(2)

Key Terms

399

(1)

Primary Tax Law Sources

399

(1)

Discussion Questions

400

(1)

Problems

400

(7)

Issue Identification Problems

407

(1)

Technology Applications

408

(1)

Integrative Problem

409

(1)

Discussion Cases

409

(1)

Tax Planning Cases

410

(1)

Ethics Discussion Case

411

(1)

Cost Recovery on Property: Depreciation, Depletion, and Amortization

412

(55)

Introduction

413

(2)

Capital Recovery from Depreciation or Cost Recovery

415

(2)

Section 179 Election to Expense Assets

417

(3)

Qualified Taxpayers

417

(1)

Qualified Property

417

(1)

Limitations on Deduction

417

(3)

Additional First-Year Depreciation

420

(1)

Modified Accelerated Cost Recovery System (MACRS)

421

(15)

Property Subject to MACRS

422

(1)

Basis Subject to Cost Recovery

423

(1)

MACRS Recovery Period

423

(2)

MACRS Conventions

425

(4)

Depreciation Method Alternatives

429

(2)

Using MACRS Percentage Tables

431

(2)

MACRS Straight-Line Election

433

(1)

Alternative Depreciation System (ADS)

433

(1)

Limitations on Listed Property

434

(2)

Depletion

436

(2)

Depletion Methods

436

(1)

Cost Depletion

437

(1)

Percentage Depletion

438

(1)

Intangible Assets

438

(2)

Summary

440

(2)

Key Terms

442

(1)

Primary Tax Law Sources

442

(1)

Discussion Questions

443

(1)

Problems

444

(5)

Issue Identification Problems

449

(1)

Technology Applications

449

(1)

Integrative Problems

450

(1)

Discussion Cases

451

(1)

Tax Planning Cases

451

(1)

Ethics Discussion Case

452

(1)

Appendix to Chapter 10 MACRS Class Lives and MACRS Depreciation Schedules

453

(1)

Rev. Proc. 87-56

453

(14)

Section 1. Purpose

453

(1)

Section 2. General Rules of Application

453

(1)

Section 5. Tables of Class Lives and Recovery Periods

454

(13)

Property Dispositions

467

(42)

Introduction

468

(2)

Realized Gain or Loss

470

(3)

Amount Realized

470

(2)

Effect of Debt Assumptions

472

(1)

Character of Gain or Loss

473

(1)

Capital Gains and Losses

473

(11)

Capital Asset Definition

474

(1)

Long-Term versus Short-Term Classification

474

(1)

Capital Gain-and-Loss Netting Procedure

475

(6)

Capital Gains and Losses---Planning Strategies

481

(3)

Section 1231 Gains and Losses

484

(3)

Definition of Section 1231 Property

484

(1)

Section 1231 Netting Procedure

484

(3)

Depreciation Recapture

487

(6)

Section 1245 Recapture Rule

488

(1)

Section 1250 Recapture Rule

489

(1)

Section 1245 and Section 1250 Properties

490

(1)

Unrecaptured Section 1250 Gain

491

(2)

Summary

493

(1)

Key Terms

494

(1)

Primary Tax Law Sources

494

(1)

Discussion Questions

495

(1)

Problems

496

(7)

Issue Identification Problems

503

(1)

Technology Applications

504

(2)

Comprehensive Problems

506

(1)

Discussion Cases

506

(1)

Tax Planning Cases

507

(1)

Ethics Discussion Case

508

(1)

Nonrecognition Transactions

509

(38)

Introduction

510

(1)

Rationale for Nonrecognition

510

(1)

Commonalities of Nonrecognition Transactions

511

(4)

Like-Kind Exchanges

515

(10)

Exchange Requirement

515

(1)

Like-Kind Property Requirements

516

(3)

Effect of Boot

519

(4)

Related Party Exchanges

523

(1)

Carryover of Tax Attributes

524

(1)

Involuntary Conversions

525

(3)

Treatment of Involuntary Conversion Gains and Losses

525

(2)

Qualified Replacement Property

527

(1)

Sale of a Principal Residence

528

(3)

Requirements for Exclusion

529

(2)

Summary

531

(1)

Key Terms

532

(1)

Primary Tax Law Sources

533

(1)

Discussion Questions

533

(1)

Problems

534

(5)

Issue Identification Problems

539

(1)

Technology Applications

540

(1)

Comprehensive Problem

541

(1)

Discussion Cases

541

(1)

Tax Planning Cases

542

(1)

Ethics Discussion Case

542

(5)

Appendix to Chapter 12 Selected SIC Product Classes

543

(4)

PART V Income Tax Entities

547

(144)

Choice of Business Entity---General Tax and Nontax Factors/Formation

548

(43)

Introduction

549

(1)

Nontax Factors

550

(7)

Sole Proprietorship

551

(1)

Partnership

551

(1)

Corporation

552

(1)

S Corporation

553

(1)

Limited Liability Company

554

(1)

Limited Liability Partnership

555

(1)

Planning Commentary

556

(1)

General Income Tax Factors

557

(11)

Incidence of Income Taxation

557

(3)

Double Taxation

560

(1)

Employee versus Owner

561

(2)

Fringe Benefits

563

(2)

Social Security Taxes

565

(2)

Planning Commentary

567

(1)

Formation

568

(12)

Transfers to an Entity

568

(2)

Basis Considerations

570

(4)

Organizational Costs

574

(1)

Accounting Periods

575

(2)

Accounting Methods

577

(2)

Planning Commentary

579

(1)

Summary

580

(1)

Key Terms

581

(1)

Primary Tax Law Sources

581

(1)

Discussion Questions

582

(2)

Problems

584

(4)

Issue Identification Problems

588

(1)

Technology Applications

589

(1)

Discussion Cases

589

(1)

Tax Planning Cases

590

(1)

Ethics Discussion Case

590

(1)

Choice of Business Entity---Operations and Distributions

591

(44)

Introduction

592

(1)

Operations

592

(19)

Sole Proprietorship

592

(2)

Partnership

594

(6)

Corporation

600

(6)

S Corporation

606

(3)

Planning Commentary

609

(2)

Entity Distributions

611

(9)

Sole Proprietorship

611

(1)

Partnership

612

(2)

Corporation

614

(2)

S Corporation

616

(1)

Planning Commentary

617

(3)

Tax Planning

620

(4)

Income Splitting

620

(1)

Children as Employees

621

(1)

Family Entities

622

(1)

Planning Commentary

623

(1)

Summary

624

(1)

Key Terms

625

(1)

Primary Tax Law Sources

625

(1)

Discussion Questions

626

(1)

Problems

626

(5)

Issue Identification Problems

631

(1)

Technology Applications

632

(1)

Discussion Cases

633

(1)

Tax Planning Cases

633

(1)

Ethics Discussion Case

634

(1)

Choice of Business Entity---Other Considerations

635

(56)

Introduction

636

(1)

Compensation Plans

636

(22)

Qualified and Nonqualified Pension Plans

637

(3)

Other Pension Plans

640

(5)

Distributions

645

(2)

Penalties

647

(2)

Planning Commentary

649

(1)

Stock Options

649

(7)

Reasonableness of Compensation

656

(1)

Planning Commentary

657

(1)

Other Tax Liability Considerations

658

(13)

Income Tax Credits

658

(4)

The Alternative Minimum Tax

662

(1)

Basic Alternative Minimum Tax Computation

663

(8)

Planning Commentary

671

(1)

International Tax Aspects

671

(6)

Taxpayers Subject to U.S. Taxation

671

(1)

Tax Treaties

672

(1)

Organizational Structure of Foreign Operations

672

(4)

Taxation of Nonresident Aliens and Foreign Corporations

676

(1)

Summary

677

(2)

Key Terms

679

(1)

Primary Tax Law Sources

679

(2)

Discussion Questions

681

(1)

Problems

682

(6)

Issue Identification Problems

688

(1)

Technology Applications

688

(1)

Discussion Cases

689

(1)

Tax Planning Cases

689

(1)

Ethics Discussion Case

690

(1)

PART VI Tax Research

691

(1)

Tax Research

692

(1)

Introduction

693

(1)

Primary Sources of Federal Income Tax Law

693

(11)

Legislative Sources

693

(5)

Administrative Sources

698

(2)

Judicial Sources

700

(2)

Citations to Primary Authorities

702

(2)

Secondary Sources of Federal Income Tax Law

704

(3)

Tax Services

704

(1)

Computer-Assisted Tax Research

705

(1)

Citators

706

(1)

Tax Periodicals

707

(1)

Tax Research

707

(3)

Tax Compliance versus Tax Planning

707

(1)

Step 1: Establish the Facts and Determine the Issues

707

(1)

Step 2: Locate the Relevant Authorities

708

(1)

Step 3: Assess the Importance of the Authorities

708

(1)

Step 4: Reach Conclusions, Make Recommendations, and Communicate the Results

709

(1)

Comprehensive Research Example

710

(2)

Step 1: Establish the Facts and Determine the Issues

710

(1)

Step 2: Locate the Relevant Authorities

710

(1)

Step 3: Assess the Importance of the Authorities

710

(2)

Step 4: Reach Conclusions, Make Recommendations, and Communicate the Results

712

(1)

Research Memorandum

712

(1)

Facts:

713

(1)

Issues:

713

(1)

Conclusions:

713

(1)

Reasoning:

713

(1)

Summary

713

(1)

Key Terms

714

(1)

Primary Tax Law Sources

714

(1)

Discussion Questions

715

(1)

Problems

716

(1)

Research Cases

717

(1)

Income Cases

717

(1)

Deduction Cases

718

(2)

Loss Cases

720

(2)

Entity Cases

722

(1)

Property Cases

723

(1)

Accounting Methods/Procedure Cases

724

Appendix A: Tax Return Problem

(1)

Appendix B: Tax Rate Schedules and Tax Tables

(1)

Appendix C: Tax Forms

(1)

Appendix D: Statements on Standards for Tax Services

(1)

Glossary

(1)

Index

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