Taxation of individual and business entities 2018 edtion by spilker

Taxation of individual and business entities 2018 edtion by spilker Taxation of individual and business entities 2018 edtion by spilker Taxation of individual and business entities 2018 edtion by spilker Taxation of individual and business entities 2018 edtion by spilker Taxation of individual and business entities 2018 edtion by spilker Taxation of individual and business entities 2018 edtion by spilker Taxation of individual and business entities 2018 edtion by spilker

2018 EDITION TAXATION of INDIVIDUALS AND BUSINESS ENTITIES McGraw-Hill’s SPILKER • AYERS • BARRICK • OUTSLAY • ROBINSON • WEAVER • WORSHAM McGraw-Hill’s Taxation of Individuals and Business Entities 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 AND BUSINESS ENTITIES, 2018 EDITION, NINTH EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2018 by McGraw-Hill Education All rights ­reserved Printed in the United States of America Previous editions © 2017, 2016, and 2015 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 LWI 21 20 19 18 17 ISBN  978-1-259-71183-1 MHID 1-259-71183-8 ISSN  1946-7745 Chief Product Officer, SVP, Products & Markets: G Scott Virkler Vice President, General Manager, Products & Markets: Marty Lange Managing Director: Tim Vertovec Marketing Director: Natalie King Executive Brand Manager: Kathleen Klehr Director, Product Development: Rose Koos Associate Director of Digital Content: Kevin Moran Lead Product Developer: Kristine Tibbetts Product Developers: Danielle Andries, Erin Quinones Marketing Manager: Cheryl Osgood 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 Backhaus Content Licensing Specialists: Melissa Homer, Shannon Manderscheid Cover Image: © Spotmatik/Alamy Compositor: Aptara®, Inc Printer: LSC Communications 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 e­ ndorsement 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 entire family, whose love and support helped make this book possible, and to Professor Dave Stewart for his great example and friendship over the last three decades 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, Jeff, and Nicole, 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, and to Professor Dave Stewart 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 Courtesy of Brian Spilker 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, the 2003 and 2008 recipient of the American Taxation Association’s Outstanding Manuscript Award, and the 2016 recipient of the American Taxation Association’s Ray M Sommerfeld Outstanding Tax Educator Award Courtesy Ben Ayers iii iv About the Authors Courtesy John Barrick Courtesy Ed Outslay 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 during 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 tax corporate political activity 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 has been 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 2002–2005 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 (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 Professional Program in Accounting and the Executive MBA program 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 award, the David and Denise Baggett Teaching award, and the college level Association of Former Students Distinguished Achievement award 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, National Tax Journal, 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’s 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, Tax Notes, The Journal of Accountancy, and Practical Tax Strategies Courtesy John Robinson Courtesy Connie Weaver Courtesy Ron Worsham v 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, 437 professors have contributed 478 book reviews, in addition to 26 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 vi 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 Integrated Examples: In addition to provid2 ing examples in-context, we provide “What if ” scenarios within many examples to illustrate how variations in the facts might or might not change the answers “Excellent text; love the story line approach and integrated examples It’s easy to read and understand explanations The language of the text is very clear and straightforward.” – Sandra Owen, Indiana University–Bloomington Conversational Writing Style: The authors took special care to write McGraw-Hill’s Taxation in a way 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 way McGraw-Hill’s Taxation provides two althat’s easy to understand Definitely easier than ternative topic sequences In the McGrawother tax textbooks that I’ve had experience with.” Hill’s Taxation of Individuals and Business – Jacob Gatlin, Athens State University Entities volume, the individual topics generally follow the tax form sequence, with an individual overview chapter and then chapters on income, deductions, investment-related issues, and the tax liability computation The topics then transition into business-related topics that apply to individuals  This volume then provides a group of specialty chapters dealing with topics of particular interest to individuals (including students), including separate chapters on home ownership, compensation, and retirement savings and deferred compensation This volume concludes with a chapter covering the taxation of business entities Alternatively, in the ­Essentials of Federal Taxation volume, the topics follow a more traditional sequence, with ­topics streamlined (no specialty chapters) and presented in more of 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 vii đ Required=Results âGetty Images/iStockphoto McGraw-Hill Connectđ Learn Without Limits Connect is a teaching and learning platform that is proven to deliver better results for students and instructors Connect empowers students by continually adapting to deliver precisely what they need, when they need it, and how they need it, so your class time is more engaging and effective 73% of instructors who use Connect require it; instructor satisfaction increases by 28% when Connect is required Analytics Connect Insight® Connect Insight is Connect’s new oneof-a-kind visual analytics dashboard that provides at-a-glance information regarding student performance, which is immediately actionable By presenting assignment, assessment, and topical performance results together with a time metric that is easily visible for aggregate or individual results, Connect Insight gives the user the ability to take a just-in-time approach to teaching and learning, which was never before available Connect Insight presents data that helps instructors improve class performance in a way that is efficient and effective Using Connect improves retention rates by 19.8%, passing rates by 12.7%, and exam scores by 9.1% Adaptive THE ADAPTIVE READING EXPERIENCE DESIGNED TO TRANSFORM THE WAY STUDENTS READ More students earn A’s and B’s when they use McGraw-Hill Education Adaptive products SmartBook® Proven to help students improve grades and study more efficiently, SmartBook contains the same content within the print book, but actively tailors that content to the needs of the individual SmartBook’s adaptive technology provides precise, personalized instruction on what the student should next, guiding the student to master and remember key concepts, targeting gaps in knowledge and offering customized feedback, and driving the student toward comprehension and retention of the subject matter Available on tablets, SmartBook puts learning at the student’s fingertips—anywhere, anytime Over billion questions have been answered, making McGraw-Hill Education products more intelligent, reliable, and precise www.mheducation.com www.downloadslide.com SI-6 Subject Index Dividends received deduction (DRD) for corporations, 16–7n, 16–16, 16–18–21 deduction limitation, 16–19–21 defined, 15–10, B–5 modified taxable income, 16–19, B–5 for shareholders, 15–10 DNI (distributable net income), 25–30, B–5 Dock sales, 23–20 Document perfection program, 2–4, 2–5, B–5 DOMA (Defense of Marriage Act of 1996), 4–20 Domestic International Sales Corporation, 22–3n Domestic production activities deduction (DPAD), 9–12–13, 16–16, 16–19, B–5 Donors/donees, 25–5, B–5 Double attribution, 18–23 Double taxation after-tax earnings distributed, 15–8–11 of business entities, 15–8–14 defined, 3–13, B–5 of distributed corporate income, 18–2 on dividend income, 7–6 ethical considerations and, 15–13 exclusions that mitigate, 5–26–28 foreign-earned income, 5–28 gifts and inheritances, 5–26–27 income shifting and, 3–13, 3–14n life insurance proceeds, 5–27 mitigating, 15–12–14 reducing corporate-level tax, 15–12 reducing shareholder-level tax, 15–13–14 Double-throwback rule, 23–19n Downstream acquisitions, 19–27 DPAD (domestic production activities deduction), 9–12–13, 16–16, 16–19, B–5 DRD See Dividends received deduction Drucker, Jesse, 17–27n Drug dealers, 9–5n DSUE (deceased spousal unused exclusion), 25–26, B–4 Dual basis rules, 11–3 Dwelling units, 14–2, 14–2n, B–5 Dynamic forecasting, 1–18, B–5 E E&P See Earnings and profits Earmarked taxes, 1–4, B–5 Earned income, 5–10, 5–14, B–5 Earned income credit, 4–11, 8–31–32, 8–34, B–5 Earnings and profits (E&P) accumulated, 18–3, 18–13, B adjustments to, 18–5–6 computing, 18–4–7 current, 18–3, 18–4–7, 18–13, B–4 deductible expenses that not reduce, 18–5 defined, B–5 determining dividend amount from, 18–3–13 disallowance of certain expenses, 18–5 negative current and negative accumulated, 18–10 negative current and positive accumulated, 18–9 noncash property distributions to shareholders, 18–11–13 nondeductible expenses that reduce, 18–5 nontaxable income included in, 18–4 ordering of distributions, 18–8–10 positive current and negative accumulated, 18–8 positive current and positive accumulated, 18–8 S corporations, 22–17–19 summary of, 18–10 template for computing, 18–7 timing items requiring separate accounting methods, 18–5–6 undistributed, 22–2 Earnings per share, 12–8n ECI (effectively connected income), 24–3, 24–9–10, B–5 E-commerce sales, 23–7 Economic benefit, gross income and, 5–3 Economic nexus, 23–13–14, B–5 Economic performance test, 9–24–27 defined, B–5 overview, 9–24 payment liabilities, 9–24, 9–26 providing goods/services to another party, 9–26 receiving goods/services from another party, 9–25 recurring item exceptions, 9–26–27 renting/leasing property from another party, 9–25 Economic substance doctrine, 3–20, B–5 Economy, defined, B–5 Economy of tax systems, 1–22 Educational assistance benefits, 5–24, 12–26, B–5 Educational expenses, 6–9, 6–11–12, 9–7 Educational loans, 6–9, 6–10 Educational subsidies, 5–25–26 Education credits, 6–10, 8–28–30, 8–28n Education-related exclusions, 5–25–26 Effectively connected income (ECI), 24–3, 24–9–10, B–5 Effective tax rate defined, 1–8, B–4, B–5 foreign tax credits and, 24–5 importance of, 17–31–32 incidence of taxation captured by, 1–11 interim period, 17–32 permanent differences, 17–7 EITF (Emerging Issues Task Force), 17–2, 17–2n Elderly taxpayers, 4–9, 6–34, 6–34n, 8–34 Emerging Issues Task Force (EITF), 17–2, 17–2n Employee business expenses, 6–3, 6–26–28, 6–27n, 9–7n Employee cell phones, 5–23 Employee-purchased disability policies, 5–30 Employees compensation for, 12–2 covered, 12–5, 12–5n defined, B–5 educational assistance for, 5–24, 12–26, B–5 expense reimbursements for, 6–28 FICA taxes payable, 8–15–17 nonqualified deferred compensation plans and, 13–16–18 nontaxable fringe benefits and, 12–29–30 restricted stock considerations for, 12–16–18 self-employed individuals vs., 8–22–24 stock option considerations for, 12–10–12 taxable fringe benefits and, 12–20–22 Employer matching, 13–6 Employer-provided child care credit, 8–34 Employer-provided qualified plans, 13–3 Employers deductibility of salary payments by, 12–3–7 defined contribution plan matching by, 13–6 meals and lodging for convenience of, 12–25–26 nonqualified deferred compensation plans and, 13–16, 13–18 nontaxable fringe benefits and, 12–29–30 restricted stock considerations for, 12–18 stock option considerations for, 12–13–15 taxable fringe benefits and, 12–22–23 Employment taxes, 8–14–24 defined, B–5 employee FICA taxes payable, 8–15–17 FICA taxes, 8–15–21, 12–2 revenue generated from, 1–12 tax base for, 1–12–13 types of, 1–12–13 withholding taxes, 12–2 Enacted tax rate, 17–12, B–5 Endorsement agreements, 24–9–10 Energy credit, 8–34 Enrolled agents, 2–25n Entertainment deductions, 9–8, 9–8n Entity approach, 20–2–3, B–5 Entity tax characteristics, 15–7–15 after-tax earnings distributed, 15–8–11 comparison across entities, 15–16–17 converting to other entity types, 15–15, 15–18–19 deductibility of losses, 15–14–15 double taxation, 15–8–14 overview, 15–7–8 Entity tax classification, 15–5–7 Equity-based compensation, 12–7–19 overview, 12–7–8 restricted stock, 12–15–18 stock options and, 12–8–15 summary of, 12–19 Equity in tax systems, 1–20–21, B–6 Erb, Kelly Phillips, 5–17 Escrow (holding) accounts, 14–16, B–6 Estates defined, 25–29, B–6 filing requirements for, 2–2, 2–2n gross, 25–17–23 taxable, 25–22–24, B–16 Estate tax, 25–17–28 adjusted taxable gifts, 25–25 administrative expenses, debts, losses, and state death taxes, 25–23 applicable credit, 25–26 computation of, 25–25–28 for decedents, 25–2n defined, B–6 formula for, 25–17 gross estate, 25–17–23 jointly owned property, 25–19–20 marital and charitable deductions, 25–23–24 rates for, 1–13 specific inclusions, 25–18–21 taxable estate, 25–22–24, B–16 transfers within three years of death, 25–20 unified credit, 1–13–14, 25–2–3 valuation and, 25–21 Estimated taxes annualized income method for, 16–30–31 corporations, 16–29–32 defined, B–6 in individual tax formula, 4–11 payment of, 8–36 penalties, 3–7n S corporations and, 22–28 Ethical considerations audits and, 2–5 business expenses and, 9–3 charitable contributions and, 6–23 cost recovery basis and, 10–6 dependency exemptions and, 4–19 double taxation and, 15–13 errors on tax returns, 18–17 in exchange of business assets, 19–13 FICA taxes and, 8–23 gift tax and, 25–6 gross income, 5–17 income shifting and, 3–15 Internet sales and, 23–8 look-back rule and, 11–19 material participation and, 20–33 in multinational transactions, 24–12 partnership interests and, 21–7 penalties and, 16–28 www.downloadslide.com Subject Index rental use of home and, 14–18 retirement planning and, 13–24 S corporations and, 22–5 Section 351 and, 19–7 stock options and, 12–14 uncertain tax positions and, 17–28 wash sales and, 7–23 Eugene James v U.S (1961), 5–3n Exact method for interest expenses, 14–11n Excess net passive income, 22–24, B–6 Excess net passive income tax, 22–22, 22–24–26, B–6 Excess (unreasonable) compensation, 18–15 Exchanged basis, 11–27, B–6 Exchanged basis property, 19–9n Excise tax, 1–13, 1–15, B–6 Exclusion ratio, 5–11 Exclusions See also Income exclusion provisions defined, B–6 from gift taxes, 1–13–14 from gross income, 4–5 Ex-dividend date, 7–6, B–6 Executive compensation, 12–4, 12–5n Executors, 25–19, 25–21n, B–6 Exemption equivalent, 25–3, B–6 Exemptions as from AGI deduction, 4–8 alternative minimum tax, 8–9, 8–12–13 deductions for, 4–9, 6–36–37 defined, B–6 dependency, 4–9, 4–12–19, 6–36–37, D–1 personal, 4–9, 4–12, 6–36–37, 6–39, B–11, D–1 standard deduction and, 6–36–37 Exercise date, 12–9, 12–10, B–6 Exercise price, 12–8–9, 16–9, B–6 Expenditures capital, 9–6 mixed-motive, 9–8–12, B–10 organizational, 9–6, 10–31, 10–32–35, B–11 personal, 9–7 against public policy, 9–5 research and experimentation, 10–31, 10–35, 24–14, B–13 Expenses See also Business expenses deductions for, 3–16, 9–2–3, 18–5 excluded from taxable income, 18–5 as itemized deductions, 4–8 nondeductible expenses that reduce E&P, 18–5 ordinary and necessary, 6–4, 9–2n, 9–3, B–11 personal, 3–16, 9–7, 14–27n, B–11 Explicit taxes, 1–16, B–6 Extensions, 2–3, 2–3n, 8–38 F Facebook’s NQO tax benefit, 16–11–12 Face value, 7–2, B–6 Factor Presence Nexus Standard, 23–14 Facts and circumstances test, 12–4–5, B–6 Failure-to-file penalty, 2–3 Fair-market value (FMV) contributions of money and, 6–19 distributions of noncash property to shareholders and, 18–11–13 of personal assets converted to business use, 10–5, 10–5n of property in gross estate, 25–21 real property taxes and, 14–16, 14–16n of stock, 18–18, 18–18n transferred property and, 25–4 Fairness in tax systems, 1–20–21 Family attribution, 18–23 Family limited partnerships, 25–33, B–6 Family members, transactions among, 3–11–12, 3–12n FAS 5, Accounting for Contingencies, 17–23 FAS 109, Accounting for Income Taxes, 17–2, 17–4n, 17–18n, 17–23 FASB See Financial Accounting Standards Board FASB Concepts Statement No 6, Elements of Financial Statements, 17–4 FASB Interpretation (FIN) No 48, Accounting for Uncertainty in Income Taxes—An Interpretation of FASB Statement No 109, 17–23, 17–27 Favorable book–tax differences, 16–4, 17–8, 17–8n, 17–9, B–6 FDAP (fixed and determinable, annual or periodic income), 24–3, 24–18n, B–6 Federal estate tax See Estate tax Federal gift tax See Gift tax Federal income tax computation, 8–2–8 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, D, D–1 Federal income taxes See also Federal income tax computation history of, 1–12 progressive structure of, 1–9 tax base for, 1–5 Federal income tax expense (corporations), 16–5 Federal Insurance Contributions Act (FICA) taxes, 8–14–23, 8–14n, 12–2, 12–2n, 12–22n, B–6 Federal judicial system, 2–6–9 Federal short-term interest rate, 2–3, 2–3n, 8–37, B–6 Federal/state adjustments, 23–17, B–6 Federal student loan program, 8–28n Federal taxes See also Federal income taxes employment, 1–12–13 estate and gift, 1–13–14 excise, 1–13 overview, 1–11–12 revenue generated from, 1–12 transfer, 1–13–14 unemployment, 1–10, 1–10n, 1–12, 1–13, 1–13n Federal Tax Weekly Alert, 2–11 Federal transfer taxes, 25–2–4 Federation of Tax Administrator’s website, 23–2n FICA (Federal Insurance Contributions Act) taxes, 8–14–23, 8–14n, 12–2, 12–2n, 12–22n, B–6 Fiduciaries/fiduciary duties, 25–7, 25–29, B–6 Field examinations, 2–6, B–6 FIFO (first-in, first-out) method, 3–6, 7–9, 9–22–23, B–6 50/50 method, 24–11 52/53 week year, 9–15, 9–15n, 9–16 Filing requirements for corporations, 2–2 due dates and extensions, 2–3, 2–3n for estates, 2–2, 2–2n gross income and, 2–2–3 for individual taxpayers, 2–2–3 late filing penalties, 2–3, 8–38–39, B–9 late payment penalties, 2–3, 2–3n, 8–39 prepayments, 8–36–38 for S corporations, 22–28 statute of limitations, 2–3–4 for trusts, 2–2 Filing status, 4–19–24 for abandoned spouses, 4–23–24, B defined, B–6 flowchart for determination of, 4–30 SI-7 gross income thresholds (2017), 2–2 head of household, 2–2, 4–9, 4–21–22, 4–29, 6–34, D, D–1 importance of, 4–19 married filing jointly, 2–2, 4–9, 4–12, 4–19, 6–34, D, D–1 married filing separately, 2–2, 4–9, 4–19–20, 6–34, D, D–1 personal exemptions and, 4–12 qualifying widow/widower, 4–9, 4–20–21, D, D–1 for same-sex married couples, 4–20 single, 2–2, 4–9, 4–21, 6–34, D, D–1 standard deduction and, 4–9, 4–11, D–1 tax rate schedules and, 8–2, D, D–1 for unmarried taxpayers, 2–2, 4–9, 4–21, 4–23–24 FIN 48, 17–23, 17–27 Final regulations, 2–10, 2–15, B–6 Financial Accounting Standards Board (FASB), 12–14, 17–2, 17–4, 17–32 See also specific FAS standards Financial and tax accounting methods, 9–17 Financial statement disclosure, 17–28–30 Fines, 1–4, 9–5 First-in, first-out (FIFO) method, 3–6, 7–9, 9–22–23, B–6 First-time homebuyers, 13–23n Fiscal year, 9–15, B–6 529 plans, 5–25, 5–25n Fixed and determinable, annual or periodic income (FDAP), 24–3, 24–18n, B–6 Fixed and determinable test, 9–19n Fixed annuities, 5–11–12 Flat taxes, 1–5, 1–9, B–6 Flexible spending accounts (FSAs), 5–24, 6–13, 6–13n, 12–29, B–6 Flipping, 14–5, B–6 Floor limitations, 6–15, 6–24, 6–31, B–6 Flow-through entities accounting period for, 9–16 aggregate and entity concepts, 20–2–3 for AGI deductions and, 6–6 defined, B–6 hybrid entities treated as, 24–27 income from, 5–14 overview, 20–2–3 passive activity income and losses in, 7–29 S corporations as, 5–14, 9–2n tax classification of, 15–5, 15–6 tax requirements for, 23–9 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 defined, B–4, B–7 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 www.downloadslide.com SI-8 Subject Index Forbes, Steve, 1–9 Ford Motor Company, 17–27 Foreclosure of home, exclusion of gain from debt forgiveness on, 14–8 Foreign Corrupt Practices Act of 1977, 24–12 Foreign-earned income, 5–28, 8–3n, 8–6 Foreign housing expenses, 24–7n Foreign income taxes, 6–16 Foreign joint ventures, 24–22, 24–23, B–7 Foreign personal holding company income, 24–29, B–7 Foreign shareholders, 15–11 Foreign source income, 24–3, 24–5, 24–6–7 Foreign subsidiaries, 24–22, B–7 Foreign tax credits (FTCs), 24–20–24 creditable foreign taxes, 24–21–24 defined, B–7 direct taxes, 24–22, 24–22n FTC basket, 24–20 general category income, 24–20, B–7 indirect (deemed paid) taxes, 24–22–24, 24–22n in lieu of taxes, 24–22 limitation categories of taxable income, 24–20 limitation on, 24–5, B–7 overview of system, 8–33, 8–34, 24–5 passive category income, 24–20 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, B–7 Forward acquisitions, 19–27 Forward triangular type A mergers, 19–29, 19–32, B–7 401(k) plans individual, 13–28–30 Roth, 13–11–15, B–14 traditional, 13–11, 13–13, 13–14–15, B–16 Fourteenth Amendment, 4–20 Franchise taxes, 23–2n, 23–9n Frieswick, Kris, 17–1n Fringe benefits, 12–20–32 See also Nontaxable fringe benefits defined, 12–20, B–7 de minimis, 5–24, 12–24, 12–28, 22–17, B–4 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, 15–12n for partners, 20–19n qualified, 5–23, 5–24, 6–8, 22–16n S corporations and, 22–16–17, 22–16n summary of, 12–31 taxable, 12–20–23, 12–31 tax planning with, 12–30–31 From AGI deductions See also Itemized deductions defined, B–4, B–7 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 (flexible spending accounts), 5–24, 6–13, 6–13n, 12–29, B–6 FTC basket, 24–20, B–7 FTCs See Foreign tax credits Fuel taxes, 1–13, 1–15 “Full” depreciation recapture, 11–10n Full-inclusion method, 9–20, B–7 Full-inclusion rule, 24–30 Full-month convention, 10–31, B–7 Functional currency, 24–23, 24–23n, B–7 Future interest, 25–6, B–7 Future value of money, 3–3 G GAAP capital accounts, 20–8, B–7 GAAP (generally accepted accounting principles), 9–17, 9–18, 9–22, 17–2, 17–12 Gain and loss recognition, 20–3 Gain or loss on disposition capital assets, 11–7–8 character of assets, 11–6–9 ordinary assets, 11–7 property use and holding period, 11–7 Section 1231 assets, 11–8–9 summary of, 11–20 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 category income, 24–20, B–7 General depreciation system (GDS), 10–7n General Dynamics Corporation, 18–28–29 General Electric, 12–22, 17–4, 19–5 Generally accepted accounting principles (GAAP), 9–17, 9–18, 9–22, 17–2, 17–12 General Motors Corporation, 17–26–27 General partnerships (GPs), 15–2, 20–2, B–7 Generation-skipping tax (GST), 25–2, 25–29, B–7 Geoffrey, Inc v South Carolina Tax Commission (1992), 23–13n Geographic basis for compensation, 24–8 George Cohan v Com (1930), 9–12n Gift loans, 5–20n Gifts adjusted basis, 11–3 completion of, 25–5 in contemplation of death, 25–17n current, 25–9, 25–13–14, B–4 deathbed, 25–17n, 25–20 defined, 5–26, B–7 dual property rules for, 11–3 income exclusion provisions for, 4–5, 5–26–27 initial basis of, 11–3 serial, 25–30, B–14 taxable, 25–9–12, 25–25 Gift-splitting election, 25–4n, 25–10 Gift tax, 25–4–16 annual exclusion, 25–8–9, B–1 applicable credit, 25–14–15 charitable deductions and, 25–12 computation of, 25–12–16 current taxable gifts, 25–13–14 defined, B–7 ethical considerations and, 25–6 exclusions, 1–13–14, 5–26n formula for, 25–4 gift-splitting election, 25–4n, 25–10 marital deduction, 25–4, 25–10–11 nondeductible terminal interests, 25–11 prior taxable gifts, 25–13–14 rates for, 1–13 taxable gifts, 25–9–12, 25–25, B–16 transfers subject to, 25–5–9 on transfers within three years of death, 25–20–21 unified credit, 1–13–14, 25–2–3 valuation and, 25–6–8 Gillette Co v Franchise Tax Board (2013), 23–23 Golsen rule, 2–15, B–7 Goodwill, 9–6, 10–32n, 16–8, 16–8n, 19–24n, B–7 Google, Inc., 2–11, 12–23, 24–2, 24–2n Government bonds, 7–2 Government sales, 23–20 GPs (general partnerships), 15–2, 20–2, B–7 Graded vesting, 13–4, B–7 Graduated taxes, 1–5, 1–6, B–7 Grant date, 12–10, 16–10, B–7 Grantors, 25–7, B–7 Grantor trusts, 22–2n Green card test, 24–4 Gregory v Helvering (1935), 19–27n Gross estate, 25–17–23 adjusted, 25–22–23, B–1 defined, 25–17, B–7 gift taxes paid on transfers within three years of death, 25–20–21 jointly owned property in, 25–19–20 specific inclusions, 25–18–21 summary of, 25–22 transfers within three years of death, 25–20 valuation, 25–21 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, B–7 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, 4–2, 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 thresholds by filing status (2017), 2–2 U.S source rules for, 24–6–11 withholding tax and, 24–3 Gross income test, 4–16–18, 6–13n Gross profit percentage, 11–33 Gross receipts, 22–6, 22–24, 23–11n, B–7 Gross-up, 12–22, 12–22n Groupon, 23–9 Group-term life insurance, 12–21, 12–24–25, B–7 GST (generation-skipping tax), 25–2, 25–29, B–7 Guaranteed payments, 20–10n, 20–19, 20–19n, 20–21n, 20–28n, B–7 H Half-year convention, 10–9, 10–10–11, 10–40, B–7 Hand, Learned, 3–20 Hazards of litigation, 2–6 Head of household defined, B–7 gross income thresholds (2017), 2–2 qualifying person for, 4–21–22, 4–29 standard deduction for, 4–9, 6–34, D–1 tax rate schedule for, D, D–1 Health care reimbursement, 5–30 www.downloadslide.com Subject Index Health insurance deduction for self-employed taxpayers, 4–8, 6–8, 6–8n defined, B–7 as nontaxable fringe benefit, 12–25 premiums, 6–8n, 6–14, 6–14n as qualifying fringe benefit, 3–2, 5–24 Hedge funds, 20–2 Heirs, 25–17, B–7 Helvering v Horst (1940), 5–8n Hobbies, 9–2–3, B–7 Hobby losses, 6–29–30, 22–13n Hobby loss limitation, 6–29 Hobby loss rules, 14–21n Holding (escrow) accounts, 14–16, B–6 Holding period, 11–3, 20–13, 21–21–24 Holmes, Oliver Wendell, Jr., 1–3, 1–4 Home-equity indebtedness, 6–17, 6–17n, 14–9, 14–10, B–7 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, B–8 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 depreciation and, 14–8 home sale exclusion in unforeseen circumstances, 14–6–7 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, B–8 Horses, breeding and racing, 6–29n Hospitals and long-term care facilities, 6–15, 6–15n Hot assets, 21–3–5, 21–3n, B–8 House of Representatives, as source of tax law, 2–10, 2–12–13 Hybrid entities, 9–2, 9–2n, 24–25–27, B–8 Hybrid method of accounting, 3–11n, 5–6n Hypothetical income tax expense, 17–30n Hypothetical tax provision, 17–30–31 I IBM employee purchase program, 12–27 Immediate expensing, 10–18–24 bonus depreciation, 10–22–24, 10–22n choice of assets for, 10–21 limits on, 10–20 overview, 10–18–19 Impermissible accounting method, 9–30, 9–31, B–8 Implicit taxes, 1–16–17, 3–16, B–8 Imputed income, 5–19–20, B–8 Imputed interest, 5–20 Inbound transactions, 24–2, B–8 Incentive stock options (ISOs), 12–10–12, 12–13–14, 16–9–10, B–8 Incidence of taxation, 1–11 Income See also Gross income; Income exclusion provisions; Portfolio income; Salary and wages; Taxable income; Unearned income accrual, 9–19 adjusted gross, 4–2 alimony, 4–5, 5–14–16 all-events test for, 9–19, 9–19n, 9–20 all-inclusive concept of, 4–2, 5–2, 5–14, B–1 from annuities, 5–10, 5–11–12 assignment of income doctrine, 3–11–12, 5–8, B–2 business, 4–5, 5–2, 6–2, 9–2, 23–4, 23–19–23 character of, 4–5–6, B–3 common income items, 4–5 compensation and fringe benefits, 4–5, 5–2 deferred, 3–4–7, 5–31, B–4 discharge of indebtedness, 4–5, 5–20–21, 5–20n earned, 5–10, 5–14, B–5 effectively connected, 24–3, 24–9–10, B–5 excluded, 4–5 from flow-through entities, 5–14 foreign source, 24–3, 24–5, 24–6–7 imputed, 5–19–20, B–8 interest and dividends, 4–5, 5–2, 7–3n investment, 7–2, 22–6, 22–6n, B–8 nonbusiness, 23–4, 23–24, B–10 operating, 7–2, B–11 ordinary, 3–16, 3–19, 4–5, 4–6, 20–17–21 passive investment, 22–6, 22–6n, B–11 preferentially taxed, 4–6, 8–4, 8–4n, B–12 from prizes, awards, and gambling winnings, 5–16–17, 5–17n production of, 11–7 from property, 5–10–13 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 Income and loss allocations, for S corporations, 22–8 Income and loss baskets, 20–33 Income deferring methods, 16–3 Income effect, 1–19, B–8 Income exclusion provisions, 5–21–31 common exclusions, 4–5, 5–21–24 deferral provisions, 5–31 disability insurance, 5–30, B–5 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, 5–6, 9–29 cash method and, 3–10, 5–6–7, 9–29 SI-9 claim of right doctrine and, 5–7, 5–7n, B–3 constructive receipt doctrine and, 3–10, 3–10n, 5–7, B–4 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 statements, 17–4 Income taxes See also Federal income taxes; State income taxes accounting for, 17–2–6 calculation of, 4–10 complexity of, 1–22 defined, 17–4, B–8 foreign, 6–16 Income tax footnote disclosure, 17–28–30 Income tax planning See Tax planning strategies Income tax positions, accounting for uncertainty in, 17–23–28 Income tax provision process, 17–2–22 calculating deferred income tax expenses/ benefits, 17–22 computing current income tax expenses/ benefits, 17–11 current and deferred income tax expenses/ benefits, 17–6–15 ending balances in balance sheet deferred tax asset/liability accounts, 17–12–17 overview, 17–2–6 permanent difference adjustments, 17–6–7 temporary differences and tax carryforward amounts, 17–8–10 valuation allowance in, 17–18–21 Income tax treaties, 2–14, 24–15, 24–18 Incorporating businesses, 3–12–14, 3–13n Independent contractors, 8–22–24, 8–22n, B–8 Indirect conversions, 11–31, B–8 Indirect foreign income taxes, 24–22–24, 24–22n 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, D, D–1 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 common exclusions and deferrals, 4–5 comparison with corporate tax formula, 16–2 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 summary of, 4–24–26 tax credits, 4–11 tax prepayments, 4–11 Individual 401(k) plans, 13–28–30 Individual marginal tax rate, 15–10 www.downloadslide.com SI-10 Subject Index Individual retirement accounts (IRAs), 13–19–27 contribution limits, 13–20n defined, B–8 overview, 13–19 Roth, 5–21n, 13–19, 13–23–27, 13–34 SEP, 13–27–28, 13–29, B–14 SIMPLE, 13–27n spousal, 13–21, B–14 traditional, 13–19–23, 13–32–33 Individual tax formula See Individual income tax formula Indopco v Comm (1992), 9–6n Information matching program, 2–4, 2–5, B–8 Inheritances defined, 5–26, B–8 income exclusion provisions for, 4–5, 5–26–27 property, 11–3 Initial basis, 22–11 Initial public offering (IPO), 15–3–4, 15–4n, B–8 Injury-related exclusions, 5–29–30 “In lieu of” taxes, 24–22 Inside basis, 20–4, 21–7–8, 21–13, 21–27n, B–8 Installment sales deferral provisions for, 5–31 defined, B–8 exclusion from gross income, 4–5 gains ineligible for reporting, 11–34 gross profit percentage, 11–33 principles of, 11–32–34 Institutional shareholders, 15–8, 15–11, B–8 Insurance See also Health insurance; Life insurance accident, 12–25, B–7 mortgage, 6–17n, 14–13 Intangible assets See also Amortization accrual method for, 9–29 amortizable intangible asset summary, 10–36 capital expenditures and, 9–6, 9–6n cash method for, 9–29 cost recovery and, 10–2 defined, B–8 immediate expensing and, 10–19n Intangible personal property, 1–15, 24–10n Integrated transfer taxes, common features of, 25–2–4 Integrated wealth plans, 25–32–33 Interest continuity of, 19–26, B–4 from corporate and U.S Treasury bonds, 7–3–4, 7–3n dividends vs., 7–2–3 future, 25–6, B–7 as gross income, 4–5, 5–2 home-equity, 8–12 imputed, 5–20 for late payments, 2–3, 2–3n multinational transactions and, 24–7 municipal, 4–5, 5–21–22 portfolio income and, 7–2, 7–3–6 present, 25–6 qualified residence interest, 14–9, 14–13–14 terminable, 25–7 timing of payments and taxes, 7–5–6 uncertain tax positions and, 17–26–27 as unearned income, 5–10, 5–14, 9–20, 9–29 Interest expenses home-related debt, 14–8–15 investment, 7–25, 7–26–29, 8–12, B–8 as itemized deductions, 4–8, 6–17, 6–17n multinational transactions and, 24–13–14 Interest income, 7–3n Interim period effective tax rates, 17–32 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 persons as defined by, 19–5 as source of tax law, 2–11–12 Subchapter C, 15–20, 18–3n, 19–5, 19–5n Subchapter K, 20–2, B–15 Subchapter N, 24–2, 24–28 Subchapter S, 20–2, 22–2n, B–15 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, 2–11–12, 2–13, B–8 Internal Revenue Service (IRS) allocation method, B–8 appeals/litigation process, 2–6–7n, 2–6–9 assessment of tax deficiencies, 2–3–4 audit process, 2–4–9, 2–4n, 17–4 Circular 230, 2–23, 2–24–26, 2–26n, B–3 Exempt Organizations Select Check, 6–18n Statistics of Income Tax report, 15–7 website of, 2–18n, 5–14n, 5–25n whistleblower program, 2–5 International operations, planning for, 24–25–27 International supply chains, 24–32 International tax laws, proposals for change, 24–33 Internet sales, 1–15, 23–5, 23–7, 23–8 Interpretative regulations, 2–16, B–8 Interstate commerce, 23–4, B–8 Inter vivos transfers, 25–2 Intervivos transfers, B–8 Inventories accounting methods for, 9–21–23, 9–21n cost-flow methods for, 9–22–23 defined, 21–4, 21–4n manufactured within U.S and sold abroad, 24–11 substantially appreciated, 21–24–25, B–15 uniform capitalization and, 9–21–22 valuation allowances, 9–21n Inventory items, 21–3, 21–3n, B–8 Investment activities, 6–2–3, B–8 Investment advisory fees, 6–28 Investment expenses defined, B–8 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, 22–6, 22–6n, B–8 Investment interest expense, 7–25, 7–26–29, 8–12, B–8 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, B–8 Involuntary termination, of S corporations, 22–5–6 IPO (initial public offering), 15–3–4, 15–4n, B–8 IRAs See Individual retirement accounts IRC See Internal Revenue Code IRR (internal rate of return), 3–18n IRS See Internal Revenue Service IRS Form 211, 2–5 IRS Form 656, 2–6n IRS Form 870, 2–6 IRS Form 966, 19–33 IRS Form 1040 See also Schedule C, Profit or Loss from Business for AGI deductions on, 6–2n defined, 4–2 example of, 4–3–4, 4–25–26, 8–40, A–2–3 Schedule A, Itemized Deductions, 4–8, 6–13, 6–33, 14–8, A–4 Schedule B, 7–3n, 7–6n, 20–19n, 22–11n, A–5 Schedule D, 7–16, 7–19, 11–23, 20–19n, A–8–9 Schedule E, Rental or Royalty Income, 6–5, 8–17n, 14–21–22, 20–19n, 22–11n, A–12–13 Schedule SE, Self-Employment Tax, A–14–15 IRS Form 1099, 8–22n, 12–2 IRS Form 1116, 24–15 IRS Form 1120 apportionment of tax benefits and, 16–25n balance sheets and, 17–12n for calendar-year corporations, 17–3 complexity of, 17–11 compliance with, 16–25–28, 16–27n example of, A–19 liquidation and, 19–38 net operating losses and, 16–15 taxable income on, 9–2, 15–5 IRS Form 1139, 17–11n IRS Form 2120, 4–16 IRS Form 2220, 16–32 IRS Form 2553, 22–4, 22–4n, B–7 IRS Form 2555, 5–28 IRS Form 3115, 9–33, 10–17n, 20–14, 22–8 IRS Form 3903, 6–6n IRS Form 4562, 10–29–30, 10–37 IRS Form 4952, 7–27n IRS Form 5471, 24–31 IRS Form 5701, 17–11n IRS Form 6251, 8–9, 8–9n, 8–10 IRS Form 7004, 17–3n, 20–23, 22–28, B–7 IRS Form 8283, 6–23 IRS Form 8308, 21–3n IRS Form 8814, 8–7n IRS Form 8824, 11–29, 11–30 IRS Form 8832, 15–5, 24–26 IRS Form 8903, 9–12n IRS Form 8959, 8–17 IRS Form 8960, 8–6n IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, 25–26, 25–28, A–25–27 IRS Form 709, United States Gift (and GenerationSkipping Transfer) Tax Return, 25–4, 25–15–16, A–28–31 IRS Form 1065, U.S Return of Partnership Income, 9–2, 15–5, 20–23–25, 22–28, A–16–17, B–7 IRS Form 1118, Foreign Tax Credit Corporations, 24–15, 24–16–17 IRS Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, 8–37, 8–38n IRS Form 4626, Alternative Minimum Tax– Corporations, 16–39, 16–40 IRS Form 4797, Sales of Business Property, 11–21–22 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 www.downloadslide.com Subject Index IRS Form 8949, Sales and Other Dispositions of Capital Assets, 7–16, 7–17–18, A–10–11 IRS Form 1099-DIV, 2–5, 7–6 IRS Form 1120F, 24–3 IRS Form 1099-INT, 2–5 IRS Form 10-K, 17–1n, 17–3, 17–4, 17–32, 24–33 IRS Form M-1, 9–17n IRS Form 1040NR, 24–3 IRS Form 1099-OID, 7–3 IRS Form 10-Q, 17–1n, 17–32 IRS Form 1099-R, 13–5n IRS Form 1120S, U.S Income Tax Return for an S Corporation, 9–2, 15–5, 22–9, 22–9n, 22–27–29, A–20, B–7 IRS Form W-2 bonuses and, 5–7n defined, B–7 employee considerations and, 8–22n, 12–2, 12–10n example of, 12–3 information matching program and, 2–5 responsibilities for issuing, 5–8n withholdings and, 8–36 IRS Form W-4, 12–2, B–7 IRS Form W-2G, 5–17n IRS Form 1120X, 17–11n 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 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 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, 16–9–10, B–8 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, 6–23–26, 6–24n categories of, 4–8 charitable contributions, 4–8, 6–18–20n, 6–18–23 defined, B–8 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, 6–38–39 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, 20–2 Joint Conference Committee, 2–13 Joint-life annuities, 5–12 Jointly owned property, 25–19–20 Joint tenancy with right of survivorship, 25–6, 25–18, 25–19n, 25–20, B–8 Joint ventures, 21–9, 24–22, 24–23, B–7 Journal of Accountancy, 2–11 Journal of Taxation, 2–11 J.R Huntsman v Comm (1976 & 1988), 2–28 J.R Huntsman v Comm (1988 & 1990), 14–14n Judicial sources of tax law, 2–10, 2–14–15, 2–15n Jurisdictions income shifting across, 3–15–16 low-tax, 24–32 residence-based, 24–2–3, B–13 source-based, 24–2–3, B–14 variation of tax rates among, 3–11 K Keenan v Bowers (1950), 6–26 Keogh plans, 13–27n Kerns v Commissioner (2004), 18–15n Keyword searching, 2–19 Kickbacks, 9–5 Kiddie tax, 3–12n, 5–8n, 8–3n, 8–6–8, 8–28n, B–9 Kitchen, John, 15–20 Knittel, Matthew, 15–20 Kraft Foods, 19–25 L Lanco, Inc v Director, Division of Taxation (2006), 23–13n Last-in, first-out (LIFO) method, 3–6, 9–22–23, B–9 Last-in, first-out (LIFO) recapture tax, 22–22, 22–26, B–9 Last will and testament, 25–2, B–9 Late filing penalties, 2–3, 8–38–39, B–9 Late payment penalties, 2–3, 2–3n, 8–39 Law reviews, 2–11 Leasing property from another party, 9–25 Least aggregate deferral, 20–15, B–9 Legal classification of business entities, 15–2 Legislative grace, 4–7, B–9 Legislative regulations, 2–16, B–9 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 Levin, Carl, 16–11–12, 24–31n Liabilities deferred tax, 17–2, 17–28–30 payment, 9–24, 9–26, 19–13, B–11 payroll tax, 15–3n responsibility for, 15–3 sales and use tax, 23–4–5n, 23–7–8 shareholder, 19–12–13 state income taxes, 23–24 Life estates, 25–7, B–9 SI-11 Life insurance coverage, 5–24 as gift, 25–6 group-term, 12–21, 12–24–25, B–7 premiums, 9–6 proceeds, 4–5, 5–27, 5–27n Life insurance trusts, 25–33, B–9 Life tenants, 25–7 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, B–9 LIFO (last-in, first-out) recapture tax, 22–22, 22–26, B–9 Like-kind exchanges cost recovery basis for, 10–6 deferral provisions for, 5–31, 18–5 deferred (Starker), 11–26, 11–26n defined, B–9 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 Limited liability companies (LLCs) defined, B–9 legal classification of, 15–2, 20–2 loans made to, 20–5n rights, responsibilities, and legal arrangement of owners, 15–3–4, 15–3n self-employment tax and, 20–21, 20–21n Limited liability limited partnerships (LLLPs), 15–2–3n Limited liability partnerships (LLPs), 15–2–3n Limited partnerships (LPs), 15–2, 15–3–4n, 20–2, B–9 Liquidating corporations, 19–35–38 Liquidating distributions, 21–12–24 character and holding period of assets, 21–21–24 defined, B–9 determining basis in distributed property, 21–13–14 gain or loss recognition in, 21–13 outside basis greater than inside basis, 21–14–17 outside basis less than inside basis, 21–17–21 overview, 21–12 in partnerships, 21–9 S corporations and, 22–21 Liquidations corporate, 19–33–38 partial, 18–2, 18–28–29, B–11 Liquidation value, 20–10, B–9 Listed property, 9–11n, 10–24–25, B–9 Litigation, hazards of, 2–6 LLCs See Limited liability companies LLLPs (limited liability limited partnerships), 15–2–3n LLPs (limited liability partnerships), 15–2–3n 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 www.downloadslide.com SI-12 Subject Index Long-term capital gains and losses, 3–16, 4–6, 6–20, 7–10, B–9 Long-term care facilities, 6–15, 6–15n Look-back rule, 11–18–19, B Look-through rule, 21–5n Losses See also Casualty and theft losses assets sold at, 11–12–13 deductibility for business entities, 15–14–15 on disposition of business assets, 4–8, 6–6, 9–13 net operating, 15–14, 16–13–15, 16–13n, B–10 operating, 7–2 on rental property, 14–23, 14–25 taxable estate, 25–23 Loss harvesting, 7–24 Loss limitations, 20–29–33 at-risk, 20–30 income and loss baskets, 20–33 passive activity, 20–31–33 S corporations and, 22–13–15 tax-basis, 20–29–30 Lower of cost or market method, 9–21n LPs (limited partnerships), 15–2, 15–3–4n, 20–2, B–9 Lucas v Earl (1930), 3–12, 5–8n Lump-sum distributions, 13–20n Luxury automobiles, 3–19, 10–26–29, 10–27–28n, B–9 M MACRS See Modified Accelerated Cost Recovery System M adjustments, 16–25, 16–25n, 16–27–28, 16–27n Magdalin, William, 6–14 Majority interest taxable year, 20–15, B–9 Marginal tax rates, 1–5–7, 1–9–10, 3–8, 8–3, B–9 Margin Tax, 23–13, 23–25 Marital deductions, 25–4, 25–10–11, 25–23–24, B–9 Marketable securities, 21–11n Market discounts/premiums, 7–4, B–9 Marriage benefit/penalty, 8–3, 8–4, B–9 Married filing jointly (MFJ) defined, B–9 gross income thresholds (2017), 2–2 overview, 4–19 personal exemptions for, 4–12 standard deduction for, 4–9, 6–34, D–1 tax rate schedule for, D, D–1 Married filing separately (MFS) defined, B–9 gross income thresholds (2017), 2–2 overview, 4–19–20 standard deduction for, 4–9, 6–34, D–1 tax rate schedule for, D, D–1 Marvel Entertainment, 19–26 Material participation, 7–31, 20–32, 20–33 Maturity, defined, B–9 Maturity of bonds, 7–4 Maturity value, 7–2, B–9 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 Measurement, in uncertain tax positions, 17–24–25 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 Medicare tax AGI and, 4–11 defined, B–9–10 for employees, 6–9, 8–15–17 for individual shareholders, 15–12n objectives of, 1–12, 8–14–15 S corporations and, 22–15, 22–15n for self-employed individuals, 6–9, 8–17–21 tax base for, 1–13 Melone, Matthew A., 6–27 Memorandum decisions (U.S Tax Court), 2–10, 2–15n Mergers, 19–27–30, 19–32, B–10 MFJ See Married filing jointly MFS See Married filing separately Microsoft Corporation, 17–27 Mid-month convention, 10–17, 10–18, 10–42–43, B–10 Mid-point class life, 18–6 Mid-quarter convention, 10–9, 10–12–15, 10–40–41, B–10 Mileage rate, 9–9, 9–9n, 10–28n Mileage test for moving expenses, 6–7 Milliken, Roger, 25–2 Minimum distributions, 13–5, 13–9n, 13–14 Minimum tax credit, 8–14, 16–39, B–10 Miscellaneous itemized deductions, 6–26–32 defined, B–10 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, B–10 Mobil Oil Corp v Vermont Tax Commissioner (1980), 23–16, 23–16n Modified Accelerated Cost Recovery System (MACRS) defined, B–10 depreciation and, 10–6–7 half-year convention, 10–10, 10–14, 10–40 mid-quarter convention, 10–9, 10–14, 10–40–41 nonresidential real property mid-month convention, 10–43 recovery periods, 10–8–9, 10–24, 10–27 residential rental property mid-month convention, 10–42 tables, 10–40–43 Modified AGI, 5–17–18, 5–26n, 6–10, 9–12n, 20–22n 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 Mortgage payments, 5–15n 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 Ms, 16–25, 16–25n, 16–27–28, 16–27n Multinational transactions compensation and, 24–8 dividends and, 24–8 ethical considerations in, 24–12 interest and, 24–7 nexus, 24–2–3 nonresident taxation, 24–3 rents and royalties, 24–10 resident as defined for tax purposes, 24–4 U.S framework for taxing, 24–2–5 U.S source rules for gross income and deductions, 24–6–15 Multiple support agreements, 4–16 Multistate Tax Commission, 23–18n Multistate Tax Compact, Article IV, Division of Income, 23–24n Municipal bonds, 1–17, 3–16, 3–19, 3–20, 4–5, 5–21–22, B–10 Municipal interest, 4–5, 5–21–22 Mutual funds, 7–2, 7–2n, 7–8n, B–10 Myers, Linda M., 6–32n N National Bellas Hess, Inc v Department of Revenue of the State of Illinois (1967), 23–6, 23–6n National debt, 1–20 National Research Program (NRP), 2–4, 2–4n Natural resources, 10–2, 10–37–39 Necessary expenses See Ordinary and necessary expenses Negative basis adjustment, 21–29, B–10 Negative evidence, that valuation allowance is needed, 17–19 Negative income tax, 8–31 Nelson, Daniel, 12–5n Nelson, Susan, 15–20 Net capital gains and losses, 7–12–16, 7–20, 16–12–13, B–10 Net capital loss carryback/carryover, 16–12–13, B–10 Net earnings from self-employment, 8–17, B–10 Netflix, 18–22 Net investment income, 7–27–29, B–10 Net investment income tax alternative minimum tax and, 8–14n computation of, 8–5–6 defined, B–10 partnerships and, 20–22 on portfolio investments, 7–29 on reclassified dividends, 3–15n on S corporations, 22–16, 22–16n Net long-term capital gains and losses, 7–12–16, B–10 Net operating loss carryback/carryover, 16–14, 16–16, B–10 Net operating losses (NOLs), 15–14, 16–13–15, 16–13n, B–10 Net passive investment income, 22–24, B–10 Net short-term capital gains and losses, 7–12–16, B–10 Net taxation, 24–3 Net unearned income, 8–6–7, B–10 Net unrealized built-in gain, 22–22, B–10 Newsletters, 2–11 Nexus click-through, 23–7 defined, 23–2, 24–2, B–10 economic, 23–13–14, B–5 multinational transactions, 24–2–3 sales and use tax, 23–5–7 state income tax, 23–10–14, 23–16n, 23–19 90-day letters, 2–6, B No-additional-cost services, 5–24, 12–26, B–10 “No business purpose” motives, 19–12 NOLs (net operating losses), 15–14, 16–13–15, 16–13n, B–10 Nonacquiescence, 2–17, B–10 www.downloadslide.com Subject Index Nonbusiness bad debt, 7–10n Nonbusiness income, 23–4, 23–24, B–10 Noncash payments, 9–17 Noncash property distributions corporate tax consequences of, 18–12 effect on E&P, 18–13 fair market value of, 18–11–13 formula for, 18–11 liabilities, 18–12 Noncorporate shareholders, 19–34 Nondeductible personal expenses, 14–27n Nondeductible terminable interests, 25–11, B–10 Nondomiciliary businesses, 23–2, 23–8, B–10 Nonincome-based taxes, 23–13 Non-like-kind property (boot), 11–27–29 Nonmanaging LLC members, 20–21n Non (net) income-based taxes, 23–25 Nonperformance based compensation, B–10 Nonqualified deferred compensation (NQDC), 13–15–19 defined, B–10 employee considerations, 13–16–18 employer considerations, 13–16, 13–18 overview, 13–2–3 qualified defined contribution plans vs., 13–15–16, 13–19 from Roth 401(k) accounts, 13–13–14 Nonqualified preferred stock, 19–6n Nonqualified stock options (NQOs), 12–10–13, 16–9–12, 17–7n, B–10 Nonqualified use provision, 14–6 Nonrecaptured net Section 1231 losses, 11–18, B–10 Nonrecognition provisions, 5–21, 11–34–35, B–10 Nonrecognition transactions See also Like-kind exchanges defined, B–11 installment sales, 11–32–34 involuntary conversions, 11–29–32 overview, 11–20 related-party loss disallowance rules, 11–35–36 Nonrecourse debt, 20–5, 20–5n, 20–6, B–11 Nonrefundable credits, 8–24, 8–33, B–11 Nonrefundable personal credits, 8–25–30, 8–35, 8–35n Nonresidence (rental property), 14–21, 14–23, 14–25 Nonresident aliens, 24–4, B–11 Nonresidential property, 10–16, 10–43, 11–10n Nonresidents, U.S taxation of, 24–3 Nonservice partners, 20–10, B–11 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, B–2, B–6 common forms of, 12–24 defined, 12–24, B–11 de minimis, 5–24, 12–24, 12–28, 22–17, B–4 dependent care benefits, 5–24, 12–26 discrimination among employees regarding, 5–23n educational assistance, 5–24, 12–26, B–5 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, B–12 qualified moving expense reimbursements, 5–24, 12–28–29, B–12 qualified transportation, 5–24, 12–28, B–13 summary of, 12–31 tax planning with, 12–30–31 working condition fringe benefits, 5–24, 12–28, B–17 Nontaxable liquidating distributions, 19–38 Nontaxable stock distributions, 18–18 Nontaxable transaction, special basis rules for, 10–3n Nontax characteristics of business entities, 15–2–4 Northwestern Cement Co v Minnesota (1959), 23–10–11, 23–10n Not definitely related deductions, 24–12, B–11 “Nowhere” income, 23–19n NQDC See Nonqualified deferred compensation NQOs (nonqualified stock options), 12–10–13, 16–9–12, 17–7n, B–10 NRP (National Research Program), 2–4, 2–4n O OAA (Other Adjustments Account), 22–19n OASDI (Old Age, Survivors, and Disability Insurance) tax See Social Security tax Obama, Barack, 24–33 OECD (Organization for Economic Cooperation and Development), 24–33 Office examinations, 2–6, B–11 OID (original issue discount) rules, 7–3, 7–3n, B–11 Old Age, Survivors, and Disability Insurance (OASDI) tax See Social Security tax 150 percent declining balance, 10–7, 10–10, 10–29n Open facts, 2–17 Operating distributions, 21–9–12, 22–17–21, B–11 Operating income/losses, 7–2, B–11 Operating partnerships, cash distributions in, 20–29 Option attribution, 18–24 Option exercise, 12–9, B–11 Ordinary and capital gains tax rates, 3–8 Ordinary and necessary expenses, 6–4, 9–2n, 9–3, B–11 Ordinary assets, 11–7, B–11 Ordinary business income (loss), 20–17–21, 22–9, B–11 Ordinary income, 3–16, 3–19, 4–5, 4–6, 20–17–21 Ordinary income property, 6–19, 6–21, 11–8n, 16–15, B–11 Organizational expenditures, 9–6, 10–31, 10–32–35, B–11 Organizational form of businesses, 19–2 Organization costs, 20–12–13, B–11 Organization for Economic Cooperation and Development (OECD), 24–33 Organization for International Investment, 24–2n Original basis, 10–10 Original cost of assets, 10–6 Original issue discount (OID) rules, 7–3, 7–3n, B–11 Other Adjustments Account (OAA), 22–19n Outbound transactions, 24–2, B–11 Outside basis allocation of, 21–11, 21–11n defined, B–11 as greater than inside basis of distributed assets, 21–14–17 as less than inside basis of distributed assets, 21–17–21 partnerships and, 20–4, 20–13, 20–29, 21–7, 21–7n for sellers, 21–3, 21–3n Outslay, E., 16–28n Overpayments, 2–3n, 2–5, 4–11 Ownership test, 14–5 SI-13 P PAL (passive activity loss) limitation, 20–31–33, 22–15 PAL (passive activity loss) rules, 7–30–31, 7–30n, 20–31, 20–31n, 22–15, B–11 Parent-subsidiary controlled groups, 16–24, B–11 Partial depreciation recapture, 11–14n Partial liquidations, 18–2, 18–28–29, B–11 Parties to the reorganization, 19–26 Partnership accounting accounting methods for, 20–16 accounting periods in, 9–16, 9–16n, 20–14–15 allocating partners’ shares of income and loss, 20–22 compliance issues, 20–23–27 guaranteed payments and, 20–19, 20–19n net investment income tax and, 20–22 ordinary business income (loss) and, 20–17–21 overview, 20–13–14 reporting results of partnership operations, 20–17–27 required year-ends in, 20–14–15 self-employment taxes and, 20–20–21, 20–21n separately stated items and, 20–17–21 tax elections and, 20–14 Partnership agreements, 15–2, B–11 Partnership books, 20–3n Partnership compliance issues, 20–23–27 Partnership distributions liquidating distributions, 21–12–24 operating, 21–9–12 Partnership formations, 20–3–13 capital interests and, 20–3, 20–10 holding period in partnership interest, 20–7 initial tax basis and, 20–4–7 organization, start-up, and syndication costs, 20–12–13 profits interests and, 20–3, 20–3n, 20–11 property contributions, 20–3–9 rules for allocating partnership debt to partners, 20–5 service contributions, 20–9–11 summary of outside basis and holding period, 20–13 tax basis and holding period in contributed property, 20–7–9 Partnership interests acquisitions of, 20–13 allocating partners’ shares of income and loss, 20–22 basics of sales of, 21–2–8 buyer and partnership issues, 21–7–8 cash distributions in operating partnerships, 20–29 defined, B–11 ethical considerations and, 21–7 holding period in, 20–7 partner’s adjusted tax basis in, 20–27–29 seller issues, 21–3–5 varying interest rule, 21–8 Partnerships accounting methods for, 20–16 accounting period for, 9–16, 9–16n, 20–14–15 business income reporting for, 9–2 deduction of losses from, 5–14n due dates and extensions for, 2–3 as flow-through entities, 5–14 limitations on accruals to related parties in, 9–28 publicly traded, 20–2n, 20–17 state income taxes and, 23–9 tax classification and characteristics, 15–5, 15–6, 15–16–17 Passenger automobiles, 10–27n www.downloadslide.com SI-14 Subject Index Passive activity, defined, 7–30–31, 20–32, B–11 Passive activity income and losses, 7–29–34 defined, B–11 income and loss categories, 7–31–32 loss limitations, 15–14 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 income or loss, 20–33 Passive activity loss (PAL) limitation, 20–31–33, 22–15 Passive activity loss (PAL) rules, 7–30–31, 7–30n, 20–31, 20–31n, 22–15, B–11 Passive category income, 24–20, B–11 Passive income, net investment income tax on, 7–34 Passive investment companies (PICs), 23–15 Passive investment income (PII), 22–6, 22–6n, B–11 Passive investments, 7–2, B–11 Patents, 9–6, 10–31, 10–35–36, 10–36n PATH (Protecting Americans from Tax Hikes) Act of 2015, 7–11n, 10–18, 10–22 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, 9–27, 19–13, B–11 Payroll, 23–21–23 Payroll tax liabilities, 15–3n PCs (professional corporations), 15–2–3n Pearce, James, 15–20 Penalties for accountants, 2–24, 2–26–27 civil, 2–26, 2–27, B–3 criminal, 2–26, B–4 for early withdrawal of savings, 6–9 ethical considerations and, 16–28 failure-to-file, 2–3 late payment, 2–3, 2–3n, 8–39 nondeductibility of, 9–5 taxes vs., 1–4 uncertain tax positions and, 17–26–27 underpayment, 2–3, 2–3n, 8–36–38, B–16 Percentage depletion, 10–38, 10–38n, B–11 Per diem rate, 9–8n Permanent book–tax differences, 16–4–5, B–11 Permanent differences, 17–6–7, 17–22 Permanent establishments, 24–18, B–11 Permissible accounting method, 9–30, B–11 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, B–11, D–1 Personal expenses, 3–16, 9–7, 14–27n, B–11 Personal holding companies, 15–11, B–12 Personal holding company tax, 15–11, B–12 Personal injury payments, 5–29 Personal property See also Tangible personal property calculating depreciation for, 10–9–10 defined, 1–15, B–12 depreciation conventions, 10–7, 10–9 depreciation method, 10–7 depreciation recovery period, 10–8–9, 10–8n intangible, 1–15, 24–10n like-kind exchanges and, 11–24 mid-quarter depreciation, 10–9, 10–12–15 purchased, gain or loss from, 24–10 source of income rules for, 24–10n Personal property tax defined, 1–15, B–12 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 depreciation of, 14–8 exclusion of gain on sale of, 4–5, 5–22, 5–22n, 14–4–8 home sale exclusion in unforeseen circumstances, 14–6–7 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 service corporations (PSCs), 15–8n Personal-use assets casualty and theft losses on, 6–23–26 as charitable contributions, 6–20 losses on sale of, 4–6, 7–21 Personal-use property, 10–7, 11–3–5 Persons, defined, 19–5, 24–2n, B–11 Phase-outs, 6–32, 6–38–39, B–12 Physical presence, 23–6, 24–4 PICs (passive investment companies), 23–15 PII (passive investment income), 22–6, 22–6n, B–11 Pixar, 19–30 Placed in service assets, 10–23–24 PLLCs (professional limited liability companies), 15–2–3n Points, 14–13–15, B–12 Political contributions, 9–5, 25–6 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 defined, 20–33 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, B–12 Positive basis adjustment, 21–29, B–12 Postsecondary education, 6–10n Post-termination transition period (PTTP), 22–14, 22–14n, 22–21, 22–21n, B–12 Practical Tax Strategies (journal), 2–11 Pratt, J., 16–3n Preference items, in corporate alternative minimum tax, 16–33 Preferentially taxed income, 4–6, 8–4, 8–4n, B–12 Preferential tax rate, 4–6, 8–4, 8–4n, 8–6, B–12 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, 9–6, 9–17–18, 9–29 Prepaid interest income, 9–29 Prepaid rental income, 9–20 Preparer tax identification number (PTIN), 2–26 Prepayments, 8–36–38 Present interest, 25–6, B–12 Present value of money, 3–3–4, B–12 Previously taxable income (PTI), 22–19n Previously taxed capital, 21–27n Primary tax authorities, 2–9, 2–10, B–12 Principal partners test, 20–15, B–12 Principal residence, 14–2–3, B–12 Prisinzano, Richard, 15–20 Private activity bonds, 16–33, B–12 Private letter rulings, 2–10, 2–16, B–12 Private nonoperating foundations, 6–21–22, B–12 Private operating foundations, 6–21, B–12 Prizes, income from, 5–16–17, 5–17n Probate/probate estate, 25–17, B–12 Procedural regulations, 2–16, B–12 Production of income, 11–7, B–12 Professional corporations (PCs), 15–2–3n Professional journals, 2–11 Professional limited liability companies (PLLCs), 15–2–3n Profit-motivated activities, 6–3 Profits interests, 20–3, 20–3n, 20–11, B–12 Progressive tax rate structure, 1–5, 1–9–10, 1–21, B–12 Prohibited interests, 18–25 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 like-kind exchanges and, 11–25 ordinary income property, 6–19, 6–21 partnership formations and, 20–3–9 state income taxes on, 23–21–23 Property dispositions, 11–2–6 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 review of taxation of, 19–2–3 summary of formulas for gains/losses, 11–6 Property distributions as basis reductions, 20–27n corporate dividends, 18–3 S corporations and, 22–20 taxation of, 18–2–3 Property factors, 23–21–23 Property payments, 5–15 Property taxes, 1–15, 14–15–16, 14–16n Property transactions adjusted tax basis in, 19–3 amount realized in, 19–3 gain/loss realized in, 19–3 general tax rules for, 19–2–3 income deferral and, 3–7 tax-deferred transfers to corporations, 19–4–19 Property type, tax provisions by, 14–3 Property use, 9–11 Proportional tax rate structure, 1–5, 1–9, 1–10–11, 1–21, B–12 Proposed regulations, 2–10, 2–15, B–12 Proration method, 21–8, 21–8n Protecting Americans from Tax Hikes (PATH) Act of 2015, 7–11n, 10–18, 10–22 PSCs (personal service corporations), 15–8n PTIN (preparer tax identification number), 2–26 PTI (previously taxable income), 22–19n PTTP (post-termination transition period), 22–14, 22–14n, 22–21, 22–21n, B–12 Public Law 86-272, 23–10–12, 23–10n, 23–25, B–12 Publicly traded corporations, 18–27–28, B–12 Publicly traded partnerships, 20–2n, 20–17 Punitive damages, 5–29 Purchased goodwill, 16–8 Purchased personal property, gain or loss from sale of, 24–10 Purchase method, 19–21n www.downloadslide.com Subject Index Q QPAI (qualified production activities income), 9–12, B–12 QTIPs (qualified terminable interest properties), 25–11n, 25–24n, B–13 Qualified debt, 14–11–12, B–12 Qualified dividends, 4–6, 4–6n, 7–6, 7–6n, B–12 Qualified educational expenses, 6–9, 6–11–12, B–12 Qualified educational loans, 6–9, 6–10, B–12 Qualified employee discounts, 5–24, 12–27, B–12 Qualified exchange intermediaries, 11–25n Qualified family farming corporations, 16–3n Qualified foreign corporations, 7–6n Qualified fringe benefits, 5–23, 5–24, 6–8, 22–16n Qualified moving expense reimbursements, 5–24, 12–28–29, B–12 Qualified nonrecourse financing, 20–30, B–12 Qualified personal service corporations, 16–3n Qualified production activities income (QPAI), 9–12, B–12 Qualified replacement property, 11–31, B–12 Qualified residence, 14–9, B–12 Qualified residence interest, 14–9, 14–13–14, B–12 Qualified retirement plans annuities from, 5–11n classification of, 13–3 contributions as for AGI deduction, 4–8 deferral provisions for, 5–31 defined, B–13 individually managed, 13–19 nonqualified vs., 13–19 overview, 13–2–3 restrictions on, 13–2 Qualified small business stock, 7–10, B–13 Qualified terminable interest properties (QTIPs), 25–11n, 25–24n, B–13 Qualified trade or business, 18–28 Qualified transportation fringe benefits, 5–24, 12–28, B–13 Qualifying charities, 16–15n Qualifying child age test for, 4–13 custodial/noncustodial parent considerations, 4–14n defined, 4–12, B–13 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, B–13 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, B–13, D, D–1 Questions of fact, 2–19, B–13 Questions of law, 2–19, 2–21, B–13 Quick reference sources, 2–11 Quill Corporation, Petitioner v North Dakota (1992), 23–6, 23–6n, 23–7, 23–13n R Racing horses, 6–29n Railroad retirement benefits, 5–17n R&E (research and experimentation) expenditures, 10–31, 10–35, 24–14, B–13 Real estate exchanges, 11–25n Real estate tax, 1–5, 4–8, 6–16 Realization principle, 5–3, 19–2, B–13 Realized gain or loss (on disposition), 11–5–6, B–13 Realized income, 4–2, 4–5, B–13 Real property applicable convention/method, 10–17 deductions for, 10–2 defined, 1–15, B–13 depreciation and, 10–7, 10–16–18 depreciation tables, 10–17–18 gain or loss from sale of, 24–10 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, B–13 Reattribution rule, 18–23 Recapture, 11–11, 21–4n, B–13 See also Depreciation recapture Recognition See also Income recognition ASC 740 on, 17–23–24 of deferred gain/loss, 19–3 defined, B–13 gain and loss, 20–3 of gross income, 5–4 Recognized gain or loss (on disposition), 11–6, B–13 Record keeping, 9–11–12 Recourse debt, 20–5, 20–5n, B–13 Recovery of amounts previously deducted, 5–5 Recovery periods (depreciable life), 10–6, 10–8–9, 10–8n, B–13 Recurring item exceptions, 9–26–27, B–13 Redisch v Commissioner (2015), 3–19 Refinancing, 14–9–10, 14–14, B–13 Refundable personal credits, 8–31–33, B–13 Registered tax return preparers, 2–25n, 2–26 Regressive tax rate structure, 1–5, 1–10–11, 1–21, B–13 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, B–13 Rehabilitation credit, 8–34 Related-parties capital losses on sales to, 7–22, 9–13n defined, 19–35–36 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, 3–14n, B–13 Relationship tests, 4–13, 4–15 Relative, qualifying, 4–12, 4–15–18 Remainder/remainderman, 25–7, 25–8, B–13 Renkemeyer, Campbell & Weaver, LLP, et al v Commissioner (2011), 20–21n 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 SI-15 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 source of income rules for, 24–10 as unearned income, 5–10, 9–19–20, 9–29 Reorganizations, 19–26–32, 19–27n, B–13 Republican Party ideology on taxes, 1–3 Requisite service period, 16–10, B–13 Research activities, credits for increasing, 8–34 Research and experimentation (R&E) expenditures, 10–31, 10–35, 24–14, B–13 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, 2–22 Reserve accounting method, 22–3n Residence-based jurisdiction, 24–2–3, B–13 Residence test, for qualifying child, 4–13 Resident, as defined for U.S tax purposes, 24–4 Resident aliens, 24–4, B–13 Residential energy credit, 8–34 Residential rental property, 10–16, 10–42 Restricted stock, 12–15–18 defined, B–13 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 Reteif Goosen v Commissioner (2011), 24–9 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, 11–6n, B–13 Revenue Act of 1913, 1–12 Revenue Procedure 87-56, 10–8–9, 10–8n, 10–24n, 11–24 Revenue Procedure 87-57, 10–9, 10–10, 10–16 Revenue Procedure 2016-23, 10–27n Revenue procedures automobiles and, 10–27n citations, 2–10 defined, 2–16, B–13 immediate expensing and, 10–19–20n Revenue recognition See Income recognition Revenue rulings, 2–10, 2–16, B–13 Reverse acquisitions, 19–27 Reverse hybrid entities, 24–26, B–13 www.downloadslide.com SI-16 Subject Index Reverse triangular Type A mergers, 19–29–30, 19–32, B–13 Reversion, 25–7, B–14 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, B–14 Roth IRAs, 13–23–27 contribution limits, 13–23, 13–34 defined, B–14 distributions, 13–24–25 exclusion of earnings on, 5–21n overview, 13–19 rollover from traditional IRA, 13–25–26 traditional IRAs vs., 13–26–27 Roth 401(k) plans, 13–11–15, B–14 Routine maintenance, 10–4, 10–5, 10–5n Royalties for AGI deductions and, 4–8, 6–5, 6–5n defined, B–14 as gross income, 4–5, 5–2 as itemized deductions, 6–28n portfolio investments and, 7–2 source of income rules for, 24–10 as unearned income, 5–10 S Safe-deposit box fees, 6–28 Safe-harbor provisions, 8–36, 8–37n, 10–5, 10–5n, 22–3, B–14 Salary and wages, 12–2–7 See also Income deductibility of salary payments, 12–3–7 defined, B–14, B–17 employee considerations, 12–2 employer considerations, 12–3–7 facts and circumstances test for, 12–4–5, B–6 withholding taxes from, 12–2 Sale of personal residence, 4–5, 5–22, 5–22n, 14–4–8 Sales tax defined, B–14 for e-commerce sales, 23–7 as itemized deductions, 4–8 liability, 23–4–5n, 23–7–8 nexus, 23–5–7 process for, 23–3–4, 23–3–4n proportional structure of, 1–9, 1–10–11, 1–10n regressive structure of, 1–10–11 tax base for, 1–5, 1–14–15 Salvage values, 10–6 Same-day sales, 12–11, 12–11n, B–14 Same-sex married couples, 4–20 Sarbanes-Oxley Act of 2002, 17–1 Saunders, Laura, 7–24, 22–16 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, B–17 Savings Incentive Match Plans for Employees (SIMPLE) IRAs, 13–27n Schedule A, Itemized Deductions, 4–8, 6–13, 6–33, 14–8, A–4 Schedule B, 7–3n, 7–6n, 20–19n, 22–11n, A–5 Schedule C, Profit or Loss from Business business income and, 9–2, 9–32 defined, B–14 education and, 6–26n example of, A–6–7 gambling winnings/losses and, 6–32n home office deductions and, 14–28–29 rental income and, 6–5n retirement accounts for self-employed individuals and, 13–28–29 self-employment tax and, 8–17, 8–17n sole proprietorships and, 15–5 trade or business expenses, 6–4 utilities and, 14–27n Schedule D, 7–16, 7–19, 11–23, 20–19n, A–8–9 Schedule E, Rental or Royalty Income, 6–5, 8–17n, 14–21–22, 20–19n, 22–11n, A–12–13 Schedule K, 20–24–25, 22–28, B–14 Schedule K-1 example of, 20–26, 22–29, A–18, A–21 income from flow-through entities and, 5–14 partnerships and, 20–24, 20–27 S corporations and, 22–9, 22–9n, 22–28 Schedule L, 16–28, 17–12n Schedule M-1, 16–25, 16–25n, 16–27–28, 16–27n, B–14 Schedule M-2, 16–28 Schedule M-3, 16–25, 16–25n, 16–27–28, 16–27n, A–22–24, B–14 Schedule M adjustments, 16–25, 16–25n, 16–27–28, 16–27n, B–14 Schedule O, 16–25n Schedule SE, Self-Employment Tax, A–14–15 Schedule UTP, Uncertain Tax Position Statement, 17–27–28 Scholarships, 5–25 S corporations, 22–2–31 accounting methods for, 22–3n, 22–8 accounting periods for, 9–16, 9–16n, 22–8 built-in gains tax, 22–4n, 22–22–23, 22–23n business income reporting for, 9–2 C corporations vs., 22–17–19, 22–30–31 debt basis and, 22–13, 22–13n deduction of losses from, 5–14n defined, 22–2, B–14 distributions, 22–17–21 due dates and extensions for, 2–3 elections, 22–3–4 estimated taxes and, 22–28 ethical considerations and, 22–5 excess net passive income tax and, 22–22, 22–24–26 excess of passive investment income, 22–6 failure to meet requirements, 22–5 filing requirements for, 22–28 as flow-through entities, 5–14, 9–2n formations, 22–2 fringe benefits, 22–16–17, 22–16n income and loss allocations, 22–8 involuntary termination, 22–5–6 LIFO recapture tax and, 22–22, 22–26 limitations on accruals to related parties in, 9–28 liquidating distributions, 22–21 loss limitations, 22–13–15 net investment income tax, 22–16, 22–16n operating issues, 22–8–17 property distributions, 22–20 qualification requirements, 22–2 reelections, 22–7–8 self-employment income and, 22–15–16 separately stated items, 22–9–10 shareholder’s basis, 22–11–12, 22–11n short tax years, 22–6–7 specific identification method for, 22–7n state income taxes and, 23–9 stock in, 22–2n tax classification and characteristics, 15–5, 15–5n, 15–6, 15–16–17, 20–2 tax return for, 22–27–28 termination of, 22–5–8 voluntary terminations, 22–5 Scripto, Inc v Carson, Sherriff, et al (1960), 23–6n Secondary tax authorities, 2–9, 2–11, B–14 SEC (Securities and Exchange Commission), 9–17, 17–1n, 17–2, 17–29–30 Section 263A costs, B Section 481 adjustment, 9–33, B Section 1231 assets, 11–6–10, 20–7, 21–4, 21–25n, B Section 1231(b) assets, 6–20n Section 704(b) capital accounts, 20–8–9, B Section 83(b) election, 12–17–18, B Section 291 depreciation recapture, 11–14, 11–34, B Section 338 election, 19–25, B Section 1031 exchange, 11–24, 11–24n Section 179 expense, 10–18–24 bonus depreciation, 10–22–24, 10–23n choice of assets for, 10–21 deductible expense, 10–20 defined, B 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, 11–7–8 character of, 11–6–9 creation of gain through cost recovery deductions, 11–11 defined, 4–5n depreciation recapture and, 11–9–10, 11–11–12 gain due to cost recovery deductions and asset appreciation, 11–11–12 look-back rule, 11–18–19, B netting process, 11–19 ordinary assets, 11–7 partnerships and, 21–25 recognition of, 11–10n unrecaptured gain for individuals, 11–15, 11–15n Section 338(h)(10) election, 19–25, B Section 1231 look-back rule, 11–18–19, B Section 162(m) limitations, 12–5, 12–13, 13–18, B Section 1245 property, 11–10–13, 11–10n, 11–34, B Section 1250 property defined, B depreciation recapture for real property, 11–13–14 installment reporting and, 11–34 unrecaptured gains, 7–10, 11–18n, 21–5n unrecaptured gains for individuals, 11–14–15 Section 197 purchased intangibles, 10–31–32, 10–31n, B Section 7520 rate, 25–7, 25–7n, B Section 1239 recapture provision, 11–16, 11–16n Section 863 sales, 24–11 Section 1244 stock, 19–18–19 Section 351 tax deferral computing tax basis of stock received, 19–9 control test of property and, 19–6–8 disqualified property and, 19–36 ethical considerations and, 19–7 on property exchanged for stock, 19–6 requirements of, 19–5–8 shareholders, impact on, 19–9–12 tax basis of property received, 19–15 tax consequences of, 19–9–12 transferee corporation and, 19–14–16 on transfer of property to corporations, 19–5–6 Secured loans, 14–9, B–14 Securities, defined, B–14 Securities and Exchange Commission (SEC), 9–17, 17–1n, 17–2, 17–29–30 Securities Exchange Act of 1934, 12–5n www.downloadslide.com Subject Index Security deposits, 9–20 Self-created goodwill, 16–8n Self-created patents, 10–35–36 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 income, S corporations and, 22–15–16 Self-employment taxes, 8–17–24 alternative minimum tax and, 8–14n calculating, 6–9n computation of, 8–17–21 deductions for, 4–8, 6–9 defined, 4–10, B–14 filing requirements, 6–35n, 8–17n partnership accounting and, 20–20–21, 20–21n Social Security and Medicare taxes, 1–13 Senate, as source of tax law, 2–10, 2–12, 2–13 Separately stated items, 20–17–21, 22–9–10, B–14 Separate-return states, 23–15 Separate taxpaying entities, 15–5 Separate tax returns, 23–15, B–14 SEP (simplified employee pension) IRAs, 13–27–28, 13–29, B–14 Sergio Garcia v Commissioner (2013), 24–10 Serial gifts, 25–30, B–14 Series EE bonds, 5–26, 7–4, 7–4n, 7–8n Series I bonds, 7–4, 7–4n Service partners, 20–10, B–14 Services income from, 5–10 partnership formations, 20–3–9 Settlement statement, 14–13–14, 14–32–33, B–14 Shareholders after-tax earnings distributed to, 15–8–11 bequeathing stock at death, 15–13n complete liquidation, impact on, 19–34–35 corporate, 15–10 distributions to, 15–8n foreign, 15–11 institutional, 15–8, 15–11, B–8 liabilities, 19–12–13 noncash property distributions to, 18–11–13 noncorporate, 19–34 reducing shareholder-level tax, 15–13–14 rights, responsibilities, and legal arrangements among, 15–3–4 Section 351 deferral and, 19–9–12 tax consequences of receiving stock distributions, 18–18–19 tax-exempt, 15–11 Shareholder’s basis, in S corporations, 22–11–12, 22–11n SHOP (small business health options program), 5–24n Shortfall tax detriment, 16–10 Short tax years, 22–6–7 Short-term capital gains and losses, 4–6, 7–10, B–14 Sickness and injury-related exclusions, 5–29–30 Sideways attribution, 18–24 Signaling, 18–19 SIMPLE (Savings Incentive Match Plans for Employees) IRAs, 13–27n Simple trusts, 25–29n, B–14 Simplified employee pension (SEP) IRAs, 13–27–28, 13–29, B–14 Simplified method for interest expenses, 14–11n Single filing status defined, B–14 gross income thresholds (2017), 2–2 individual income tax formula and, 4–21 standard deduction for, 4–9, 6–34, D–1 tax rate schedule for, D, D–1 Single-life annuities, 5–12 Single-member LLCs, 15–5, B–14 Sin taxes, 1–4, 1–4n, B–14 Sixteenth Amendment, 1–12, 2–11 Small Business Act of 2010, 9–11n Small business corporations, 19–19 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 defined, B–14 for employees, 6–9, 8–15–17 objectives of, 1–12, 8–14–15 regressive structure of, 1–10 S corporations and, 22–15 for self-employed individuals, 6–9, 8–17–21 tax base for, 1–12–13 withholdings in, 6–14n Social Security Trust fund, 13–2n Social Security Worksheet, 5–33 Software companies, 23–8n Sole proprietorships accounting period for, 9–16 business income reporting for, 9–2 defined, B–14 income shifting and, 3–12 legal classification of, 15–2 organizational expenditures and, 10–32n responsibility for liabilities, 15–3 with self-employment income, 13–27n tax classification and characteristics, 15–5, 15–6, 15–16–17 unincorporated entities taxed as, 20–2n Solicitation, 23–11–12, B–14 Sorkin, Andrew Ross, 17–20 Source-based jurisdiction, 24–2–3, B–14 Source of deduction rules, 24–6–7, 24–12–15 Source of income rules compensation for services and, 24–8 dividends and, 24–8 interest and, 24–7 inventory manufactured within and sold outside U.S., 24–11 for rents and royalties, 24–10 sale of real or purchased property, 24–10 Sourcing receipts, 23–20 Special allocations, 20–22, B–14 Special apportionment rules, 24–13–15 Special basis adjustments, 21–26–29 defined, B–14 for dispositions, 21–27–28 for distributions, 21–28–29 overview, 21–26–27 Special use valuation, 25–21n Specific identification method, 7–9, 9–22, 22–7n, B–14 Split gifts, 25–4n, 25–10, B–14 Spot rate, 24–22, B–14 Spousal IRA, 13–21, B–14 SI-17 SSTS (Statements on Standards for Tax Services), 2–23, 2–24, 2–25, B–15 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 defined, 4–8, 6–34, B–15 exemptions and, 6–36–37 filing status and, 4–9, 4–11, 6–34, D–1 purpose of, 6–35 Standard mileage rate, 6–27, 9–9 Stare decisis, 2–15, B–15 Starker exchanges (deferred like-kind exchanges), 11–26, 11–26n, B–4 Start-up costs, 9–6, 10–31, 10–34–35, 20–12–13, B–15 State and local taxes See also State income taxes defined, B–9, B–15 excise, 1–15 as itemized deductions, 4–8, 6–16 overview, 1–14, 23–2–4 property, 1–15 revenue generated from, 1–14 sales and use, 1–14–15, 23–3–4, 23–3–4n, 23–5–8 unemployment, 1–13, 1–13n State death taxes, 25–23 State income taxes, 23–9–26 for business income, 23–19–23 dividing state tax base among states, 23–18–24 economic nexus, 23–13–14 entities included, 23–15–16 exceptions and modifications to, 1–14, 1–14n flow-through entities and, 23–9 liability, 23–24 nexus, 23–10–14, 23–16n, 23–19 on nonbusiness income, 23–24 non (net) income-based taxes, 23–25 process for, 23–4 progressive structure of, 1–9 on property, 23–21–23 Public Law 86-272 and, 23–10–12, 23–10n separate tax returns, 23–15 state taxable income, 23–16–17 tax base for, 1–5 unitary tax returns, 23–15–16 Statements on Standards for Tax Services (SSTS), 2–23, 2–24, 2–25, B–15 State Street Bank’s Proxy Statement (2015), 12–6 State taxable income, 23–16–17 State tax base, 23–4, B–15 State unemployment taxes, 1–10, 1–10n Static forecasting, 1–18, B–15 Statute of limitations, 2–3–4, B–15 Statutory mergers, 19–27–28, 19–32 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, B–15 Step-up in tax basis, 25–31–32 Stewardship expenses, 24–13n Stock restricted, 12–15–18 in S corporations, 22–2n tax basis in Section 351 transaction, 19–9 Stock, T., 16–3n Stock basis, 22–11, 22–11n www.downloadslide.com SI-18 Subject Index Stock dividends annual returns from, 7–7n defined, B–15 distribution of, 18–3, 18–17 nontaxable, 18–18 taxable, 18–18–19 Stock-for-stock acquisitions, 19–30–31, B–15 Stock options, 12–8–15 accounting methods and, 12–14–15 ASC 718 and, 12–14n, 12–18n, 16–10, 16–10n, 16–12, 17–9 backdating, 12–14 book–tax differences and, 16–9–12 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, 16–9–10, B–8 nonqualified, 12–10–12, 12–13, 16–9–10, 16–11–12, 17–7n, B–10 sample timeline for incentive and nonqualified options, 12–9 Stock ownership tests, 18–21 Stock redemptions, 18–19–28 as after-tax profits, 18–2 complete redemption, 18–24–25 defined, B–15 form of, 18–20–21 not essentially equivalent to a dividend, 18–25–26 overview, 18–19–20 reduction of shareholder’s ownership interest and, 18–21–26 substantially disproportionate, 18–21–24 tax consequences to distributing corporation, 18–26–27 trends by publicly traded corporations, 18–27–28 Stock split, 18–17, B–15 Straight-line method, 10–7, 10–10, 10–24, 10–29n, 10–34 Strike price, 12–8 Structural tax rate, 17–31, B–15 Student loans, 5–21n, B–15 Subchapter C, 15–20, 18–3n, 19–5, 19–5n Subchapter K, 20–2, B–15 Subchapter N, 24–2, 24–28 Subchapter S, 20–2, 22–2n, B–15 Subpart F income, 24–28, 24–29–31, B–15 Subscriptions, investment-related, 6–28 Subsequent events, in uncertain tax positions, 17–26 Subsidiaries, 24–22, 24–27 Substance-over-form doctrine, 3–19–20, B–15 Substantial authority standard, 2–24, B–15 Substantial basis reduction, 21–27, B–15 Substantial built-in loss, 21–27, B–15 Substantially appreciated inventory, 21–24–25, B–15 Substantially disproportionate stock redemptions, 18–21–24 Substantial presence test, 24–4 Substituted basis, 19–9, 19–27, 22–11, B–15 Substitution effect, 1–19, B–15 Sufficiency of tax systems, 1–18, B–15 Supply chains, international, 24–32 Support tests, 4–13, 4–15–16 Surviving spouses, 2–2, 4–9, 4–20–21 Syndication costs, 20–12–13, 20–12n, B–15 T Tacks, defined, B–15 Tangible assets, 9–6, 9–29, 10–2 Tangible personal property bonus depreciation, 10–22–24, 10–23n choice of assets for, 10–21 deductions for, 6–20, 10–2 defined, 1–15 depreciation of, 10–9–10, 10–12 immediate expensing of, 10–18–24, 10–19n limits on immediate expensing, 10–20 Taxable corporate acquisitions, 19–23–25 Taxable estate, 25–22–24, B–16 Taxable fringe benefits, 12–20–23 defined, 12–20, B–16 employee considerations for, 12–20–22 employer considerations for, 12–22–23 group-term life insurance, 12–21 summary of, 12–31 Taxable gifts, 25–9–12, 25–25, B–16 Taxable income defined, 4–2, B–16 expected future income exclusive of reversals/ carryforwards, 17–19 income excluded from, 18–5 in prior carryback years, 17–19 state, 23–16–17 summary of, 6–37–38 tax base for, 1–5 tax planning strategies for, 17–19 timing strategies for, 3–4–10 Taxable liquidating distributions, 19–35–37 Taxable stock distributions, 18–18–19 Taxable temporary differences, 17–9, B–16 Tax accounting balance sheets, 17–12, 19–22, B–15 Tax Adviser (journal), 2–11 Tax-aligned international supply chains, 24–32 Tax avoidance, 3–20, B–15 Tax avoidance transactions, 19–12 Tax basis adjusted, 19–3, B–1 alternative minimum tax, 8–8 corporate acquisitions and, 19–24 for cost recovery, 10–3 defined, 1–5, B–15 loss limits, 7–29 of property received, 19–15 return of capital principle and, 5–4–5, 5–13 sale proceeds from assets and, 5–4–5, 7–8 of shareholder’s in stock, 19–4 step-up in, 25–31–32 Tax-basis limitation, 20–29–30, 22–13 Tax benefit rule, 5–5, B–15 Tax brackets, 1–5, 8–2, B–2, B–15 Tax capital accounts, 20–8, B–15 Tax carryforwards, 17–4, B–15 Tax Commissioner of West Virginia v MBNA America Bank, N.A (2006), 23–13n Tax contingency reserve, B–15 Tax credits, 8–24–35 See also Foreign tax credits (FTCs) adoption expense, 8–34 application sequence, 8–34–35 business, 8–33, B–2 child tax credit, 4–11, 8–25–27, 8–25n, 8–34 defined, 4–11, B–16 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 minimum, 8–14, 16–39, B–10 nonrefundable personal, 8–25–30, 8–35, 8–35n overview, 8–24–25 partnerships and, 20–17n premium, 8–34 refundable personal, 8–31–33 for S corporations, 22–9n summary of, 8–34 use tax credits, 1–15 Tax deductions See Deductions Tax deferrals, 19–5–8 See also Section 351 tax deferral Tax-deferred corporate acquisitions, 19–26–32 judicial principles underlying, 19–26–27 summary of, 19–32 type A asset, 19–27–30 type B stock-for-stock, 19–30–31 Tax deferred income, 4–5 Tax elections, 20–14 Taxes See also Estimated taxes; Filing requirements; Tax law; Tax planning strategies; specific types of taxes calculation of, 1–5 defined, 1–4, B–15 earmarked, 1–4, B–5 excise, 1–13, 1–15, B–6 explicit, 1–16, B–6 financial decision-making and, 1–2 flat, 1–5, 1–9, B–6 franchise, 23–2n, 23–9n graduated, 1–5, 1–6, B–7 implicit, 1–16–17, 3–16, B–8 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, B–14 transfer, 1–13–14 types of, 1–11–17 value-added, 1–11–12, B–17 Taxes (journal), 2–11 Tax evasion, 2–26, 3–20–21, B–16 Tax-exempt income, 4–5, 9–6 Tax-exempt shareholders, 15–11 Tax-favored assets, 1–16–17 Tax gap, 3–21 Tax havens, 24–27, B–16 Tax home, 24–4n 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, 3–2–22 ASC 740 on, 17–19 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 www.downloadslide.com Subject Index overview, 3–2 tax avoidance vs tax evasion, 3–20–21 timing, 3–2–11 wealth planning and, 25–29–30 Tax preferences, 1–21 Tax preparation fees, 6–29 Tax prepayments, 4–11 Tax professionals See Accountants Tax rates applicable, 7–12, B–1–2 average, 1–7, 1–9–10, B–2 cash, 17–32, B–3 constant, 3–4–7 corporate, D–1 defined, 1–5, B–16 effective, 1–8, 17–7, 17–31–32 jurisdictional variation of, 3–11 kiddie tax, 3–12n, 5–8n, 8–3n, 8–6–8, 8–28n, B–9 marginal, 1–5–7, 1–9–10, 3–8, 8–3, B–9 measuring, 1–5–8 ordinary and capital gains, 3–8 preferential, 4–6, 8–4, 8–4n, 8–6, B–12 regular, 8–2–8 structural, 17–31, B–15 Tax rate schedules, 4–10, 4–10n, 8–2–3, B–16, D, D–1 Tax rate structures progressive, 1–5, 1–9–10, 1–21, B–12 proportional, 1–5, 1–9, 1–10–11, 1–21, B–12 regressive, 1–5, 1–10–11, 1–21, B–13 Tax Reform Act of 1986, 16–33, 24–23n 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, 2–22 services for, 2–11 understanding facts in, 2–17 Tax shelters, 7–30, 20–16n, B–16 Tax summary, 8–39–40 Tax systems, 1–17–23 certainty in, 1–22, B–3 convenience of, 1–22, B–4 economy of, 1–22 equity in, 1–20–21, B–6 income vs substitution effects, 1–19–20 overview, 1–17 static vs dynamic forecasting, 1–18 sufficiency of, 1–18, B–15 trade-offs in, 1–23 Tax tables, 4–10, 4–10n, 8–3, 8–3n, B–16 Tax treaties, 2–14, 24–15, 24–18, B–16 Tax violations See Penalties Tax withholdings, 4–11, 8–36, 12–2, 24–3, B–17 Tax year, 9–15, B–16 Technical advice memorandums, 2–10, 2–16, B–16 Temporary book–tax differences, 16–4, 16–6–8, 16–17, B–16 Temporary differences common temporary differences, 17–9 deductible, 17–9–10 defined, 17–8 expenses/losses that are deductible, 17–8–9 future reversals of, 17–18, 17–19 identification of, 17–9–10 revenue/gains that are taxable, 17–8, 17–9 taxable, 17–9 Temporary regulations, 2–10, 2–15, B–16 Tenancy by the entirety, 25–19n, B–16 Tenancy in common, 25–19, B–16 Tentative minimum tax (TMT), 8–9, 8–13–14, 16–38–39, B–16 10-year look-forward rule, 18–25 Terminable interest, 25–7, 25–24n, B–16 Termination, of S corporations, 22–5–8 Testamentary transfers, 25–2, B–16 Testamentary trusts, 22–2n Theft losses See Casualty and theft losses Third-party intermediaries, 11–25, 11–25n, B–16 30-day letters, 2–6, B Thomas A Curtis, M.D., Inc case (1994), 18–15n Throwback rule, 23–19–20, 23–19n, B–16 Tiebreaking rules, 4–14, 24–18 Time basis for compensation, 24–8 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 overview, 3–2–3 present value of money and, 3–3–4 separate accounting methods for E&P, 18–5–6 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, 16–38–39, B–16 Tobacco, taxes on, 1–4, 1–4n, 1–13, 1–15 Topical tax services, 2–19, B–16 Trademarks, 10–36 Trade or business activities, 6–3, 9–2, 20–32, 20–32n, B–16 See also Business activities Trade or business expenses, 6–4 See also Business expenses Trade show rule, 23–12, B–16 Traditional IRAs, 13–19–23 deductible contributions, 13–20–21 deduction limitations, 13–32–33 defined, B–16 distributions, 13–23 nondeductible contributions, 13–22–23 overview, 13–19 rollover to Roth IRA, 13–25–26 Roth IRAs vs., 13–26–27 Traditional 401(k) plans, 13–11, 13–13, 13–14–15, B–16 Training horses, 6–29n Transactions subject to, 19–5–8 Transferee corporation, tax consequences to, 19–14–16 Transfer of property to corporations, 19–5–6 Transferors, 5–26 Transfer pricing, 3–16 Transferred basis property, 19–14n Transfer taxes, 1–13–14, 25–2–4, B–16 Transfer tax planning techniques, 25–30–32 Travel and transportation expenses deductions for, 9–9–10, 9–9–10n, 9–12n defined, B–16 for employees, 6–27, 6–27n for medical purposes, 6–15, 6–15n Treasury bonds, 1–20, 7–3–4, 7–3n, B–16 SI-19 Treasury notes, 7–3, 7–3n, B–16 Treaties, tax, 2–14, 24–15, 24–18 Triangular mergers, 19–29–30, 19–32, B–7, B–13 “Trilogy of the Rings,” 6–25–26 Triple i agreements, 18–25, 18–27n, B–16 Trump, Donald, 20–32 Trustees, 25–7, B–16 Trusts bypass, 25–29, B–2 complex, 25–29n, B–3 defined, 25–7, 25–29, B–16 filing requirements for, 2–2 life insurance, 25–33, B–9 simple, 25–29n, B–14 in wealth planning, 25–32–33, 25–32n 12-month rule, 9–17–18, 9–18n, B 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 Type A reorganizations, 19–27–30, 19–32 Type B stock-for-stock reorganizations, 19–30–31, 19–32 Type C reorganizations, 19–32 Type D reorganizations, 19–32 Type E reorganizations, 19–32 Type F reorganizations, 19–32 Type G reorganizations, 19–32 U ULCs (unlimited liability companies), 24–26 Uncertain tax positions (UTPs) ASC 740 application to, 17–24–26 defined, 17–11, B–16 disclosures of, 17–27 ethical considerations and, 17–28 interest and penalties, 17–26–27 Microsoft Corporation disclosure of, 17–27 overview, 17–23–24 Schedule UTP, 17–27–28 subsequent events, 17–26 Underpayment penalties, 2–3, 2–3n, 8–36–38, B–16 Unearned income annuities as, 5–11–12 defined, 5–10, 5–10n, B–16 dividends as, 5–10, 5–14 interest as, 5–10, 5–14 net, 8–6–7, B–10 property dispositions as, 5–13 rents and royalties as, 5–10, 9–19–20, 9–29 Unearned service revenue, 9–20 Unemployment taxes, 1–10, 1–10n, 1–12, 1–13, 1–13n, B–16 Unfavorable book–tax differences, 16–4, 17–8–9, 17–9n, B–17 Unforeseen circumstances, 14–6–7 UNICAP (uniform cost capitalization) rules, 9–21–22, B, B–17 Unified credit, 1–13–14, 25–2–3, B–17 Unified transfer tax rates, 25–3 Uniform capitalization, 9–21–22 Uniform cost capitalization (UNICAP) rules, 9–21–22, B, B–17 Uniform Division of Income Tax Purposes Act of 1957, 23–18n Uniforms and special clothing, 9–7, 9–7n Unincorporated entities, 15–5, 15–5n, 20–2n Unitary tax returns, 23–15–16, B–17 United States v Boulware (2009), 18–15n United States v Davis (1970), 18–25n United States v Dean (2013), 9–13 www.downloadslide.com SI-20 Subject Index Unlimited liability companies (ULCs), 24–26 Unmarried taxpayers, filing status for, 2–2, 4–9, 4–21, 4–23–24 Unrealized receivables, 21–3, 21–25n, B–17 Unreasonable (excess) compensation, 18–15 Unrecaptured Section 1250 gains, 7–10, 11–14–15, 21–5n, B–17 Unrecaptured Section 1231 losses, 11–18 Unrecognized tax benefits (UTBs), 17–27, B–17 Unrecovered costs of annuities, 5–12n Unreimbursed employee business expenses, 6–3 Upstream acquisitions, 19–27 U.S Bureau of Economic Analysis, 24–2, 24–2n U.S Circuit Court of Appeals citations, 2–10 defined, B–17 geographic boundaries for, 2–7–8, 2–9 as source of tax law, 2–15 U.S Constitution, 1–12, 2–11, 2–12, B–17 U.S Court of Federal Claims in appeals process, 2–6–7, 2–8 citations, 2–10 defined, B–17 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 defined, B–17 as source of tax law, 2–15 U.S President, tax law authority of, 2–13, 2–14 U.S savings bonds, 5–26, 7–3, 7–4–5, 7–4n, B–17 U.S Supreme Court on Affordable Care Act provisions, 1–4 in appeals process, 2–8 citations, 2–10 defined, B–17 on income tax, 1–12 Internal Revenue Code and, 2–14, 2–14n stare decisis and, 2–15 U.S Tax Court allocation method, B–16 in appeals process, 2–6–7, 2–7n, 2–8 citations, 2–10 defined, B–17 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 defined, B–17 for e-commerce sales, 23–7 liability, 23–4n, 23–7–8 nexus, 23–5–7 process for, 23–3–4, 23–3–4n tax base for, 1–15 Use test, 14–2, 14–5 UTBs (unrecognized tax benefits), 17–27, B–17 UTPs See Uncertain tax positions V Vacation homes, 14–18–21 Valuation estate tax and, 25–21 gift tax and, 25–6–8 gross estate, 25–21 of remainders and other temporal interests, 25–6–8 special use, 25–21n Valuation allowance defined, B–17 determining need for, 17–18 expected future taxable income, 17–19 future reversals of temporary differences, 17–18, 17–19 negative evidence that allowance is needed, 17–19 taxable income in prior carryback years, 17–19 tax planning strategies and, 17–19 Value-added taxes, 1–11–12, B–17 Value of remainder interest, 25–7–8 Varying interest rule, 21–8 Vehicles See Automobiles Vertical equity, 1–21, B–17 Vesting defined benefit plans and, 13–4 defined contribution plans and, 13–7–8 graded, 13–4, B–7 stock options and, 12–8, 16–9 Vesting date, 12–8, 12–8n, 12–10, B–17 Vesting period, 16–10, B–17 Vesting requirements, 20–10n Virginia Tax Review (University of Virginia School of Law), 2–11 Visteon Corporation, 18–14 Voluntary revocations, 22–5 Voluntary termination, of S corporations, 22–5 Voss v Comm (2015), 14–13 Voting power, 19–7, 19–7n, 19–35 Voting stock, 19–7, 19–30 Voting trusts, 22–2n W Wages See Salary and wages Walmart’s Proxy Statement (2015), 12–23 Walt Disney Company, 12–32, 19–26, 19–30 Warranties, 23–12 Wash sales, 7–22, B–17 Watson, P.C v U.S (2012), 22–16 Ways and Means Committee (House of Representatives), 2–10, 2–12, 2–13 The Wealth of Nations (Smith), 1–17n Wealth planning, 25–29–33 generation-skipping tax, 25–2, 25–29 income tax considerations, 25–29–30 integrated wealth plans, 25–32–33 serial gifts and, 25–30 step-up in tax basis and, 25–31–32 transfer tax planning techniques, 25–30–32 Weatherford International, 17–3 Welch v Helvering (1933), 9–3n Wethekam, Marilyn A., 23–20 Weyerhaeuser, 10–2, 10–3, 10–24 Wherewithal to pay, 5–3, B–17 Whistleblower program, 2–5 Widow/widowers, 4–9, 4–20–21, B–13, D, D–1 William F Bruecher III case (2005), 18–15n William H Carpenter case (1966), 6–25 William Wrigley Jr Company, 19–25, 23–11–12, 23–11n Willing-buyer, willing-seller rule, 25–4 Windfall tax benefit, 16–10, 17–7n Wisconsin Department of Revenue v William Wrigley, Jr Co (1992), 23–11–12, 23–11n Withholdings, 4–11, 8–36, 12–2, 24–3, B–17 Woodward v Comm (2009), 2–11 Workers’ compensation, 5–29 Working condition fringe benefits, 5–24, 12–28, B–17 Work opportunity credit, 8–34 Writ of certiorari, 2–8, 23–14, B–17 X Xilinx Inc v Commissioner (2005), 17–26 Y Yang, Jue-Ya, 25–5 Z Zero-coupon bonds, 7–3, B–17 0/15/20 percent category, 7–12–16 Zuckerberg, Mark, 16–11–12 ... Manager; and Sue Culbertson, Senior Buyer xx Changes in Taxation of Individuals and Business Entities, 2018 Edition For the 2018 edition of McGraw-Hill’s Taxation of Individuals and Business Entities, ... 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... ­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