2017 Edition Taxation of Individuals McGraw-Hill’s Spilker • AyerS • BArrick • OutSlAy • rOBinSOn • WeAver • WOrShAm McGraw–Hill’s Taxation of Individuals McGraw–Hill’s Taxation of Individuals Brian C Spilker Brigham Young University Editor Benjamin C Ayers John A Barrick The University of Georgia Brigham Young University Edmund Outslay John R Robinson Michigan State University Texas A&M University Connie D Weaver Ron G Worsham Texas A&M University Brigham Young University McGRAW-HILL’S TAXATION OF INDIVIDUALS, 2017 EDITION, EIGHTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2017 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2016, 2015, and 2014 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper DOW/DOW 6 ISBN 978-1-259-72902-7 MHID 1-259-72902-8 ISSN 1943-9318 Senior Vice President, Products & Markets: Kurt L Strand Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Delivery: Kimberly Meriwether David Managing Director: Tim Vertovec Senior Brand Manager: Kathleen Klehr Director, Product Development: Rose Koos Director of Digital Content: Peggy Hussey Lead Product Developer: Kristine Tibbetts Product Developer: Danielle Andries Market Development Manager: Erin Chomat Digital Product Developer: Kevin Moran Digital Product Analyst: Xin Lin Director, Content Design & Delivery: Linda Avenarius Program Manager: Daryl Horrocks Content Project Managers: Lori Koetters, Brian Nacik Buyer: Susan K Culbertson Design: Matt Diamond Content Licensing Specialists: Melissa Homer, Shannon Manderscheid Cover Image: â Creatas Images/Getty Images Compositor: Aptarađ, Inc Printer: R R Donnelley All credits appearing on page are considered to be an extension of the copyright page The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites mheducation.com/highered Dedications We dedicate this book to: My children, Braxton, Cameron, Ethan, and Lauren, and to my parents, Ray and Janet Last but not least, to my wife, Kim, for allowing me to take up valuable kitchen space while I was working on the project I love you all Brian Spilker My wife, Marilyn, daughters Margaret Lindley and Georgia, son Benjamin, and parents Bill and Linda Ben Ayers My wife, Jill, and my children Annika, Corinne, Lina, Mitch, and Connor John Barrick My family, Jane, Mark, Sarah, Chloe, Lily, and Jeff, and to Professor James E Wheeler, my mentor and friend Ed Outslay JES, Tommy, and Laura John Robinson My family, Dan, Travis, Alix, and Alan Connie Weaver My wife, Anne, sons Matthew and Daniel, and daughters Whitney and Hayley Ron Worsham About the Authors Brian Spilker (PhD, University of Texas at Austin, 1993) is the Robert Call/Deloitte Professor in the School of Accountancy at Brigham Young University He teaches taxation in the graduate and undergraduate programs at Brigham Young University He received both BS (Summa Cum Laude) and MAcc (tax emphasis) degrees from Brigham Young University before working as a tax consultant for Arthur Young & Co (now Ernst & Young) After his professional work experience, Brian earned his PhD at the University of Texas at Austin In 1996, he was selected as one of two nationwide recipients of the Price Waterhouse Fellowship in Tax Award In 1998, he was a winner of the American Taxation Association and Arthur Andersen Teaching Innovation Award for his work in the classroom; he has also been awarded for his use of technology in the classroom at Brigham Young University Brian researches issues relating to tax information search and professional tax judgment His research has been published in journals such as The Accounting Review, Organizational Behavior and Human Decision Processes, Journal of the American Taxation Association, Behavioral Research in Accounting, Journal of Accounting Education, Journal of Corporate Taxation, and Journal of Accountancy Ben Ayers (PhD, University of Texas at Austin, 1996) holds the Earl Davis Chair in Taxation and is the dean of the Terry College of Business at the University of Georgia He received a PhD from the University of Texas at Austin and an MTA and BS from the University of Alabama Prior to entering the PhD program at the University of Texas, Ben was a tax manager at KPMG in Tampa, Florida, and a contract manager with Complete Health, Inc., in Birmingham, Alabama Ben teaches tax planning and research courses in the undergraduate and graduate programs at the University of Georgia He is the recipient of 11 teaching awards at the school, college, and university levels, including the Richard B Russell Undergraduate Teaching Award, the highest teaching honor for University of Georgia junior faculty members His research interests include the effects of taxation on firm structure, mergers and acquisitions, and capital markets and the effects of accounting information on security returns He has published articles in journals such as the Accounting Review, Journal of Finance, Journal of Accounting and Economics, Contemporary Accounting Research, Review of Accounting Studies, Journal of Law and Economics, Journal of the American Taxation Association, and National Tax Journal Ben was the 1997 recipient of the American Accounting Association’s Competitive Manuscript Award and the 2003 and 2008 recipient of the American Taxation Association’s Outstanding Manuscript Award v vi About the Authors John Barrick (PhD, University of Nebraska at Lincoln, 1998) is currently an associate professor in the Marriott School at Brigham Young University He served as an accountant at the United States Congress Joint Committee on Taxation for the 110th and 111th Congresses He teaches taxation in the graduate and undergraduate programs at Brigham Young University He received both BS and MAcc (tax emphasis) degrees from Brigham Young University before working as a tax consultant for Price Waterhouse (now PricewaterhouseCoopers) After his professional work experience, John earned his PhD at the University of Nebraska at Lincoln He was the 1998 recipient of the American Accounting Association, Accounting, Behavior, and Organization Section’s Outstanding Dissertation Award John researches issues relating to professional tax judgment and tax information search His research has been published in journals such as Organizational Behavior and Human Decision Processes, Contemporary Accounting Research, and Journal of the American Taxation Association Ed Outslay (PhD, University of Michigan, 1981) is a professor of accounting and the Deloitte/Michael Licata Endowed Professor of Taxation in the Department of Accounting and Information Systems at Michigan State University, where he has taught since 1981 He received a BA from Furman University in 1974 and an MBA and PhD from the University of Michigan in 1977 and 1981 Ed currently teaches graduate classes in corporate taxation, multiunit enterprises, accounting for income taxes, and international taxation In February 2003, Ed testified before the Senate Finance Committee on the Joint Committee on Taxation’s Report on Enron Corporation MSU has honored Ed with the Presidential Award for Outstanding Community Service, Distinguished Faculty Award, John D Withrow Teacher-Scholar Award, Roland H Salmonson Outstanding Teaching Award, Senior Class Council Distinguished Faculty Award, MSU Teacher-Scholar Award, and MSU’s 1st Annual Curricular Service-Learning and Civic Engagement Award in 2008 Ed received the Ray M Sommerfeld Outstanding Tax Educator Award in 2004 and the lifetime Service Award in 2013 from the American Taxation Association He has also received the ATA Outstanding Manuscript Award twice, the ATA/Deloitte Teaching Innovations Award, and the 2004 Distinguished Achievement in Accounting Education Award from the Michigan Association of CPAs Ed has been recognized for his community service by the Greater Lansing Chapter of the Association of Government Accountants, the City of East Lansing (Crystal Award), and the East Lansing Education Foundation He received a National Assistant Coach of the Year Award in 2003 from AFLAC and was named an Assistant High School Baseball Coach of the Year in 2002 by the Michigan High School Baseball Coaches Association About the Authors John Robinson (PhD, University of Michigan, 1981) is the Patricia ‘77 and Grant E Sims ‘77 Eminent Scholar Chair in Business Prior to joining the faculty at Texas A&M, John was the C Aubrey Smith Professor of Accounting at the University of Texas at Austin, Texas, and he taught at The University of Kansas where he was The Arthur Young Faculty Scholar In 2009-2010 John served as the Academic Fellow in the Division of Corporation Finance at the Securities and Exchange Commission He is the recipient of the Henry A Bubb Award for outstanding teaching, the Texas Blazer’s Faculty Excellence Award, and the MPA Council Outstanding Professor Award John also received the 2012 Outstanding Service Award from the American Taxation Association (ATA) John served as the 2014-2015 -President (elect) of the ATA and is the ATA’s president for 2015-2016 John conducts research in a broad variety of topics involving financial accounting, mergers and acquisitions, and the influence of taxes on financial structures and performance His scholarly articles have appeared in The Accounting Review, The Journal of Accounting and Economics, Journal of Finance, National Tax Journal, Journal of Law and Economics, Journal of the American Taxation Association, The Journal of the American Bar Association, and The Journal of Taxation John’s research was honored with the 2003 and 2008 ATA Outstanding Manuscript Awards In addition, John was the editor of The Journal of the American Taxation Association from 2002 through 2005 Professor Robinson received his J.D (Cum Laude) from The University of Michigan in 1979, and he earned a PhD in accounting from The University of Michigan in 1981 John teaches courses on individual and corporate taxation and advanced accounting Connie Weaver Connie Weaver (PhD, Arizona State University, 1997) is the KPMG Professor of Accounting at Texas A&M University She received a PhD from Arizona State University, an MPA from the University of Texas at Arlington, and a BS (chemical engineering) from the University of Texas at Austin Prior to entering the PhD Program, Connie was a tax manager at Ernst & Young in Dallas, Texas, where she became licensed to practice as a CPA She teaches taxation in the graduate and undergraduate programs at Texas A&M University She has also taught undergraduate and graduate students at the University of Wisconsin-Madison and the University of Texas at Austin She is the recipient of several teaching awards including the 2006 American Taxation Association/ Deloitte Teaching Innovations, the David and Denise Baggett Teaching, and Association of Former Students Distinguished Achievement awards recognizing innovation in teaching taxation Connie’s current research interests include the effects of tax and financial incentives on corporate decisions and reporting She has published articles in journals such as the Accounting Review, Contemporary Accounting Research, Journal of the American Taxation Association, Accounting Horizons, Journal of Corporate Finance, and Tax Notes She serves on the editorial board of Contemporary Accounting Research and Issues in Accounting Education and was the 1998 recipient of the American Taxation Association/Price Waterhouse Outstanding Dissertation award Ron Worsham (PhD, University of Florida, 1994) is an associate professor in the School of Accountancy at Brigham Young University He teaches taxation in the graduate, undergraduate, MBA, and Executive MBA programs at Brigham Young University He has also taught as a visiting professor at the University of Chicago He received both BS and MAcc (tax emphasis) degrees from Brigham Young University before working as a tax consultant for Arthur Young & Co (now Ernst & Young) in Dallas, Texas While in Texas, he became licensed to practice as a CPA After his professional work experience, Ron earned his PhD at the University of Florida He has been honored for outstanding innovation in the classroom at Brigham Young University Ron has published academic research in the areas of taxpayer compliance and professional tax judgment He has also published legal research in a variety of areas His work has been published in journals such as Journal of the American Taxation Association, The Journal of International Taxation, The Tax Executive, Journal of Accountancy, and Practical Tax Strategies vii TEACHING THE CODE IN CONTEXT The basic approach to teaching taxation hasn’t changed in decades Today’s student deserves a new approach McGraw-Hill’s Taxation of Individuals and Business Entities is a bold and innovative series that has been adopted by over 300 schools across the country McGraw-Hill’s Taxation is designed to provide a unique, innovative, and engaging learning experience for students studying taxation The breadth of the topical coverage, the storyline approach to presenting the material, the emphasis on the tax and nontax consequences of multiple parties involved in transactions, and the integration of financial and tax accounting topics make this book ideal for the modern tax curriculum “A lot of thought and planning went into the structure and content of the text, and a great product was achieved One of the most unique and helpful features is the common storyline throughout each chapter.” – Raymond J Shaffer, Youngstown State University “This is the best tax book on the market It’s very readable, student-friendly, and provides great supplements.” – Ann Esarco, McHenry County College Since the first manuscript was written in 2005, 400 professors have contributed 441 book reviews, in addition to 23 focus groups and symposia Throughout this preface, their comments on the book’s organization, pedagogy, and unique features are a testament to the market-driven nature of Taxation’s development “The Spilker text, in many ways, is a more logical approach than any other tax textbook The text makes great use of the latest learning technologies through Connect and LearnSmart.” – Ray Rodriguez, Southern Illinois University–Carbondale viii A MODERN APPROACH FOR TODAY’S STUDENT “This text provides a new approach to the teaching of the technical material The style of the text material is easier to read and understand The examples and storyline are interesting and informative The arrangement makes more sense in the understanding of related topics.” – Robert Bertucelli, Long Island University–Post Spilker’s taxation series was built around the following five core precepts: Storyline Approach: Each chapter begins with a storyline that introduces a set of characters or a business entity facing specific tax-related situations Each chapter’s examples are related to the storyline, providing students with opportunities to learn the code in context Conversational Writing Style: The authors took special care to write McGraw-Hill’s Taxation that fosters a friendly dialogue between the content and each individual student The tone of the presentation is intentionally conversational—creating the impression of speaking with the student, as opposed to lecturing to the student Superior Organization of Related Topics: “I believe it breaks down complex topics in a McGraw-Hill’s Taxation takes a fresh way that’s easy to understand Definitely easier approach to taxation by providing two than other tax textbooks that I’ve had experialternative topic sequences In the ence with.” McGraw-Hill’s Taxation of Individuals – Jacob Gatlin, Athens State University and Business Entities, topics are grouped in theme chapters, including separate chapters on home ownership, compensation, investments, and retirement savings and deferred compensation However, in the Essentials of Federal Taxation, topics follow a more traditional sequence with topics presented in a life-cycle approach Real-World Focus: Students learn best when they see how concepts are applied in the real world For that reason, real-world examples and articles are included in “Taxes in the Real World” boxes throughout the book These vignettes demonstrate current issues in taxation and show the relevance of tax issues in all areas of business Integrated Examples: The examples used “Excellent text; love the story line approach throughout the chapter relate directly to and integrated examples It’s easy to read and the storyline presented at the beginning understand explanations The language of the of each chapter, so students become familtext is very clear and straightforward.” iar with one set of facts and learn how to – Sandra Owen, Indiana University–Bloomington apply those facts to different scenarios In addition to providing in-context examples, we provide “What if” scenarios within many examples to illustrate how variations in the facts might or might not change the answers ix www.downloadslide.com SI-8 Subject Index Filing status, 4–19–24 for abandoned spouses, 4–23–24 flowchart for determination of, 4–30 gross income thresholds (2016), 2–2 head of household, 4–9, 4–21–22, 4–29, 6–34 importance of, 4–19 married filing jointly, 4–9, 4–12, 4–19, 6–34 married filing separately, 4–9, 4–19–20, 6–34 personal exemptions and, 4–12 qualifying widow/widower, 4–9, 4–20–21 for same-sex married couples, 4–20 single, 2–2, 4–9, 4–21, 6–34 standard deduction and, 4–9, 4–11 tax rate schedules and, 8–2 for unmarried taxpayers, 2–2, 4–9, 4–21, 4–23–24 Final regulations, 2–10, 2–15 Financial and tax accounting methods, 9–17 Fines, 1–3, 9–5 First-in, first-out (FIFO) method, 3–6, 7–9, 9–22–23 First-time homebuyers, 13–23n Fiscal year, 9–15 529 plans, 5–25, 5–25n Fixed and determinable test, 9–19n Fixed annuities, 5–11–12 Flat taxes, 1–5, 1–9 Flexible spending accounts (FSAs), 5–24, 6–13, 6–13n, 12–29 Flipping, 14–5 Floor limitations, 6–15, 6–24, 6–31 Flow-through entities accounting period for, 9–16 for AGI deductions and, 6–6 income from, 5–14 passive activity income and losses in, 7–29 S corporations as, 5–14, 9–2n FMV See Fair-market value For AGI deductions, 6–2–13 alimony paid, 4–8, 5–15 business expenses/activities, 4–8, 6–2–9 capital losses, 4–8 common deductions, 4–7–8 flow-through entities, 6–6 health insurance for self-employed, 4–8, 6–8, 6–8n on IRS Form 1040, 6–2n losses on dispositions of business assets, 4–8, 6–6 moving expenses, 4–8, 6–6–7, 6–6n overview, 4–7, 6–2 penalty for early withdrawal of savings, 6–9 qualified educational expenses, 6–9, 6–11–12 qualified educational loans, 6–9, 6–10 rent and royalty expenses, 4–8, 6–5, 6–5n retirement account contributions, 4–8 self-employment tax deduction, 4–8, 6–9, 8–17–21 subsidizing specific activities, 6–9–12 summary of, 6–12–13 trade or business expenses, 6–4 Foreclosure of home, exclusion of gain from debt forgiveness on, 14–8 Foreign-earned income, 5–28, 8–3n Foreign income taxes, 6–16 Foreign tax credits (FTCs), 8–33, 8–34 Foreign transportation expenses, 9–10, 9–10n Forgiveness of debt, 5–21n Form of receipt, 5–4 “For profit” requirement, 9–2 For the convenience of the employer benefits, 12–25–26 401(k) plans individual, 13–28–29 Roth, 13–11–15 traditional, 13–11, 13–13, 13–14–15 Fourteenth Amendment, 4–20 Fringe benefits, 12–20–32 See also Nontaxable fringe benefits defined, 12–20 de minimis, 5–24, 12–24, 12–28 employee considerations for, 12–20–22 employer considerations for, 12–22–23 excluded from gross income, 5–23, 5–24 income exclusion provisions for, 5–23–24, 5–23n qualified, 5–23, 5–24, 6–8 summary of, 12–31 taxable, 12–20–23, 12–31 tax planning with, 12–30–31 From AGI deductions See also Itemized deductions exemptions, 4–8, 4–9 overview, 4–7, 4–8, 6–2 standard deductions, 4–8, 4–9 Front loading restrictions, 5–15 “Fruit and the tree” doctrine, 3–12, 5–8n FSAs See Flexible spending accounts FTCs (foreign tax credits), 8–33, 8–34 Fuel taxes, 1–13, 1–15 “Full” depreciation recapture, 11–10n Full-inclusion method, 9–20 Full-month convention, 10–32 Future value of money, 3–3 G GAAP (generally accepted accounting principles), 9–17, 9–18, 9–22 Gain or loss on disposition capital assets, 11–8 character of assets, 11–7–9 ordinary assets, 11–7 property use and holding period, 11–7 Section 1231 assets, 11–9 Gambling winnings/losses alternative minimum tax and, 8–12 income from, 5–16–17, 5–17n as itemized deductions, 4–8, 6–31–32, 6–32n taxes on, 1–4n Gasoline taxes, 1–13, 1–15 GDS (general depreciation system), 10–7n Geer, Carolyn T., 13–27 General depreciation system (GDS), 10–7n General Electric, 12–22 Generally accepted accounting principles (GAAP), 9–17, 9–18, 9–22 George Cohan v Com (1930), 9–12n Gift loans, 5–20n www.downloadslide.com Subject Index Gifts adjusted basis, 11–3 defined, 5–26 dual property rules for, 11–3 income exclusion provisions for, 4–5, 5–26–27 initial basis of, 11–3 Gift tax exclusions, 1–13, 5–26n rates for, 1–13 unified credit, 1–13–14 Golsen rule, 2–15 Goodwill, 9–6, 10–33n Google, Inc., 2–11, 12–23 Government bonds, 7–2 Graded vesting, 13–4 Graduated taxes, 1–5–6 Grant date, 12–10 Gross income See also Adjusted gross income (AGI) alimony, 4–5, 5–14–16 from business, 4–5, 5–2, 6–2, 9–2 character of, 4–5–6 defined, 2–2, 4–2, 5–2–3 from discharge of indebtedness, 5–20–21, 5–20n economic benefit and, 5–3 exclusions and deferrals from, 4–5 filing requirements and, 2–2–3 flow-through entities, 5–14 form of receipt for, 5–4 from imputed income, 5–19–20 items included in, 4–5, 5–2–4, 5–14–21 prizes, awards, and gambling winnings, 5–16–17, 5–17n realization principle, 5–3 recognition, 5–4 recovery of amounts previously deducted, 5–5 return of capital principle, 5–4–5 from Social Security benefits, 5–17–18, 5–17n summary (example), 5–31–32 tax benefit rule and, 5–5 Gross income test, 4–16–18, 6–13n Gross income thresholds by filing status (2016), 2–2 Gross profit percentage, 11–33 Gross-up, 12–22, 12–22n Group-term life insurance, 12–21, 12–24–25 H Half-year convention, 10–9, 10–10–11, 10–41 Hand, Learned, 3–20 Hardship circumstances, 14–6–8 Hazards of litigation, 2–6 Head of household gross income thresholds (2016), 2–2 qualifying person for, 4–21–22, 4–29 standard deduction for, 4–9, 6–34 Health care reimbursement, 5–30 Health insurance deduction for self-employed taxpayers, 4–8, 6–8, 6–8n as nontaxable fringe benefit, 12–25 premiums, 6–8n, 6–14, 6–14n as qualifying fringe benefit, 3–2, 5–24 SI-9 Helvering v Horst (1940), 5–8n Hobbies, 6–26, 9–2 Hobby losses, 6–29–30 Hobby loss limitation, 6–29 Hobby loss rules, 14–21n Holding (escrow) accounts, 14–16 Holding period, 11–3 Holmes, Oliver Wendell, Jr., 1–3 Home-equity indebtedness, 6–17, 6–17n, 14–9, 14–10 Home-equity interest, 8–12 Home equity loans, 6–10n, 6–17n, 7–27n Home mortgage interest expenses, 8–12 Home office deductions, 14–25–27 See also Business use of home Home ownership, 14–2–30 See also Personal residence; Rental use of home business use of home, 14–25–30 home sale exclusion in hardship circumstances, 14–6–8 interest expense on home-related debt, 14–8–15 mortgage insurance and, 6–17n, 14–13 personal use of home, 14–3–16 points, 14–13–15 qualified residence interest, 14–9 real property taxes and, 14–15–16, 14–16n tax and nontax consequences of, 14–3 Home-related debt acquisition indebtedness, 14–9–10 home-equity indebtedness, 6–17, 6–17n, 14–9, 14–10 interest deductions on, 14–9, 14–11, 14–13 interest expense on, 14–8–15 limitations on, 14–9–12 qualifying debt, 14–11–12 Horizontal equity, 1–21 Horses, breeding and racing, 6–29n Hospitals and long-term care facilities, 6–15, 6–15n House of Representatives, as source of tax law, 2–10, 2–12–13 Hybrid entities, 9–2, 9–2n Hybrid method of accounting, 3–11n, 5–6n I IBM employee purchase program, 12–27 Immediate expensing, 10–18–25 bonus depreciation, 10–23–25, 10–23n choice of assets for, 10–22 effect of Congress not extending, 10–21, 10–23n limits on, 10–20 principles of, 10–18–19 Impermissible accounting method, 9–30 Implicit taxes, 1–16–17, 3–16 Imputed income, 5–19–20 Imputed interest, 5–20 Incentive stock options (ISOs), 12–10–12, 12–13–14 Incidence of taxation, 1–11 Income See also Gross income; Income exclusion provisions; Portfolio income; Salary and wages; Taxable income accrual, 9–19 adjusted gross, 4–2 www.downloadslide.com SI-10 Subject Index Income—Contd alimony, 4–5, 5–14–16 all-events test for, 9–19, 9–19n all-inclusive concept of, 4–2, 5–2, 5–14 from annuities, 5–10, 5–11–12 assignment of income doctrine, 3–12, 5–8 business, 4–5, 5–2, 6–2, 9–2 character of, 4–5–6 common income items, 4–5 compensation and fringe benefits, 4–5, 5–2 deferred, 3–4–7, 5–31 discharge of indebtedness, 4–5, 5–20–21, 5–20n earned, 5–10, 5–14 excluded, 4–5 from flow-through entities, 5–14 imputed, 5–19–20 interest and dividends, 4–5, 5–2, 7–3n investment, 7–2 operating, 7–2 ordinary, 3–16, 3–19, 4–5 preferentially taxed, 4–6, 8–4, 8–4n from prizes, awards, and gambling winnings, 5–16–17, 5–17n production of, 11–8 from property, 5–10–13, 5–10n property dispositions, 5–13 property sale gains, 4–5 realization and recognition of, 4–2, 4–5, 5–2–9 rents and royalties, 4–5, 5–2 retirement income, 4–5 from services, 5–10 from Social Security benefits, 5–17–18, 5–17n taxpayer recognition of, 5–6–9 timing strategies and, 3–4–7 types of, 5–9–21 unearned, 5–10–13, 5–10n, 5–14, 9–19–20, 9–29 Income effect, 1–19 Income exclusion provisions, 5–21–31 common exclusions, 4–5, 5–21–24 deferral provisions, 5–31 disability insurance, 5–30 educational subsidies, 5–25–26 education-related, 5–25–26 foreign-earned income, 5–28 fringe benefits, 5–23–24, 5–23n gifts and inheritances, 5–26–27 health care reimbursement, 5–30 life insurance proceeds, 5–27, 5–27n municipal interest, 4–5, 5–21–22 personal injury payments, 5–29 sale of personal residence, 4–5, 5–22, 5–22n, 14–4–8 scholarships, 5–25 sickness and injury-related, 5–29–30 U.S Series EE bonds, 5–26 workers’ compensation, 5–29 Income recognition accrual method and, 3–10, 3–10n, 9–29 cash method and, 3–10, 5–6–7, 9–29 claim of right doctrine and, 5–7, 5–7n constructive receipt doctrine and, 3–10, 3–10n, 5–7 deferral of, 3–6–7 by taxpayers, 5–6–9 unearned income and, 9–20 Income-shifting strategies, 3–11–16 ethical considerations in, 3–15 family member transactions, 3–11–12, 3–12n jurisdictional considerations and limitations, 3–15–16 overview, 3–2, 3–11 owners and business transactions, 3–12–15 Income taxes See also Federal income taxes; State income taxes calculation of, 4–10 complexity of, 1–22 foreign, 6–16 Income tax planning See Tax planning strategies Income tax treaties, 2–14 Incorporating businesses, 3–13, 3–13n Independent contractors, 8–22–24, 8–22n Indirect conversions, 11–31 Indirect vs direct expenses, 14–27 Individual income tax computation, 8–2–8 See also Alternative minimum tax (AMT) exceptions to basic computation, 8–3–8 kiddie tax, 8–6–8 marriage penalty or benefit, 8–3, 8–4 net investment income tax, 8–5–6 preferential rate for capital gains and dividends, 8–4 tax rate schedules, 8–2–3 Individual income tax formula, 4–2–26 for AGI deductions, 4–7–8 from AGI deductions, 4–7, 4–8–9 alternative minimum tax, 4–10–11 common exclusions and deferrals, 4–5 deductions, 4–7–9 filing status, 4–19–24 gross income, 4–2, 4–5–6 income tax calculation, 4–10, 8–2–8 personal and dependency exemptions, 4–9, 4–12–19 self-employment taxes, 4–10–11 summary of, 4–24–26 tax credits, 4–11 tax prepayments, 4–11 Individual income tax history, 1–12 Individual 401(k) plans, 13–28–29 Individual retirement accounts (IRAs), 13–19–27 contribution limits, 13–20n overview, 13–19 Roth, 5–21n, 13–23–27, 13–34 SEP, 13–27–28, 13–29 SIMPLE, 13–27n spousal, 13–21 traditional, 13–20–23, 13–32–33 Individual tax formula See Individual income tax formula Individual taxpayers, filing requirements for, 2–2–3 Indopco v Comm (1992), 9–6n Information matching program, 2–4, 2–5 Inheritances defined, 5–26 income exclusion provisions for, 4–5, 5–26–27 property, 11–3 www.downloadslide.com Subject Index Injury-related exclusions, 5–29–30 Installment sales deferral provisions for, 5–31 exclusion from gross income, 4–5 gains ineligible for reporting, 11–34 gross profit percentage, 11–33 principles of, 11–32–34 Insurance See also Health insurance; Life insurance accident, 12–25 mortgage, 6–17n, 14–13 Intangible assets See also Amortization accrual method for, 9–29 amortizable intangible asset summary, 10–37 capital expenditures and, 9–6, 9–6n cash method for, 9–29 cost recovery and, 10–2 immediate expensing and, 10–19n Intangible personal property, 1–15 Interest from corporate and U.S Treasury bonds, 7–3–4, 7–3n dividends vs., 7–2–3 as gross income, 4–5, 5–2 home-equity, 8–12 imputed, 5–20 for late payments, 2–3, 2–3n municipal, 4–5, 5–21–22 portfolio income and, 7–2, 7–3–6 qualified residence interest, 14–9, 14–13–14 timing of payments and taxes, 7–5–6 as unearned income, 5–10, 9–20, 9–29 Interest expenses home-related debt, 14–8–15 investment, 7–25, 7–26–29, 8–12 as itemized deductions, 4–8, 6–17, 6–17n Interest income, 7–3n Internal rate of return (IRR), 3–18n Internal Revenue Code (IRC) citations, 2–10 interpretations of, 2–14, 2–15 judicial doctrines, 3–19–20 limits on salary deductibility, 12–5 organization of, 2–13–14 as source of tax law, 2–11–12 as ultimate tax authority, 3–20 Internal Revenue Code of 1939, 2–12 Internal Revenue Code of 1954, 2–12 Internal Revenue Code of 1986, 2–11, 2–13 Internal Revenue Service (IRS) appeals/litigation process, 2–6–7n, 2–6–8, 2–9 audit process, 2–4–9, 2–4n Circular 230, 2–23, 2–24–26, 2–26n Exempt Organizations Select Check, 6–18n website of, 2–18n, 5–14n, 5–25n whistleblower program, 2–5 Internet sales, 1–15 Interpretative regulations, 2–16 Inventories accounting methods for, 9–21–23, 9–21n cost-flow methods for, 9–22–23 SI-11 uniform capitalization and, 9–21–22 valuation allowances, 9–21n Investment activities, 6–2–3 Investment advisory fees, 6–28 Investment expenses investment interest expense, 7–25, 7–26–29 as itemized deductions, 6–28 ordinary and necessary, 9–2n portfolio, 7–25–29 summary of, 7–25 tax deductions for, 3–16, 6–3 Investment income, 7–2 Investment interest expense, 7–25, 7–26–29, 8–12 Investment planning, 1–16–17, 3–7 Investments See also Capital gains and losses; Investment expenses; Portfolio income after-tax rate of return, 7–2 before-tax rate of return, 7–2 corporate and Treasury bonds, 7–3–4, 7–3n dividends and, 7–6–7 interest and, 7–3–6 overview, 7–2 passive, 7–2 savings bonds, 5–26, 7–3, 7–4–5, 7–4n Involuntary conversions, 5–31, 11–29–32 IRAs See Individual retirement accounts IRC See Internal Revenue Code IRR (internal rate of return), 3–18n IRS See Internal Revenue Service IRS Form 656, 2–6n IRS Form 870, 2–6 IRS Form 1040 See also Schedule C, Profit or Loss from Business for AGI deductions on, 6–2n example of, 4–3–4, 4–25–26, 8–40 Schedule A, Itemized Deductions, 4–8, 6–13, 6–33, 14–8 Schedule B, 7–3n, 7–6n Schedule D, 7–16, 7–19, 11–23 Schedule E, Rental or Royalty Income, 6–5–6, 8–17n, 14–21–22 IRS Form 1099, 8–22n, 12–2 IRS Form 1120, 9–2 IRS Form 2120, 4–16 IRS Form 2555, 5–28 IRS Form 3115, 9–33, 10–17n IRS Form 3903, 6–6n IRS Form 4562, 10–30–31, 10–38 IRS Form 4952, 7–27n IRS Form 6251, 8–9, 8–9n, 8–10 IRS Form 8283, 6–23 IRS Form 8814, 8–7n IRS Form 8824, 11–29, 11–30 IRS Form 8903, 9–12n IRS Form 8959, 8–17 IRS Form 8960, 8–6n IRS Form 1065, U.S Return of Partnership Income, 9–2 IRS Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, 8–37, 8–38n IRS Form 4797, Sales of Business Property, 11–21–22 www.downloadslide.com SI-12 Subject Index IRS Form 8829, Expenses for Business Use of Your Home, 14–30, 14–31 IRS Form 8867, Paid Preparer’s Earned Income Credit Checklist, 8–32 IRS Form 8949, Sales and Other Dispositions of Capital Assets, 7–16, 7–17–18 IRS Form 1099-DIV, 2–5, 7–6 IRS Form 1099-INT, 2–5 IRS Form M-1, 9–17n IRS Form 1099-OID, 7–3 IRS Form 1099-R, 13–5n IRS Form 1120S, U.S Income Tax Return for an S Corporation, 9–2 IRS Form W-2 bonuses and, 5–7n employee considerations and, 8–22n, 12–2, 12–10 example of, 12–3 information matching program and, 2–5 responsibilities for issuing, 5–8n withholdings and, 8–36 IRS Form W-4, 3–11, 12–2 IRS Form W-2G, 5–17n IRS Publication 526, 6–19n IRS Publication 600, 6–16n IRS Publication 946, 10–6n IRS Publication 972, 8–25n IRS Publication 17, Your Federal Income Tax, 4–12n, 8–38n IRS Publication 505, Tax Withholding and Estimated Tax, 12–2n IRS Publication 514, Foreign Tax Credit for Individuals, 8–33n IRS Publication 527, Residential Rental Property (Including Rental of Vacation Homes), 14–18n IRS Publication 547, Casualties, Disasters, and Thefts, 6–24n IRS Publication 587, Business Use of Your Home, 14–26n IRS Publication 915, Social Security Worksheet, 5–17n, 5–33 IRS Publication 970, Tax Benefits for Education, 5–25n, 12–26 IRS Publication 1779, Independent Contractor or Employee, 8–22n IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, 12–30 IRS Uniform Lifetime Table, 13–9–10 ISOs (incentive stock options), 12–10–12, 12–13–14 Itemized deductions, 6–13–33 See also Business deductions alternative minimum tax and, 8–9, 8–12 bunching, 6–2, 6–36 casualty and theft losses, 4–8, 6–23–25, 6–24n categories of, 4–8 charitable contributions, 4–8, 6–18–20n, 6–18–23 employee business expenses, 6–26–28 gambling winnings/losses, 4–8, 6–31–32, 6–32n hobby losses, 6–29–30 interest expenses, 4–8, 6–17, 6–17n investment expenses, 6–28 job expenses, 4–8 limitations on, 6–31 medical and dental expenses, 4–8, 6–13–15 miscellaneous, 4–8, 5–17, 6–3, 6–26–32 not subject to AGI floor, 6–31–32 phase-out of, 6–32, 6–38 subject to AGI floor, 6–26–31 summary of, 6–32 taxes, 4–8, 6–16 tax preparation fees, 6–29 J JetBlue Airways flight benefits, 12–26 Job expenses, as itemized deductions, 4–8 John P White case (1967), 6–25 Joint Committee on Taxation, 1–18 Joint Conference Committee, 2–13 Joint-life annuities, 5–12 Journal of Accountancy, 2–11 Journal of Taxation, 2–11 J.R Huntsman v Comm (1976 & 1988), 2–28, 14–14n Judicial sources of tax law, 2–10, 2–14–15, 2–15n Jurisdictions income shifting across, 3–15–16 variation of tax rates among, 3–11 K Keenan v Bowers (1950), 6–26 Keogh plans, 13–27n Keynesian economics, 1–3 Keyword searching, 2–19 Kickbacks, 9–5 Kiddie tax, 3–12n, 5–8n, 8–3n, 8–6–8, 8–28n L Last-in, first-out (LIFO) method, 3–6, 9–22–23 Late filing penalty, 2–3, 8–38–39 Late payment penalty, 2–3, 2–3n, 8–39 Law reviews, 2–11 Leasing property from another party, 9–25 Legislative grace, 4–7 Legislative regulations, 2–16 Legislative sources of tax law citations, 2–10 Congress, 2–12–13 Internal Revenue Code, 2–11–12, 2–13–14 process for, 2–12–13, 3–8 tax treaties, 2–14 U.S Constitution, 2–11, 2–12 Letter rulings, 2–10, 2–16–17 Liabilities, payment, 9–24, 9–26 Life insurance coverage, 5–24 group-term, 12–21, 12–24–25 premiums, 9–6 proceeds, 4–5, 5–27, 5–27n Lifetime learning credits, 4–11, 6–10n, 8–28–30, 8–28n, 8–34 LIFO (last-in, first-out) method, 3–6, 9–22–23 www.downloadslide.com Subject Index Like-kind exchanges cost recovery basis for, 10–6 deferral provisions for, 5–31 deferred (Starker), 11–26, 11–26n exchanged basis, 11–27 exclusion from gross income, 4–5 ineligibility for, 11–25 non-like-kind property (boot), 11–27–29 overview, 11–20, 11–24 personal property and, 11–24 property use and, 11–25 real property and, 11–24 reporting, 11–29 tax consequences of, 11–27–29 timing requirements for, 11–25–26 Like-kind property, 11–24–25 Listed property, 9–11n, 10–25–26 Litigation, hazards of, 2–6 Loan discount, 14–14 Loan origination fees, 14–14 Loan secured by residence, 14–9 Lobbying costs, 9–5 Local taxes See State and local taxes Lodging deductions for, 6–27, 6–27n as nontaxable fringe benefit, 12–25–26 as qualifying fringe benefit, 5–24 Long-term capital gains and losses, 3–16, 4–6, 6–20, 7–10 Long-term care facilities, 6–15, 6–15n Look-back rule, 11–18–19 Losses See also Casualty and theft losses assets sold at, 11–12–13 on disposition of business assets, 4–8, 6–6, 9–13 operating, 7–2 on rental property, 14–23, 14–25 Loss harvesting, 7–24 Lower of cost or market method, 9–21n Lucas v Earl (1930), 3–12, 5–8n Lump-sum distributions, 13–20n Luxury automobiles, 3–19, 10–28–29n, 10–28–30 M MACRS See Modified Accelerated Cost Recovery System Magdalin, William, 6–14 Marginal tax rates, 1–5–7, 1–9, 3–8, 8–3 Market discounts/premiums, 7–4 Marriage benefit/penalty, 8–3, 8–4 Married filing jointly (MFJ) gross income thresholds (2016), 2–2 overview, 4–19 personal exemptions for, 4–12 standard deduction for, 4–9, 6–34 Married filing separately (MFS) gross income thresholds (2016), 2–2 overview, 4–19–20 standard deduction for, 4–9, 6–34 Material participation, tests for, 7–31 Maturity of bonds, 7–4 Maturity value, 7–2 SI-13 Mayo Foundation for Medical Education & Research v U.S (2011), 2–16 MBA programs, deductibility of, 6–27 Meals deductions for, 6–27, 6–27n, 9–8, 9–8n as nontaxable fringe benefit, 12–25–26 as qualifying fringe benefit, 5–24 Medical and dental expenses alternative minimum tax and, 8–12 common medical expenses, 6–13–14 deduction limitations, 6–15 discretionary, 6–14 health insurance coverage for, 5–24 hospitals and long-term care facilities, 6–15, 6–15n as itemized deductions, 4–8, 6–13–15 transportation and travel, 6–15, 6–15n Medical Health Insurance (MHI) tax, 1–12–13 Medicare tax AGI and, 4–11 for employees, 6–9, 8–15–17 objectives of, 1–12–13, 8–14–15 for self-employed individuals, 6–9, 8–17–21 Melone, Matthew A., 6–27 Memorandum decisions (U.S Tax Court), 2–10, 2–15n MFJ See Married filing jointly MFS See Married filing separately MHI (Medical Health Insurance) tax, 1–12–13 Mid-month convention, 10–17, 10–18, 10–43–44 Mid-quarter convention, 10–9, 10–12–15, 10–41–42 Mileage rate, 9–9, 9–9n, 10–29n Mileage test for moving expenses, 6–7 Minimum distributions, 13–5, 13–9n, 13–14 Minimum tax credit, 8–14 Miscellaneous itemized deductions, 6–26–32 employee business expenses, 6–3, 6–26–28 gambling losses, 5–17 gambling winnings/losses, 4–8, 6–31–32, 6–32n hobby losses, 6–29–30 investment expenses, 6–28, 7–27n limitations on, 6–31 not subject to AGI floor, 6–31–32 subject to AGI floor, 6–26–31, 9–3 tax preparation fees, 6–29 types of, 4–8 Mixed-motive expenditures, 9–8–12 Modified Accelerated Cost Recovery System (MACRS) depreciation and, 10–6–7 half-year convention, 10–10, 10–14, 10–41 mid-quarter convention, 10–9, 10–14, 10–41–42 nonresidential real property mid-month convention, 10–44 recovery periods, 10–8–9, 10–28 residential rental property mid-month convention, 10–43 tables, 10–41–44 Modified AGI, 5–17–18, 5–26n, 6–10, 9–12n Money market accounts, 7–3 “More likely than not” standard, 2–24n Mortgage insurance, 6–17n, 14–13 Mortgage interest deductions, 6–17, 14–4, 14–8n www.downloadslide.com SI-14 Subject Index Moving expenses for AGI deductions and, 4–8, 6–6–7, 6–6n distance test for, 6–6 qualified reimbursements, 5–24, 12–28–29 time test for, 6–6–7 Multiple support agreements, 4–16 Municipal bonds, 1–17, 3–16, 3–19, 3–20, 4–5, 5–21–22 Municipal interest, 4–5, 5–21–22 Mutual funds, 7–2, 7–2n, 7–8n Myers, Linda M., 6–32n N National debt, 1–20 National Research Program (NRP), 2–4, 2–4n Natural resources, 10–2, 10–38–40 Necessary expenses See Ordinary and necessary expenses Negative income tax, 8–31 Nelson, Daniel, 12–5n Net capital gains and losses, 7–12–16, 7–20 Net earnings from self-employment, 8–17 Net investment income, 7–27–29 Net investment income tax alternative minimum tax and, 8–14n computation of, 8–5–6 on portfolio investments, 7–29 on reclassified dividends, 3–15n Net long-term capital gains and losses, 7–12–16 Net short-term capital gains and losses, 7–12–16 Net unearned income, 8–6–7 Newsletters, 2–11 90-day letters, 2–6 No-additional-cost services, 5–24, 12–26 Nonacquiescence, 2–17 Nonbusiness bad debt, 7–10n Noncash payments, 9–17 Nondeductible personal expenses, 14–27n Non-like-kind property (boot), 11–27–29 Nonqualified deferred compensation (NQDC), 13–15–19 employee considerations, 13–16–18 employer considerations, 13–16, 13–18–19 qualified defined contribution plans vs., 13–15–16 from Roth 401(k) accounts, 13–13–14 usefulness of, 13–2–3 Nonqualified stock options (NQOs), 12–10–12, 12–13 Nonqualified use provision, 14–6 Nonrecaptured net Section 1231 losses, 11–18 Nonrecognition provisions, 5–21, 11–34–35 Nonrecognition transactions See also Like-kind exchanges installment sales, 11–32–34 involuntary conversions, 11–29–32 related-party loss disallowance rules, 11–35–36 Nonrefundable credits, 8–24, 8–33 Nonrefundable personal credits, 8–25–30, 8–35, 8–35n Nonresidence (rental property), 14–21, 14–23, 14–25 Nonresidential property, 10–16, 10–44, 11–10n Nontaxable compensation benefits, 3–16 Nontaxable exchanges, 10–5–6 Nontaxable fringe benefits, 12–24–31 cafeteria plans and FSAs, 5–24, 6–13, 6–13n, 12–29 common forms of, 12–24 defined, 12–24 de minimis, 5–24, 12–24, 12–28 dependent care benefits, 5–24, 12–26 discrimination among employees regarding, 5–23n educational assistance, 5–24, 12–26 employee/employer considerations for, 12–29–30 group-term life insurance, 12–24–25 health and accident insurance, 3–2, 12–25 meals/lodging for convenience of employer, 12–25–26 no-additional-cost services, 5–24, 12–26 qualified employee discounts, 5–24, 12–27 qualified moving expense reimbursements, 5–24, 12–28–29 qualified transportation, 5–24, 12–28 summary of, 12–31 tax planning with, 12–30–31 working condition fringe benefits, 5–24, 12–28 Nontaxable transaction, special basis rules for, 10–3n NQDC See Nonqualified deferred compensation NQOs (nonqualified stock options), 12–10–12, 12–13 NRP (National Research Program), 2–4, 2–4n O Office examinations, 2–6 OID (original issue discount) rules, 7–3, 7–3n Old Age, Survivors, and Disability Insurance (OASDI) tax See Social Security tax 150 percent declining balance, 10–7, 10–10, 10–30n Open facts, 2–17 Operating income/losses, 7–2 Option exercise, 12–9 Ordinary and capital gains tax rates, 3–8 Ordinary and necessary expenses, 6–4, 9–2n, 9–3 Ordinary assets, 11–7 Ordinary income, 3–16, 3–19, 4–5 Ordinary income property, 6–19, 6–21, 11–9, 11–9n Organizational expenditures, 9–6, 10–32, 10–33–36 Original basis, 10–10 Original cost of assets, 10–6 Original issue discount (OID) rules, 7–3, 7–3n Overpayments, 2–3n, 2–5, 4–11 Ownership test, 14–5 P PAL (passive activity loss) rules, 7–30–31, 7–30n Partial depreciation recapture, 11–14n Partnership accounting, 9–16, 9–16n Partnerships accounting period for, 9–16, 9–16n business income reporting for, 9–2 deduction of losses from, 5–14n due dates for, 2–3 extensions for, 2–3 as flow-through entities, 5–14 limitations on accruals to related parties in, 9–28 Passenger automobiles, 10–28n Passive activity, defined, 7–30–31 www.downloadslide.com Subject Index Passive activity income and losses, 7–29–34 income and loss categories, 7–31–32 net investment income tax on, 7–34 overview, 7–29–30 rental real estate rules, 7–33, 7–33n, 14–18n, 14–23, 14–25 Passive activity loss (PAL) rules, 7–30–31, 7–30n Passive income, net investment income tax on, 7–34 Passive investments, 7–2 Patents, 9–6, 10–32, 10–36–37, 10–37n Patient Protection and Affordable Care Act of 2010, 1–4, 12–29 Pay-as-you-go basis, 8–36 Payment liabilities, 9–24, 9–26 Penalties for accountants, 2–24, 2–26–27 civil, 2–26, 2–27 criminal, 2–26 for early withdrawal of savings, 6–9 failure-to-file, 2–3 late payment, 2–3, 2–3n, 8–39 nondeductibility of, 9–5 taxes vs., 1–3 underpayment, 8–36–38 Percentage depletion, 10–39, 10–39n Per diem rate, 9–8n Permissible accounting method, 9–30 Personal casualty losses, 9–14n Personal credits nonrefundable, 8–25–30, 8–35, 8–35n refundable, 8–31–33 Personal exemptions, 4–9, 4–12, 6–36–37, 6–39 Personal expenses, 3–16, 9–7, 14–27n Personal injury payments, 5–29 Personal property See also Tangible personal property calculating depreciation for, 10–9–10 defined, 1–15 depreciation conventions, 10–7, 10–9 depreciation method, 10–7 depreciation recovery period, 10–8–9, 10–8n intangible, 1–15 like-kind exchanges and, 11–24 mid-quarter depreciation, 10–9, 10–12–15 Personal property taxes defined, 1–15 as itemized deductions, 4–8, 6–16 tax base for, 1–5 Personal residence, 14–3–16 basis rules for, 14–4 business use of home, 14–25–30 debt forgiveness on foreclosure, 14–8 exclusion of gain on sale of, 4–5, 5–22, 5–22n, 14–4–8 home sale exclusion in hardship circumstances, 14–6–8 interest expense on home-related debt, 14–8–15 limitations on home-related debt, 14–9–12 nonqualified use, 14–6 ownership test, 14–5 real property taxes on, 14–15–16, 14–16n use test, 14–2, 14–5 Personal-use assets casualty and theft losses on, 6–23–25 as charitable contributions, 6–20 losses on sale of, 4–6, 7–21 Personal-use property, 10–7, 11–3–5 Phase-outs, 6–32, 6–38 Placed in service assets, 10–25 Points, 14–13–15 Political contributions, 9–5 Pollock v Farmers’ Loan and Trust Company (1895), 1–12 Portfolio income, 7–2–25 capital gains and losses, 7–2, 7–7–24 corporate and U.S Treasury bonds, 7–3–4, 7–3n dividends, 7–2, 7–6–7 interest, 7–2, 7–3–6 overview, 7–2–3 savings bonds, 7–3, 7–4–5, 7–4n summary of, 7–25 Portfolio investments, 7–25–29 Postsecondary education, 6–10n Practical Tax Strategies (journal), 2–11 Preferentially taxed income, 4–6, 8–4, 8–4n Preferential tax rate, 4–6, 8–4, 8–4n, 8–6 Premiums corporate and Treasury bonds, 7–3–4, 7–3–4n health insurance, 6–8n, 6–14, 6–14n life insurance, 9–6 Premium tax credit, 8–34 Prepaid expenses, 3–6, 9–17–18, 9–29 Prepaid interest income, 9–20, 9–29 Prepaid rental income, 9–20 Preparer tax identification number (PTIN), 2–26 Prepayments, 8–36–38 Present value of money, 3–3–4 Primary tax authorities, 2–9, 2–10 Principal residence, 14–2–3 Private letter rulings, 2–10, 2–16 Private nonoperating foundations, 6–21–22 Private operating foundations, 6–21 Prizes, income from, 5–16–17, 5–17n Procedural regulations, 2–16 Production of income, 11–8 Professional journals, 2–11 Profit-motivated activities, 6–3 Progressive tax rate structure, 1–5, 1–9–10, 1–21 Property See also Personal property; Real property capital gain property, 6–19–20, 6–20n as charitable contribution, 6–19–21, 6–20n gains or losses from sale of, 4–5, 5–10 income from, 5–10–13, 5–10n like-kind exchanges and, 11–25 ordinary income property, 6–19, 6–21 Property dispositions, 11–2–7 See also Nonrecognition transactions adjusted basis and, 11–3–5 amount realized and, 11–2 income from, 5–13 losses on, 4–8, 6–6, 9–13 realized gain or loss, 11–5–6 recognized gain or loss, 11–6–7 summary of formulas for gains/losses, 11–6 SI-15 www.downloadslide.com SI-16 Subject Index Property payments, 5–15 Property taxes, 1–15, 14–15–16, 14–16n Property transactions, income deferral and, 3–7 Property type, tax provisions by, 14–3 Property use, 9–11 Proportional tax rate structure, 1–5, 1–9, 1–21 Proposed regulations, 2–10, 2–15 PTIN (preparer tax identification number), 2–26 Punitive damages, 5–29 Q QPAI (qualified production activities income), 9–12 Qualified debt, 14–11–12 Qualified dividends, 4–6, 4–6n, 7–6, 7–6n Qualified educational expenses, 6–9, 6–11–12 Qualified educational loans, 6–9, 6–10 Qualified employee discounts, 5–24, 12–27 Qualified exchange intermediaries, 11–25n Qualified foreign corporations, 7–6n Qualified fringe benefits, 5–23, 5–24, 6–8 Qualified moving expense reimbursements, 5–24, 12–28–29 Qualified production activities income (QPAI), 9–12 Qualified replacement property, 11–31 Qualified residence, 14–9 Qualified residence interest, 14–9, 14–13–14 Qualified retirement plans annuities from, 5–11n classification of, 13–3 contributions as for AGI deduction, 4–8 deferral provisions for, 5–31 individually managed, 13–19 restrictions on, 13–2 Qualified small business stock, 7–10 Qualified transportation fringe benefits, 5–24, 12–28 Qualifying child age test for, 4–13 custodial/noncustodial parent considerations, 4–14n defined, 4–12 divorced/separated parent considerations, 4–14 relationship test for, 4–13 residence test for, 4–13 summary of dependency requirements, 4–18 support test for, 4–13 tiebreaking rules for, 4–14 Qualifying person, for head of household filing status, 4–21–22, 4–29 Qualifying relative defined, 4–12 gross income test for, 4–16–18 relationship test for, 4–15 summary of dependency requirements, 4–18 support test for, 4–15–16 Qualifying widow or widower, 4–9, 4–20–21 Questions of fact, 2–19 Questions of law, 2–19, 2–21 Quick reference sources, 2–11 R Racing horses, 6–29n Railroad retirement benefits, 5–17n R&E (research and experimentation) expenditures, 10–32, 10–36 Real estate exchanges, 11–25n Real estate tax, 1–5, 4–8, 6–16 Realization principle, 5–3 Realized gain or loss (on disposition), 11–5–6 Realized income, 4–2, 4–5 Real property applicable convention/method, 10–17 deductions for, 10–2 defined, 1–15 depreciation and, 10–7, 10–16–18 depreciation tables, 10–17–18 like-kind exchanges and, 11–24 mid-month convention for, 10–17, 10–18 taxes on, 1–15, 14–15–16, 14–16n Reasonable basis, 2–24, 2–26n Reasonable in amount, 9–4 Recapture, 11–11 See also Depreciation recapture Recognition of gross income, 5–4 See also Income recognition Recognized gain or loss (on disposition), 11–6–7 Record keeping, 9–11–12 Recovery of amounts previously deducted, 5–5 Recovery periods (depreciable life), 10–6, 10–8–9, 10–8n Recurring item exceptions, 9–26–27 Redisch v Commissioner (2015), 3–19 Refinancing, 14–9–10, 14–14 Refundable personal credits, 8–31–33 Regressive tax rate structure, 1–5, 1–10–11, 1–21 Regular decisions (U.S Tax Court), 2–10, 2–15n Regular federal income tax computation See Federal income tax computation Regular tax rates, 8–2–8 Regulations, administrative, 2–15–16 Rehabilitation credit, 8–34 Related-parties capital losses on sales to, 7–22, 9–13n gains on sale of depreciable property to, 11–16, 11–16n limitations on accruals to, 9–28 loss disallowance rules, 11–35–36 transactions among, 3–11–12, 3–12n Relationship tests, 4–13, 4–15 Relative, qualifying, 4–12, 4–15–18 Rental expenses deductions for, 4–8, 6–5, 6–5n, 7–26n Tax Court vs IRS methods of allocating, 14–19–21, 14–20n by tier and deduction sequence, 14–19 Rental real estate losses on, 14–23, 14–25 nonresidence, 14–21, 14–23, 14–25 passive activity loss rules, 7–33, 7–33n, 14–18n, 14–23, 14–25 tier 1, 2, and expenses, 14–18–21 www.downloadslide.com Subject Index Rental use of home, 14–17–25 ethical considerations and, 14–18 expenses by tier and deduction sequence, 14–19 flowchart of tax rules for, 14–34–35 losses on, 14–23, 14–25 minimal rental use, 14–17–18 significant rental use, 14–18–21 summary of tax rules, 14–24 Tax Court vs IRS method of allocating expenses, 14–19–21, 14–20n use test, 14–2 as vacation home, 14–18–21 Renting property from another party, 9–25 Rents as gross income, 4–5, 5–2 as itemized deductions, 6–28n as unearned income, 5–10, 9–20, 9–29 Republican Party ideology on taxes, 1–3 Research activities, credits for increasing, 8–34 Research and experimentation (R&E) expenditures, 10–32, 10–36 Research Institute of America (RIA) Federal Tax Coordinator, 2–11, 2–19 Federal Tax Handbook, 2–9, 2–11, 2–18n United States Tax Reporter, 2–11, 2–18 Research memos, 2–19–20, 2–21–22 Residence test, for qualifying child, 4–13 Residential energy credit, 8–34 Residential rental property, 10–16, 10–43 Restricted stock, 12–15–18 employee considerations for, 12–16–18 employer considerations for, 12–18 GAAP vs tax expense, 12–14, 12–19 sample timeline for, 12–15 Section 83(b) election and, 12–17–18 Retirement income, 4–5 Retirement planning See also Defined contribution plans; Nonqualified deferred compensation (NQDC); Qualified retirement plans account contributions as for AGI deduction, 4–8 defined benefit plans, 13–3–5, 13–12 employer-provided qualified plans, 13–3 ethical considerations and, 13–24 income deferral and, 3–7 individual retirement accounts, 13–19–27 qualified vs nonqualified plan summary, 13–19 saver’s credit, 13–30–31 for self-employed individuals, 13–27–30 Return of capital principle, 5–4–5, 5–11, 5–13, 11–6 Revenue Act of 1913, 1–12 Revenue Procedure 87-56, 10–8–9, 10–8n, 10–26n, 11–24 Revenue Procedure 87-57, 10–9, 10–10 Revenue procedures automobiles and, 10–28n citations, 2–10 defined, 2–16 immediate expensing and, 10–19–20n Revenue recognition See Income recognition Revenue rulings, 2–10, 2–16 RIA See Research Institute of America Rice, John G., 12–22 Richard D Bagley v U.S (2013), 9–4–5 Roberts, John, 1–4 Rollovers, 13–20n, 13–25–26 Roth IRAs, 13–23–27 contribution limits, 13–23, 13–34 distributions, 13–24–25 exclusion of earnings on, 5–21n rollover from traditional IRA, 13–25–26 traditional IRAs vs., 13–26–27 Roth 401(k) plans, 13–11–15 Routine maintenance, 10–4, 10–5, 10–5n Royalties for AGI deductions and, 4–8, 6–5, 6–5n as gross income, 4–5, 5–2 as itemized deductions, 6–28n portfolio investments and, 7–2 as unearned income, 5–10 S Safe-deposit box fees, 6–28 Safe-harbor provisions, 8–36, 8–37n, 10–5, 10–5n Salary and wages, 12–2–7 See also Income deductibility of salary payments, 12–3–7 employee considerations, 12–2 employer considerations, 12–3–7 facts and circumstances test for, 12–5 withholding taxes from, 12–2 Sale of personal residence, 4–5, 5–22, 5–22n, 14–4–8 Sales tax as itemized deductions, 4–8 proportional structure of, 1–9, 1–10, 1–10n regressive structure of, 1–11 tax base for, 1–5, 1–14–15 Salvage values, 10–6 Same-day sales, 12–11, 12–11n Same-sex married couples, 4–20 Saunders, Laura, 7–24 Saver’s credit, 8–34, 13–30–31 Savings, withdrawal of, 6–9 Savings accounts, 7–2, 7–3 Savings bonds, 5–26, 7–3, 7–4–5, 7–4n, 7–8n Savings Incentive Match Plans for Employees (SIMPLE) IRAs, 13–27n Schedule A, Itemized Deductions, 4–8, 6–13, 6–33, 14–8 Schedule B, 7–3n, 7–6n Schedule C, Profit or Loss from Business business income and, 9–2, 9–32 education and, 6–26n gambling winnings/losses and, 6–32n home office deductions and, 14–29 rental income and, 6–5n retirement accounts for self-employed individuals and, 13–28–29 self-employment tax and, 8–17, 8–17n trade or business expenses, 6–4 utilities and, 14–27n SI-17 www.downloadslide.com SI-18 Subject Index Schedule D, 7–16, 7–19, 11–23 Schedule E, Rental or Royalty Income, 6–5–6, 8–17n, 14–21–22 Schedule K-1, 5–14 Scholarships, 5–25 S corporations accounting periods for, 9–16, 9–16n business income reporting for, 9–2 deduction of losses from, 5–14n due dates for, 2–3 extensions for, 2–3 as flow-through entities, 5–14, 9–2n limitations on accruals to related parties in, 9–28 Secondary tax authorities, 2–9, 2–11 SEC (Securities and Exchange Commission), 9–17 Section 481 adjustment, 9–33 Section 1231 assets, 11–7–10 Section 1231(b) assets, 6–20n Section 83(b) election, 12–17–18 Section 291 depreciation recapture, 11–14, 11–34 Section 1031 exchange, 11–24, 11–24n Section 179 expense, 10–18–25 bonus depreciation, 10–23–25, 10–23n choice of assets for, 10–22 deductible expense, 10–20 effect of Congress not extending, 10–21, 10–23n limits on, 10–20 Section 1202 gain, 7–11, 7–11n, 7–12 Section 1231 gains or losses assets sold at losses, 11–12–13 calculating net, 11–16–19, 11–16n, 11–18n capital assets, 11–8 character of, 11–7–9 creation of gain through cost recovery deductions, 11–11 defined, 4–5n depreciation recapture and, 11–10, 11–11–12 gain due to cost recovery deductions and asset appreciation, 11–11–12 look-back rule, 11–18–19 netting process, 11–19 ordinary assets, 11–7 recognition of, 11–10n unrecaptured gain for individuals, 11–15, 11–15n Section 1231 look-back rule, 11–18–19 Section 162(m) limitations, 12–5, 12–6, 12–13, 13–18 Section 1245 property, 11–10–13, 11–10n, 11–34 Section 1250 property depreciation recapture for real property, 11–13–14 installment reporting and, 11–34 unrecaptured gains, 7–10, 11–18n unrecaptured gains for individuals, 11–14–15 Section 197 purchased intangibles, 10–32–33, 10–32n Section 1239 recapture provision, 11–16, 11–16n Secured loans, 14–9 Securities and Exchange Commission (SEC), 9–17 Securities Exchange Act of 1934, 12–5n Self-created patents, 10–36–37 Self-employed business expenses, 6–4 Self-employed individuals business activities of, 6–3 defined benefit plans and, 13–5 employees vs., 8–22–24 health insurance deductions for, 4–8, 6–8, 6–8n retirement planning for, 13–27–30 Self-employment compensation, 12–2, 12–2n Self-employment taxes, 8–17–24 calculating, 6–9n computation of, 8–17–21 deductions for, 4–8, 6–9 defined, 4–10–11 filing requirements, 6–35n, 8–17n Social Security and Medicare taxes, 1–13 Senate, as source of tax law, 2–10, 2–12–13 SEP (simplified employee pension) IRAs, 13–27–28, 13–29 Series EE bonds, 5–26, 7–4, 7–4n, 7–8n Series I bonds, 7–4, 7–4n Services, income from, 5–10 Settlement statement, 14–13–14, 14–32–33 SHOP (small business health options program), 5–24n Short-term capital gains and losses, 4–6, 7–10 Sickness and injury-related exclusions, 5–29–30 SIMPLE (Savings Incentive Match Plans for Employees) IRAs, 13–27n Simplified employee pension (SEP) IRAs, 13–27–28, 13–29 Simplified method, 14–11n Single filing status, 2–2, 4–9, 4–21, 6–34 Single-life annuities, 5–12 Sin taxes, 1–4, 1–4n Sixteenth Amendment, 1–12, 2–11 Small Business Act of 2010, 9–11n Small business health options program (SHOP), 5–24n Small Claims Division (U.S Tax Court), 2–7n, 2–15n Small employer health insurance credit, 8–34 “Smell test,” 3–20 Smith, Adam, 1–17n Social Security benefits, 5–17–18, 5–17n, 13–2n Social Security tax caps for, 1–10n, 1–13 for employees, 6–9, 8–15–17 objectives of, 1–12, 8–14–15 regressive structure of, 1–10 for self-employed individuals, 6–9, 8–17–21 tax base for, 1–13 withholdings in, 6–14n Social Security Trust fund, 13–2n Social Security Worksheet, 5–17n, 5–33 Sole proprietorships accounting period for, 9–16 business income reporting for, 9–2 income shifting and, 3–13 organizational expenditures and, 10–33n with self-employment income, 13–27n Specific identification method, 7–9, 9–22 Spousal IRA, 13–21 SSTS (Statements on Standards for Tax Services), 2–23, 2–24, 2–25 Standard deduction age and, 4–9, 6–34, 6–34n alternative minimum tax, 8–9 blindness and, 4–9, 6–34, 6–34n child’s, 8–7n www.downloadslide.com Subject Index defined, 4–8, 6–34 exemptions and, 6–36–37 filing status and, 4–9, 4–11, 6–34 purpose of, 6–35 Standard mileage rate, 6–27, 9–9 Stare decisis, 2–15 Starker exchanges (deferred like-kind exchanges), 11–26, 11–26n Start-up costs, 9–6, 10–32, 10–35–36 State and local taxes See also State income taxes excise, 1–15 as itemized deductions, 4–8, 6–16 property, 1–15 revenue generated from, 1–14 sales and use, 1–14–15 unemployment, 1–13, 1–13n State income taxes exceptions and modifications to, 1–14, 1–14n proportional structure of, 1–9 tax base for, 1–5 Statements on Standards for Tax Services (SSTS), 2–23, 2–24, 2–25 State Street Bank’s Proxy Statement (2015), 12–6 State unemployment taxes, 1–10, 1–10n Static forecasting, 1–18 Statute of limitations, 2–3–4 Statutory notice of deficiency, 2–6 Statutory sources of tax law citations, 2–10 Congress, 2–12–13 Internal Revenue Code, 2–11–12, 2–13–14 legislative process for, 2–12–13 tax treaties, 2–14 U.S Constitution, 2–11, 2–12 Step-transaction doctrine, 3–19 Stock, restricted, 12–15–18 Stock dividends, 7–7n Stock options, 12–8–15 accounting methods and, 12–14–15 backdating, 12–14 characteristics of, 12–8–9 compensatory, 12–14n economic value of, 12–14n employee considerations for, 12–10–12 employer considerations for, 12–13–15 ethical considerations and, 12–14 incentive, 12–10–12, 12–13–14 nonqualified, 12–10–12, 12–13 sample timeline for incentive and nonqualified options, 12–9 Straight-line method, 10–7, 10–26, 10–30n, 10–35 Strike price, 12–8 Student loans, 5–21n Subscriptions, investment-related, 6–28 Substance-over-form doctrine, 3–19–20 Substantial authority standard, 2–24 Substitution effect, 1–19 Sufficiency of tax systems, 1–18 Support tests, 4–13, 4–15–16 Surviving spouses, 2–2, 4–9, 4–20–21 SI-19 T Tangible assets, 9–6, 9–29, 10–2 Tangible personal property bonus depreciation, 10–23–25, 10–23n choice of assets for, 10–22 deductions for, 6–20, 10–2 defined, 1–15 depreciation of, 10–9–10, 10–12 effect of Congress not extending, 10–21, 10–23n immediate expensing of, 10–18–25, 10–19n limits on immediate expensing, 10–20 Taxable fringe benefits, 12–20–23 defined, 12–20 employee considerations for, 12–20–22 employer considerations for, 12–22–23 group-term life insurance, 12–21 summary of, 12–31 Taxable income defined, 4–2 summary of, 6–37–38 tax base for, 1–5 timing strategies for, 3–4–10 Tax Adviser (journal), 2–11 Tax avoidance, 3–20 Tax basis alternative minimum tax, 8–8 for cost recovery, 10–3 defined, 1–5 loss limits, 7–29 return of capital principle and, 5–4–5, 5–13 sale proceeds from assets and, 5–4–5, 7–8 Tax benefit rule, 5–5 Tax brackets, 1–5, 8–2 Tax credits, 8–24–35 adoption expense, 8–34 application sequence, 8–34–35 business, 8–33 child tax credit, 4–11, 8–25–27, 8–25n, 8–34 defined, 4–11 dependent care credit, 4–11, 8–26–27, 8–34 earned income, 4–11, 8–31–32, 8–34 education, 6–10, 8–28–30, 8–28n elderly, 8–34 foreign, 8–33, 8–34 minimum, 8–14 nonrefundable personal, 8–25–30, 8–35, 8–35n overview, 8–24–25 premium, 8–34 refundable personal, 8–31–33 summary of, 8–34 use tax credits, 1–15 Tax deductions See Deductions Tax deferred income, 4–5 Taxes See also Filing requirements; Tax law; Tax planning strategies; specific types of taxes calculation of, 1–5 defined, 1–3–4 earmarked, 1–4 estimated, 3–7n, 4–11, 8–36 www.downloadslide.com SI-20 Subject Index Taxes—Contd excise, 1–13, 1–15 explicit, 1–16 financial decision-making and, 1–2 flat, 1–5, 1–9 graduated, 1–5–6 implicit, 1–16–17, 3–16 investment decisions and, 1–16–17 as itemized deductions, 4–8, 6–16 politics and, 1–2–3 property, 1–15, 14–15–16, 14–16n role of, 1–2–3 sales and use, 1–14–15 sin, 1–4, 1–4n transfer, 1–13–14 types of, 1–11–17 value-added, 1–11–12 Taxes (journal), 2–11 Tax evasion, 2–26, 3–20–21 Tax-exempt income, 4–5, 9–6 Tax-favored assets, 1–16–17 Tax gap, 3–21 Tax law, 2–9–17 See also Internal Revenue Code (IRC) administrative sources of, 2–10, 2–15–17 judicial sources of, 2–10, 2–14–15, 2–15n legislative sources for, 2–10, 2–11–14, 3–8 letter rulings, 2–10, 2–16–17 primary authorities on, 2–9, 2–10 secondary authorities on, 2–9, 2–11 sources of, 2–9–17 tax treaties, 2–14 Tax Law Review (New York University School of Law), 2–11 Tax loss from casualties, 6–24 Tax-loss harvesting, 7–24 Tax Notes, 2–11 Taxpayer Compliance Measurement Program, 2–4n Taxpayer filing requirements See Filing requirements Tax penalties See Penalties Tax planning strategies, 3–2–21 capital assets and, 7–23–24 conversion, 3–2, 3–16–19 fringe benefits and, 12–30–31 general AMT planning strategies, 8–14 income-shifting, 3–2, 3–11–16 judicial doctrines impacting, 3–19–20 limitations to, 3–19–20 for maximizing after-tax wealth, 3–2 overview, 3–2 tax avoidance vs tax evasion, 3–20–21 timing, 3–2–11 Tax preferences, 1–21 Tax preparation fees, 6–29 Tax prepayments, 4–11 Tax professionals See Accountants Tax rates applicable, 7–12 average, 1–7 constant, 3–4–7 defined, 1–5 effective, 1–8 jurisdictional variation of, 3–11 kiddie tax, 3–12n, 5–8n, 8–3n, 8–6–8, 8–28n marginal, 1–5–7, 1–9, 3–8, 8–3 measuring, 1–5–8 ordinary and capital gains, 3–8 preferential, 4–6, 8–4, 8–4n, 8–6 regular, 8–2–8 Tax rate schedules, 4–10, 4–10n, 8–2–3 Tax rate structures progressive, 1–5, 1–9–10, 1–21 proportional, 1–5, 1–9, 1–21 regressive, 1–5, 1–10–11, 1–21 Tax refunds, 2–2–3, 4–11 Tax research, 2–17–23 analyzing tax authorities, 2–19–21 client letters summarizing, 2–22–23 documenting and communicating results, 2–21–23 identifying issues in, 2–17–18 keyword searching in, 2–19 locating relevant authorities, 2–18–19 research memos, 2–19–20, 2–21–22 services for, 2–11 understanding facts in, 2–17 Tax return due dates, 2–3 Tax shelters, 7–30 Tax summary, 8–39–40 Tax systems, 1–17–23 certainty in, 1–22 convenience of, 1–22 economy of, 1–22 equity in, 1–20–21 income vs substitution effects, 1–19–20 overview, 1–17 static vs dynamic forecasting, 1–18 sufficiency of, 1–18 trade-offs in, 1–23 Tax tables, 4–10, 4–10n, 8–3, 8–3n Tax treaties, 2–14 Tax violations See Penalties Tax withholdings, 3–11, 4–11, 8–36, 12–2 Tax year, 9–15 Technical advice memorandums, 2–10, 2–16 Temporary regulations, 2–10, 2–15 Tentative minimum tax (TMT), 8–9, 8–13–14 Theft losses See Casualty and theft losses Third-party intermediaries, 11–25, 11–25n 30-day letters, 2–6 Tiebreaking rules, 4–14 Time test for moving expenses, 6–6–7 Time value of money, 3–3–4, 6–36n Timing requirements, for like-kind exchanges, 11–25–26 Timing strategies, 3–2–11 changing tax rates and, 3–7–10 constant tax rates and, 3–4–7 decreasing tax rates and, 3–9–10 for income deferral, 3–4–7 increasing tax rates and, 3–8–9 interest payments and taxes, 7–5–6 limitations to, 3–10–11 www.downloadslide.com Subject Index overview, 3–2–3 present value of money and, 3–3–4 taxable income and, 3–4–10 for tax deductions, 3–4–10 T.J Starker, Appellant v United States of America (1979), 11–26n TMT (tentative minimum tax), 8–9, 8–13–14 Tobacco, taxes on, 1–4, 1–4n, 1–13, 1–15 Topical tax services, 2–19 Trademarks, 10–37 Trade or business activities, 6–3, 9–2 See also Business activities Trade or business expenses, 6–4 See also Business expenses Traditional IRAs, 13–20–23 deductible contributions, 13–20–21 deduction limitations, 13–32–33 distributions, 13–23 nondeductible contributions, 13–22–23 rollover to Roth IRA, 13–25–26 Roth IRAs vs., 13–26–27 Traditional 401(k) plans, 13–11, 13–13, 13–14–15 Training horses, 6–29n Transferors, 5–26 Transfer pricing, 3–16 Transfer taxes, 1–13–14 Travel and transportation expenses deductions for, 9–9–10, 9–9–10n, 9–12n for employees, 6–27, 6–27n for medical purposes, 6–15, 6–15n Treasury bonds, 1–20, 7–3–4, 7–3n Treasury notes, 7–3, 7–3n Treaties, tax, 2–14 “Trilogy of the rings,” 6–25–26 Trusts, filing requirements for, 2–2 12-month rule, 9–17–18, 9–18n 28 percent gains, 7–10–11, 7–12–16 25 percent gains, 7–10, 7–12–16 200 percent (double) declining balance, 10–7, 10–10 percent floor limit, 6–31 U.S Circuit Court of Appeals citations, 2–10 geographic boundaries for, 2–7–8, 2–9 as source of tax law, 2–15 U.S Constitution, 1–12, 2–11, 2–12 U.S Court of Federal Claims in appeals process, 2–6–7, 2–8 citations, 2–10 as source of tax law, 2–15 U.S Department of the Treasury, 1–2n U.S District Court in appeals process, 2–6–7, 2–8 citations, 2–10 as source of tax law, 2–15 U.S President, tax law authority of, 2–13 U.S savings bonds, 5–26, 7–3, 7–4–5, 7–4n U.S Supreme Court on Affordable Care Act provisions, 1–4 in appeals process, 2–8 citations, 2–10 on income tax, 1–12 Internal Revenue Code and, 2–14, 2–14n stare decisis and, 2–15 U.S Tax Court in appeals process, 2–6–7, 2–7n, 2–8 citations, 2–10 memorandum decisions, 2–10, 2–15n regular decisions, 2–10, 2–15n rental expenses, method of allocating, 14–19–21, 14–20n Small Claims Division, 2–7n, 2–15n as source of tax law, 2–15 U.S Treasury bonds, 1–20, 7–3–4, 7–3n U.S Treasury Department, 2–15–17 See also Internal Revenue Service (IRS) Useful life, 10–6 Use tax, 1–15 Use test, 14–2, 14–5 U Vacation homes, 14–18–21 Value-added taxes, 1–11–12 Vertical equity, 1–21 Vesting defined benefit plans and, 13–4 defined contribution plans and, 13–7–8 graded, 13–4 stock options and, 12–8 Vesting date, 12–8, 12–8n, 12–10 Virginia Tax Review (University of Virginia School of Law), 2–11 Voss v Comm (2015), 14–13 Underpayment penalties, 8–36–38 Unearned income, 5–10–13, 5–10n, 5–14, 9–19–20, 9–29 Unearned service revenue, 9–20 Unemployment taxes, 1–10, 1–10n, 1–12–13, 1–13n UNICAP (uniform cost capitalization) rules, 9–21–22 Unified credit, 1–13–14 Uniform capitalization, 9–21–22 Uniform cost capitalization (UNICAP) rules, 9–21–22 Uniforms and special clothing, 9–7, 9–7n United States v Dean (2013), 9–13 Unmarried taxpayers, filing status for, 2–2, 4–9, 4–21, 4–23–24 Unrecaptured Section 1250 gains, 7–10, 11–14–15 Unrecaptured Section 1231 losses, 11–18 Unrecovered costs of annuities, 5–12n Unreimbursed employee business expenses, 6–3 V W Wages See Salary and wages Walmart’s Proxy Statement (2015), 12–23 Walt Disney Company, 12–32 Wash sales, 7–22 SI-21 www.downloadslide.com SI-22 Subject Index Ways and Means Committee (House of Representatives), 2–10, 2–12, 2–13 The Wealth of Nations (Smith), 1–17n Welch v Helvering (1933), 9–3n Weyerhaeuser, 10–2, 10–3, 10–25 Wherewithal to pay, 5–3 Whistleblower program, 2–5 Widow/widowers, 4–9, 4–20–21 William H Carpenter case (1966), 6–25 Withholdings, 3–11, 4–11, 8–36, 12–2 Woodward v Comm (2009), 2–11 Workers’ compensation, 5–29 Working condition fringe benefits, 5–24, 12–28 Work opportunity credit, 8–34 Writ of certiorari, 2–8 Z Zero-coupon bonds, 7–3 0/15/20 percent category, 7–12–16 ... on individual topics in Chapters 5–7 Part III then discusses tax issues associated with business and investment activities On the business side, it addresses business income and deductions, accounting... Limitations on Capital Losses 7-21 Losses on the Sale of Personal-Use Assets 7-21 Capital Losses on Sales to Related Parties 7-22 Wash Sales 7-22 Balancing Tax Planning Strategies for Capital Assets... methods, and tax consequences associated with purchasing assets and property dispositions (sales, trades, or other dispositions) For investments it covers portfolio-type investments such as stocks