The Fundamentals of Federal Taxation Problems and Materials

Preface and Acknowledgments Part I: Basic Structure of the Income Tax Chapter 1 · Introduction I. Problems II. Overview A. Tax Policy 1. Fairness 2. Efficiency 3. Neutrality B. Tax Expenditures C. Structure of Current Income Tax System Computational Overview D. Tax Reference Resources and Authorities 1. Internal Revenue Code 2. Treasury Regulations 3. IRS Rulings and Procedures 4. Case Law 5. Legislative History Tax Research Caveats E. The Structure of This Book and How to Use It III. Materials Mayo Foundation v. United States Chapter 2 · Gross Income I. Assignment II. Problems III. Overview A. The Definition of Gross Income 1. The Realization Requirement 2. Statutory Exclusions from Gross Income 3. Long-Standing Administrative Practices B. Gross Income May Be Realized in Any Form C. A Note on “Basis” D. Impact of Obligations to Repay IV. Materials Commissioner v. Glenshaw Glass Co. Cesarini v. United States Old Colony Trust Co. v. Commissioner V. Related Matters Chapter 3 · Gains and Losses from Dealings in Property I. Assignment II. Problems III. Overview A. Sale or Other Disposition B. Computation of Gain or Loss Realized Gain Realized Loss Realized 1. Amount Realized 2. Adjusted Basis C. “Recognition” of Realized Gain or Loss D. Impact of Liabilities in Property Transactions 1. General Framework 2. Specialized Aspects of Debt in Property Transactions IV. Materials Philadelphia Park Amusement Co. v. United States Crane v. Commissioner V. Related Matters Chapter 4 · Gifts and Inheritances I. Assignment II. Problems III. Overview A. General Exclusionary Rule for Gifts and Inheritances—§ 102(a) 1. Exclusion for Inter Vivos Gifts 2. Exclusion for Bequests, Devises, and Inheritances 3. Policy Reasons Behind Section 102(a) B. Statutory Limitations on the Exclusion—§ 102(b) and § 102(c) C. Basis of Property Received by Gift, Bequest, Devise, or Inheritance 1. Property Acquired by Gift 2. Property Acquired by Inheritance 3. Basis and Tax Planning D. Part Sale, Part Gift Situations IV. Materials Commissioner v. Duberstein Wolder v. Commissioner V. Related Matters Chapter 5 · Discharge of Indebtedness I. Assignment II. Problems III. Overview A. “Contested Liability” or “Disputed Debt” Exception B. Bankruptcy and Insolvency Exceptions C. Debt Discharge Outside the Scope of Debt Discharge Rules D. Discharge of Recourse Debt in Property Transactions E. Tax Treatment of the Lender IV. Materials United States v. Kirby Lumber Co. Preslar v. Commissioner V. Related Matters Chapter 6 · Fringe Benefits I. Assignment II. Problems III. Overview A. The Major Exclusions Under Section 132 1. No Additional Cost Services and Qualified Employee Discounts 2. Working Condition and De Minimis Fringe Benefits B. Meals or Lodging for the Employer's Convenience C. Employment Related Payments from Third Parties D. Employer Provided Health Care Benefits E. The Strange Cases of Frequent Flyer Miles, Free Meals and Other Untaxed Benefits IV. Materials J. Grant Farms, Inc. v. Commissioner Charley v. Commissioner V. Related Matters Chapter 7 · Business and Investment Expense Deductions I. Assignment II. Problems III. Overview A. The Main Provisions B. Some Limitations C. Section 162(a)—General Principles 1. Ordinary and Necessary 2. What Is an “Expense”? 3. Carrying On 4. Trade or Business D. Substantiation E. Section 162(a)(1)—Reasonable Salaries F. Section 162(a)(2)—Travel Expenses 1. Where Is Home? 2. Commuting Expenses 3. The Sleep or Rest Rule 4. Temporary Reassignments G. Section 280E—The Curious Case of Legalized Marijuana H. Section 212—Investment Expenses IV. Materials Welch v. Helvering Jenkins v. Commissioner Henderson v. Commissioner V. Related Matters Chapter 8 · Capital Expenditures I. Assignment II. Problems III. Overview A. Section 263(a) 1. In General 2. Distinguishing Deductible Expenses from Nondeductible Capital Expenditures a. Case Law b. Administrative Rulings c. Treasury Regulations 3. Capitalization Rules Governing Tangible Property a. Amounts Paid to Acquire Tangible Property b. Amounts Paid to Construct Tangible Property c. Amounts Paid to Sell Tangible Property d. Amounts Paid to Defend or Perfect Title to Tangible Property e. Amounts Paid to Improve Tangible Property 4. Capitalization Rules Governing Intangible Assets a. Amounts Paid to Acquire Intangible Property b. Amounts Paid to Create Intangible Property c. Transaction Costs B. Section 263A IV. Materials Midland Empire Packing Co. v. Commissioner Mt. Morris Drive-In Theatre Co. v. Commissioner V. Related Matters Chapter 9 · Depreciation and Amortization I. Assignment II. Problems III. Overview A. Depreciation of Tangible Property 1. Applicable Recovery Period 2. Applicable Depreciation Method Determining the Straight-Line Percentage 3. Applicable Convention 4. Example of ACRS Depreciation B. Bonus Depreciation 1. Section 179 Planning Pointer 2. Section 168(k) C. Amortization of Intangible Property IV. Materials Simon v. Commissioner Revenue Procedure 87-56 (Excerpt) Revenue Procedure 87-57 (Excerpt) V. Related Matters Chapter 10 · Deductible Personal Expenses: Casualty and Theft Losses I. Assignment II. Problems III. Overview A. A Look at the Tax Treatment of Business, Investment, and Personal Losses B. The Personal Casualty Loss Deduction C. Rationale for the Deduction D. Proof of Causation E. Measuring the Loss 1. Effect of Reimbursements 2. Examples F. Restrictions on the Deduction 1. The $100 Threshold 2. The Ten Percent of Adjusted Gross Income Threshold G. Adjustments to Basis for Casualty Loss Deduction and Reimbursements IV. Materials Chamales v. Commissioner Blackman v. Commissioner V. Related Matters Chapter 11 · Other Deductible Personal Expenses: Taxes, Interest, Charitable Gifts, Moving Expenses, and Medical Expenses I. Assignment II. Problems III. Overview A. Qualified Residence Interest B. State and Local Taxes C. Charitable Contributions D. Moving Expenses E. Medical Expenses IV. Materials Revenue Ruling 87-106 Revenue Ruling 2003-57 V. Related Matters Chapter 12 · The Deduction Hierarchy: Adjusted Gross Income, Taxable Income, the Standard Deduction, and the Personal Exemptions I. Assignment II. Problems III. Overview A. Itemized Deductions versus the Standard Deduction B. Miscellaneous Itemized Deductions Getting to Taxable Income C. Personal and Dependency Exemptions 1. Qualifying Child a. Tie Breakers b. Children of Divorced Parents 2. Qualifying Relative 3. Phase Out Rules IV. Materials Form 1040 Form 8332 V. Related Matters Chapter 13 · Timing Rules and Related Principles I. Assignment II. Problems III. Overview A. Introduction B. The Cash Method 1. Income under the Cash Method a. The Doctrine of Cash Equivalence and the Related Principle of Economic Benefit b. The Doctrine of Constructive Receipt 2. Deductions under the Cash Method a. Prepayment of Expenses b. The Special Rule for Interest Expenses C. The Accrual Method 1. Income under the Accrual Method a. Prepayments 2. Deductions under the Accrual Method a. Inventory Accounting D. Principles Applicable to Both the Cash Method and the Accrual Method 1. The Claim of Right Doctrine 2. The Tax Benefit Rule 3. The Ancillary Effects of Paying Expenses with Services or Appreciated Property IV. Materials Ames v. Commissioner Schlude v. Commissioner V. Related Matters Chapter 14 · Ordinary Tax Rates and Taxpayer Classification I. Assignment II. Problems III. Overview A. Introduction Computing a Final Tax Liability B. The Rate Structure for Ordinary Income 1. The Basic Rates 2. The Principle of Progressivity C. Taxpayer Classifications 1. Marital Status 2. Surviving Spouse 3. Head of Household D. Alternative Minimum Tax IV. Materials Revenue Procedure 2015-53 (Excerpt) V. Related Matters Chapter 15 · Tax Credits I. Assignment II. Problems III. Overview Computing a Final Tax Liability A. Non-Refundable Credits 1. The Dependent Care Credit 2. The Child Tax Credit 3. The Hope Scholarship Credit and the Lifetime Learning Credit B. Refundable Credits 1. The Credit for Withholding on Wages 2. The Earned Income Credit C. Ordering Rules IV. Related Matters Chapter 16 · First Review Problem Part II: Characterization of Gains and Losses from Property Chapter 17 · Capital Gains and Losses I. Assignment II. Problems III. Overview A. The Mechanics of Capital Gains Net Capital Gain Net Long Term Capital Gain Net Short Term Capital Loss 1. The Sale or Exchange Requirement 2. The Capital Asset Requirement a. Inventory and Inventory-Like Property—Section 1221(a)(1) b. Trade or Business Property—Section 1221(a)(2) c. Self-Created Copyrights and Similar Property— Section 1221(a)(3) d. Accounts Receivable for Service or Inventory— Section 1221(a)(4) e. Federal Publications—Section 1221(a)(5) f. Hedging Transactions—Section 1221(a)(7) g. Supplies Used in a Trade or Business—Section 1221(a)(8) 3. The Holding Period Requirement 4. Special Characterization Provisions 5. Determining the Appropriate Capital Gains Rate on “Net Capital Gain” B. The Mechanics of Capital Losses IV. Materials Bynum v. Commissioner Williams v. McGowan V. Related Matters Chapter 18 · Quasi-Capital Assets I. Assignment II. Problems III. Overview A. Transactions to Which Section 1231 Applies B. The Mechanics of Section 1231 C. Recapture of “Net Ordinary Loss” D. Summary Section 1231 Checklist IV. Materials Wasnok v. Commissioner V. Related Matters Chapter 19 · Recapture of Depreciation I. Assignment II. Problems III. Overview A. Recapture under Section 1245 for Certain Depreciable Property 1. An Overview 2. The Statutory Mechanics a. Amount Recaptured as Ordinary Income b. Meaning of “Section 1245 Property” c. Meaning of “Disposed Of” B. Recapture under Section 1250 for Certain Depreciable Realty C. Characterization under Section 1239 IV. Materials Revenue Ruling 69-487 V. Related Matters Chapter 20 · The Charitable Contribution Deduction I. Assignment II. Problems III. Overview A. Introduction B. The Structure of the Code: Sluices and Gates 1. Defining Terms 2. Section 170(e) 3. Sections 170(b)(1)(A) & (B) 4. Section 170(b)(1)(C) 5. Section 170(b)(1)(D) The Charitable Deduction Summarized C. Gifts of Intellectual Property: Section 170(m) D. Bargain Sales to Charities E. Substantiation F. Tax Policy and the Charitable Deduction G. Tax Planning and the Charitable Deduction IV. Materials Sklar v. Commissioner V. Related Matters Chapter 21 · Second Set of Review Problems Part III: Real Estate Taxation Chapter 22 · Residential Real Estate I. Assignment II. Problems III. Overview A. Home Office Deductions B. Vacation Home Deductions 1. Use as a Residence 2. Deductible Expenses and Their Limits C. Exclusion of Gain on Sale of Residence 1. Ownership and Use Requirements 2. One Sale Every Two Years Limitation 3. Amount of Exclusion 4. Principal Residence 5. Tax Planning